Suppliers Hold Saab Ransom, Muller Offers Ten Cents On The Dollar

Yesterday’s confidential conference call between Victor Muller and suppliers with outstanding balances did not remain confidential for long. Saab Automobile is offering to pay a tenth of its debt to suppliers in a bid to get production up and running, reports Dow Jones Newswire [via Morningstar]. Not a good move: “Muller has said that all suppliers have to agree and give their answer by Tuesday to the proposal in order for Saab to resume production in two weeks’ time and make initial repayment.” Putting a gun to the head of a few hundred suppliers who hold your production at ransom is not considered wise.

The Dow Jones report is sourced on a story in Dagens Industri, the paper that judiciously chronicles the ups and downs (mostly downs) of the sad affair. DI says the proposal offers cash payment for all new deliveries until mid-September when the remaining debt, plus 6 percent interest, will be paid.

Dagens Industri figures that Saab owes between 500 and 600 million Swedish Kronor ($78 to $93 million) to suppliers.

No official supplier reaction is known. However, there had been more than 100 comments to the story in DI when I wrote this, and few are sympathetic to the cause. The first comment opines that there might be some “desperate vendors” that could agree to “Muller’s ridiculous proposal.” One commenter puts it best when he says: “Can I order a Saab and pay only 10 percent?” Some of them say they are or work for suppliers, and they don’t seem to be amused.

I have been in the auto business for a while, and I can tell you this: If there is a serious disruption in payment, suppliers usually insist on payment in full until the next order ships. The following orders are typically C.O.D. until the matter settles. For a more detailed insight, refer to Robert Walter’s previous comments.

With this proposal, Victor Muller outs himself as an amateur in the auto business. Get real, Victor: What’s left of the parts industry is riding high and has a hard time filling orders of their biggest accounts. The tsunami destroyed capacity in Japan and did put added stress on the industry. Even with an impeccable payment record, Saab would be considered small fry by most suppliers. The OEM business is high volume at small margins.

Order a few hundred parts delivered just in time, and you’d probably hear: “Have you tried NAPA?”

Or to put it this way: When the phone rings and you hear “We have your kid. You get it back for a million” – what do you think will happen if you answer: “How about 100,000? The next kids can be C.O.D.”

Update: According to several press reports, the “Tuesday” is Tuesday the 21st of June 2011, i.e. today. That’s pretty brazen for a letter that just went out. On the other hand, we should see the reply quickly.

Update 2: Dagens Industri talked to Lars Holmqvist, chief of the European supplier’s association CLEPA. Holmqvist does not think that all suppliers will accept the proposal. “Victor Muller says Cash On Delivery, but it actually is five to six days – that’s not Cash On Delivery. If I buy a pizza, it’s Cash On Delivery. I won’t say I’ll come back in a week and pay.”

Update 3: Dagens Industri reports that Swedish automobile supplier and technology consultant i3tex filed an application for corporate restructuring as a result of unpaid bills by Saab. The debt is said to total 10 million Swedish kronor ($1.6 million). Staffan Grasjo, deputy CEO of i3tex told DI: “They clearly do not have the means to settle their debts.”