By on November 18, 2009

The lurking presence...

Looks like GM may have done some creative accounting after all – at least according to Swedish Government and their consulting firm KPMG. As we’ve reported the last couple of days, Saab’s rescue has been hanging by a thread due to questions around the company’s financial situation prior to the start of the financial crisis. Saab needs the EU to approve the Swedish Government’s guarantee of an EIB loan to Koenigsegg group if the deal is going to go through. If Saab, during the summer of 2008 – when the financial crisis started – were not in sound financial condition, the EU cannot, will not, approve Swedish government’s guarantees to the EIB loan, and the loan will not be granted. And reports from di.se yesterday almost laid that possibility to rest, with reports that GM had lost $ 5.100,- on each Saab-car sold during the last 8 years. Now, as commentator dlfcohn and others at ttac, as well as several commentators at di.se have pointed out, creative accounting can be useful in major corporates i.e to avoid taxes in tax-heavy countries. This, apparently (at least according to Swed.gov’t/KPMG) was the case with GM/Saab.

Consulting firm KPMG has been commisioned by the Swedish Government to go through Saab’s finances, and examine the cash-flow and sales. The consolidated report, from which the government has produced an 80-page document to the EU, concludes that Saab was not in any financial trouble during summer of 2008, due partly to GM having infused capital into the company. Saab themselves has apparantly also helped document that they were in fact in good financial health mid 2008.

Sources from within Saab have told automotorsport.se that GM has never been interested in reporting taxabale gains in Sweden. Revenues from US sales were never declared in Sweden, but rather went straight to GM. A number of components (including engines) had much higher internal prices than Saab’s own in-house-produced components to benefit other areas with lower tax laws. Saab’s financing company has not been included in Saabs accounts, and the list goes on. Clearly, argues the Swedish government, Saab was as healthy as it could be considering it was rigged by GM to show no profit in Sweden.

If the EU-commision accepts this report, and agrees following their own investigation, they have two months to make a decision to Saab’s fate. Commentators believe the conclusion will be positive, and that it will arrive before the end of this year.

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15 Comments on “Swedish Government: Saab’s Books Were Cooked...”


  • avatar
    John Horner

    Will we ever know the truth? The Swedish Government wants the answer to be that, yes, Saab was a financially healthy company in 2008. KPMG is very good at justifying pre-determined answers when hired as a consultant. What would have been surprising would have been for KPMG (on behalf of the Swedish Government) to come back and say that, yes indeed, Saab was a financial basket case in 2008 before the Great Recession hit. Raise your hands if you think Saab was a viable stand alone company in 2008.
     
     

  • avatar
    Ingvar

    Does anybody know what GM’s long-term plan was with the Saab acquisition? I have said it all along that Saab isn’t a brand that is a viable option for short term equity investors. the only possible owner is a major car maker with a really long-term goal, and money to spare to pay for losses, perhaps, like in GM’s case, for twenty years straight, without even seeing some hope for a gain. GM could use Saab to leverage tax deductions through its empire. What could Koenigsegg possibly gain, even if they are playing with other peoples money? The point is, Saab is and has never been in a sound financial situation, it has never been a stand alone going concern.  Twenty years straight with losses for GM, before that, twenty years straight with losses for the Wallenberg family.

    • 0 avatar

      I think GM’s motivation was to have Saab be their near-luxury brand, to compete with BMW, Lexus, Acura, and Infiniti, much like Ford tried to use Volvo. The logic doesn’t seem to have been any deeper than, “We need a premium European brand! They’re European, and kind of pricey, I guess they’ll do.”
       
      What GM and Ford don’t seem to have analyzed closely was that being pushed up into the territory of the 3-Series, C-Class, and Audi 90/A4 was really not doing Volvo and Saab any favors. As upper-middle-class family cars, they had found a niche for people who wanted something a little classier than an Accord or a Scorpio, but who couldn’t stretch to the German brands. The Saab 900/9-3 made sense when it was less expensive than a 3-Series BMW, but going head to head was a pretty uneasy proposition. Unfortunately, that was precisely what GM wanted them to do — a nasty gap between expectation and reality.

  • avatar
    Robert.Walter

    Two questions:
    - Who provides the bridge capital until the end of the year?
    - And after SAAB becomes free, it will be an interesting to see if they are healthy after they have to amortize the ED&T involved in developing unique componentry and platforms.

  • avatar
    TrailerTrash

    I don’t understand.
    The deals has not gone through.
    GM still owns Saab.
    So, what’s with all the leaking of internal information?
    I thought that anybody interested in purchasing a business MUST sign documents of non-disclosure.
    That way they cannot use any information gained in the examination against you IF the purchase does not go through.

