Saab Has Enough Money For Muller's Bonus, But Does It Have Enough To Restart Production?

Edward Niedermeyer
by Edward Niedermeyer

Saab has received wire transfers of around €30m from both Gemini Investments and the Chinese dealer group PangDa, reports Aftonbladet, and it will be using that money to pay off its supplier debts which could use up most of that cash (Saab’s supplier debts are estimated by at between two hundred and four hundred million kroner, or as much as €44m). Leaving aside the issue of how that money was able to be transferred from China to Sweden in a matter of two days (more on that from Bertel here, the short version: the deal should need Chinese government approval), there are serious questions about Saab’s ability to restart production. After all, the €30m from Gemini is debt, while Saab owes PengDa for an undisclosed number of vehicles that it bought with its investment. Unless those cars are sitting somewhere waiting to be shipped, Saab will have to pay off its suppliers and then build the cars on what is essentially credit from PengDa. Meanwhile, that’s not the only demand on Saab’s finances and attention, as CEO Victor Muller is planning on taking a bonus of over half a million dollars, a decision that is creating fresh problems of its own.

The Swedish paper reports

At Saab, Spyker’s shareholders’ meeting in Zeewolde in the Netherlands on Thursday will get Muller’s criticism from the Dutch shareholder rights association VEB. Muller may, for the first time, receive a cash bonus of 4.5 million kroners, while Saab has severe problems. The bonus is disproportionate, argues the VEB.

“We will try to convince him to surrender,” said David Tomic, an economist at the VEB, said.

Muller defended at a press conference in Nacka in early April, their choice to receive the bonus with certain goals in the business plan is reached and that management did a good job even if the company made a loss.

It does not impress David Tomic.

“The bonus is disproportionate. Given the large financial losses and poor sales, we wonder what objectives have been achieved that may justify a bonus,” said Tomic.

Spyker Cars has not previously had monetary bonuses, according to David Tomic.

At current exchange rates, that bonus amounts to over $710,000. Is it enough to sink Saab-Spyker? No. Is it an appropriate reward for hustling millions in financing for a company that many are already writing off as dead? Possibly. But given the touch-and-go nature of Saab’s recent history, it’s clear that Muller’s bonus sends the wrong message. After all, not only does Saab apparently not know exactly how much it will cost to restart production, but it’s not at all clear what terms the suppliers will accept to keep a long-term relationship together. If you asked us, we’d say C.O.D… which is a brutal way to run any automaker. Not only does Saab need every penny it can scrounge to stay afloat, but it also needs to send the message that its priorities are such that its worth suppliers taking a risk on it. Executive bonuses in the midst of declining sales, huge losses and whirlwind finance-seeking tours hardly send that message. If anything, Muller’s just lost some of his incentive to continue his Saab Rescue World Tour.

And, having received a healthy little bonus for simply keeping Saab alive, Muller now has to face his suppliers as well as the angry shareholders represented by VEB. Given that Muller’s last shareholder meeting included the promise that Saab would turn a profit by 2012, the feelings of anger and betrayal are likely to outweigh sympathy for the plucky little automaker. Meanwhile, the storm clouds continue to gather. Beijing Auto, which bought Saab’s old IP last year, is preparing to roll out new cars based on the technology, using the tagline “From Saab, Better than Saab”. And, with hope running out, Saab’s sad plight has inspired a thoughtful meditation on how companies die, from Forbes‘s Ron Ashkenas, which notes

While the final days of some companies are dramatic and garner top news coverage, most companies deteriorate over a period of years due to competitive issues, financial weakness, or strategic missteps. For example, Saab’s growth and expansion in the 1980’s created a need for capital that brought it into the arms of General Motors, which purchased 50 percent of the automotive division in 1989, and the remainder in 2000. From that point, Saab became a casualty of GM’s inability to rein in costs, prune products and platforms, and compete on quality.

In other words, companies don’t usually die of sudden heart attacks, but rather have protracted illnesses that kill them over time.

Clearly the end of a company — whether through bankruptcy, merger, restructuring, or shutdown — is often painful and traumatic for those involved. Most people emotionally identify with their employer so even when their job continues with a new entity, or they get a financial payout, there is still a sense of loss. And of course, the loss is more acute when there is neither a job nor a payout.

Organizational failure, like death, is one of those subjects many of us avoid and deny, which makes it all the more shocking when it happens. But given the reality — it might be worth considering in advance how you would handle the impending death of your company or division. Is there anything you could do to prevent it based on your position and influence? If not, think about your own future.

It seems that Muller has already taken Ashkenas’s advice… now the question is whether he’s ready to let go of his floundering company. The next weeks will hold the answer either way.

Join the conversation
2 of 8 comments
  • JoeR777 JoeR777 on May 18, 2011

    the details are here: SAAB AUTOMOBILE AND SPYKER ENTER INTO MOU WITH PANG DA AUTOMOBILE ON DISTRIBUTION/MANUFACTURING PARTNERSHIP FOR CHINA AND EQUITY PARTICIPATION Zeewolde, The Netherlands, 16 May 2011 – Spyker Cars N.V. (Spyker) announces today that Spyker and Saab Automobile AB (Saab Automobile) signed a Memorandum of Understanding (MoU) with Pang Da Automobile Trade Co., Ltd (Pang Da), China’s largest publicly traded automobile distributor with over 1100 dealerships nationwide. The MoU includes a strategic alliance consisting of a 50/50 distribution joint venture and a manufacturing joint venture (MJV) for Saab branded vehicles as well as for an MJVowned brand (the so-called 'child brand') in China. Saab Automobile will have up to 50 percent in the MJV, with Pang Da and a to-be-selected manufacturing partner owning the remaining shares. Pang Da shall make a EUR 30 million payment for the purchase of Saab vehicles and is expected to make an additional EUR 15 million for the purchase of more Saab vehicles within 30 days subject to certain circumstances. Additionally, Pang Da will take an equity stake in Spyker for a total amount of EUR 65 million at EUR 4.19 per share (the weighted average of the ten last trading days), representing 24 percent of Spyker on a fully diluted basis, and will have the right to nominate a member of the Supervisory Board of Spyker and /or the Board of Saab Automobile.

  • Metamorphosis Metamorphosis on May 22, 2011

    Wrong again, TTAC. Muller hasn't received his bonus, but rather decided to wait with it until Saab's economy is more stabile (well, it really never has been, but you get my point...). And yes, I think he deserves it.

  • 28-Cars-Later Wrangler people are crazy.
  • 28-Cars-Later "Transition" to layoffs, this guy is the Bob(s) from Office Space.
  • Vap65689119 As a release engineer I also worked in quality, if they are serious they should look at Toyotas business model which has their suppliers as genuine partners, thats how you get a quality product
  • Mike-NB2 I seem to have landed in an alternate universe. $12,000 for a Jeep that's going on a quarter-century old and with an automatic transmission? Wow.
  • Stuart de Baker This driver wants physical knobs and buttons that are easy to use while keeping eyes on the road, and does not want effin screens that require eyeballs to be taken off of roads, mfgs be damned.