  • avatar
    Ingvar

    @TrailerTrash: You want government money? You open the books…

  • avatar
    dlfcohn

    RE John Honer’s Comments:
    An old joke goes something like this:
    A major company was looking to higher an new Chief Finance Officer.
    The Board interviewed three candidates: a mathematician, and economist and an accountant.
    At the interview they asked each candidate only one question:  What does 2+2 equal?
    The mathematician answered “2″.
    The economist answered “2 assuming all other things are equal”.
    The account answered “what do you want  it to equal”.
    They hired the accountant.
    One of the biggest things the majority of people don’t realize is that accounting is not math, it only employs math.  In a transnational corporation, the rest is a sort of corporate managers, vs. shareholders, vs. governments, economic power politics.
     

  • avatar
    FloorIt

    Steve Rattner’ comment in Fortune is still correct.

    “Everyone knew Detroit’s reputation for insular, slow-moving cultures. Even by that low standard, I was shocked by the stunningly poor management that we found, particularly at GM, where we encountered, among other things, perhaps the weakest finance operation any of us had ever seen in a major company.”

  • avatar
    ChristyGarwood

    I am a GM employee and this is my own opinion.

    If I am not mistaken, there are accounting practices that all corporations must follow. TJ, when you say “Saab’s books are cooked”, what are you implying? 
    To my knowledge, GM has followed general accounting practices within US and international law. Their annual report normally acknowledges firms such as Deloitte and Touche, an international accounting firm.  I readily admit that I am not familiar with details of great accounting practices, but there is the Sarbanes-Oxley Act of 2002 that requires the top financial officers of corporations to sign a document that holds them liable for ‘cooked books’.  It is probably safe to say that GM has not violated the act  and whatever KPMG found met acceptable accounting principles.

    • 0 avatar
      Greg Locock

      One of the main issues is transfer pricing. That is, when SAAB run their crash models in the USA on GM’s supercomputers, how much do they pay for CPU time? If GM wants to move money out of Sweden, they pay the commercial rate. If not, they pay the actual cost to GM, as an internal service. Same with when SAAB sell cars in the USA, GM (probably) sets the effective exhange rate, this can be manipulated to get a desirable tax outcome.

      This is all legal, from one point of view, but not so much from another. That’s why car companies have lots of lawyers.

  • avatar
    stuki

                Ingvar,
     
                Koenigsegg could certainly expect to gain a nice ego boost, and a nice climb in social stature. Don’t underestimate those two as factors in forming investment decisions by wealthy individuals. There wouldn’t be much made in the way of movies in Hollywood were it not for wealthy people with uncanny abilities to imagine themselves somehow better at picking pictures, or at picking people better at picking pictures, than all those who came before them. Regardless of whether their wealth was made from lottery wins, Wall Street bailouts or Russian gas pipelines.
     
                Saab might not be quite as glamorous as the pictures, but in Scandinavia, I’d be surprised if owning them wouldn’t provide a nice step up the social and celebrity ladder for the crew from Koenigsegg. After all, following in the footsteps of the Wallenbergs sure has a nice ring to it.
     
                Besides, we’ve just experienced several decades of reckless inflation, in which pretty much anyone who ever invested a buck made out like robber barons. Many of them sufficiently delusional to genuinely believe this had something to do with themselves, rather than with fiscal and monetary policy over which they had no control whatsoever. I wouldn’t be surprised if the Koenigsegg’ers genuinely believe they are qualified at succeeding where both one of the world’s leading industrial families, and one of its leading automakers, both failed. After all, they did have the “business genius” to sell high ticket go-daddy-carts to people with home equity credit at the peak of inflation, no?

  • avatar
    porschespeed

    As dlfcohn has pointed out, accountancy is the art of carving square pegs to appear to fit round holes, then hiding the shavings as necessary.

    Toilotte & Douche, or any other consultants are paid yes men. They will find any answer you pay them to. All the integrity and independence that $1K+/consultant/day will buy.

    As far as GAAP, yup all major companies follow the rules. Maybe. Way back on page 175 of the annual report. In microprint. Those who actually read that stuff knew GM was going bankrupt 10 years ago.   

  • avatar
    cthill

    There is nothing particularly unusual about this.  All multinationals move the money around to the lest taxing jurisdiction.  If I recall Toyota got fined for the same sort of thing by the Australian Tax Office about 10 years  ago.

  • avatar
    GS650G

    Are the Swedes surprised by this, angered, or looking for redress? No one, not even GM , is going to sit by and pay a tax if they can avoid it. This is the cat and mouse game we all play. There is the company, the shareholders, and the government. Pick any two as partners but never all three.
    Once SAAB is comfortably nestled in as a Swedish company again they can commence to picking the flesh from SAAB like in the good old days. Isn’t that one of the reasons they ended up sold to GM before?


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