Saab Subsidiary Narrowly Avoids Bankruptcy As Suppliers Lose Faith

Edward Niedermeyer
by Edward Niedermeyer

One of Saab’s suppliers, SwePart Verktyg AB, asked a Swedish court to declare a key Saab subsidiary, Saab Automobile Tools, bankrupt today reports Automotive News [sub]. Saab Tools owed about $935,000 to SwePart for tooling, and according to the supplier

More than one week has passed from the summons and payment has not yet been made. Saab Automobile should therefore be considered insolvent… We don’t want them to go into bankruptcy, I wish you understand that, that would be horrible, but we are a small company and for us that is a lot of money

Saab Tools was created to guarantee EIB loans for tooling, so had the “subsidiary” been declared insolvent, the whole ship would have gone down. But before a judge could act, Saab somehow managed to put out the fire, as a company press release proclaims

Swedish Automobile N.V. confirms that Saab Automobile Tools AB reached agreement on payment terms with the supplier that filed for bankruptcy, thereby resolving the issue.

Once again, Saab pulls the fat from the fire at the last minute… but the clouds are dark and rolling in fast. Many suppliers are still looking for money, Saab Automobile has 104 claims pending against it, and SwePart’s bankruptcy request won’t be formally withdrawn until Monday. And with the Swedish government and EIB seemingly unwilling to lift a finger to help, even the faithful are losing hope. This feels like the beginning of the end of the end…

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  • Zackman Zackman on Jul 22, 2011

    zzzzzzzzzzzz...huh? hmmm?...okay, back to sleep...zzzzzzzzzzzz

  • VanillaDude VanillaDude on Jul 22, 2011

    What we are seeing in this case is how long it takes for a manufacturer as small and inconsequential globally as Saab, goes out of business. So, to all those people who believe that the Federal government just had to jump in to save Chrysler, take a good look. It would not have happened as the politicans claimed. But then, why would anyone believe these guys anyway? Which one of them ever ran a business?

    • Pch101 Pch101 on Jul 22, 2011
      So, to all those people who believe that the Federal government just had to jump in to save Chrysler, take a good look Er, the reason that SAAB is on the chopping block today is because the federal automotive task force had GM get rid of it. SAAB stayed alive as long as it did because GM bought it and propped it up. It's dead because the government guys were smarter than those fantastic private sector folks who were (mis)managing GM (into the ground).

  • Robert.Walter Robert.Walter on Jul 22, 2011

    For 8-months, prior to Chrysler going Ch 11, I was the lone voice in the management ranks of our 2 billion (in sales) company ringing the bell that Chrysler was going to go bankrupt, and if we didn't aggressively act to 1) position ourselves for that eventuality, 2) throttle back our inventory by reducing orders to our sub-suppliers, 3) become the squeaky-wheel and threaten to stop-shipping unless Chrysler paid us all our open claims for a) material-price adjustments, b) obsolescence, and c) compensation for order quantites way under the contractually agreed amount - this one being a biggie because it caused us to not recover our amortized investments and development expenses, then Chrysler would continue to stiff-arm us (as they had for the previous year) all the way until they filed for creditor protection. If they had gone into Ch.11 in a normal environment (not one in which the supply base was so close to the edge), or Ch.7 dissolution, then we would not have seen the 100% recovery of our open invoices (these not being in any way related to points a-c above) as we did in the actual case, and we surely would not have seen any recovery of points a-c. It is hard to relate the depth of resistance and denial, within our organization, to the sinking of Chrysler. You would not believe how my colleagues, be they the board, or operativly-involved guys, alternated between belief and hope, and how some, for fear of "destroying the relationship", practiced denial or obstructionism in implementing a "hardball" strategy in making ourselves whole prior to a general collapse of the customer. At the time that all this was going on, we had over the course of our 25-year relationship, gone from a very comfortable and profitable relaionship (one that I too was emotionally invested in, as I had significantly contributed 10 years of my early career to building-up that relatonship) to one of vastly diminished margins and seemingly endless squabbling over legitimate claims like a-c. My analysis showed the end was coming. Common-sense told me that Chrysler would try to delay this by hoarding their cash-pile, in part, by stiff-arming and slow-walking supplier open claims for a-c like items. And that the patient suppliers, and the slow-movers, would be the ones with the most to lose (in such a situation, there are only The Quick and The Dead.) We had to become the "squeakyiest wheel in Chrysler's supply base" if we were to stand a chance of ever seeing the money attached to the a-c items, and, in the event Chrysler did not go Ch.7, seeing that our P.O.'s for continuing business would be properly adjusted to take into account the a and the c items (else we would just sink back into the same hole of gradual loss due to material price invlation and non-recovery of amortized items.) Many of my opponents within our company accused me of trying to "torpedo Chrysler" (so untrue, as I too was sentimentally attached through my career, my grandfather's employment there, my friends, my fondness for classic MOPAR ...) and that "if all companies did what I advocated, Chrysler would go Ch.7/11 for sure", to which I could only reply that the first was not true, and the second was not my, or my colleagues, primary concern (because what we were paid for was not sentimentality, or corporate charity, but to protect our company from the effects of Carmegeddon.) One of my continuous themes as I tried to explain that playing hardball, under these circumstances, would not ruin our relationship was that, in their hearts, the Chrysler folks knew that we had been an above-average supplier, loved in all corners of Chrysler, and that our "impudent" action of setting a future date to cancel our contracts and quit the business, unless we received immediate payment in-full, was a consequence of a dire situation, not representative of how we had ever acted, or would act, except for the circumstance Chrysler itself had brought us into. And that in any other context, they could continue to count on us as a Platinum trouble-free cooperative and innovative supplier. In the end, but just barely, because I ramped-up my hystronics, we were able to position as one of the few suppliers that was able to negotiate with leverage to recover all of our claims during the bankruptcy process, most others - supplying production parts - received 100% of their receivables, but not 100% of their open claims, for those they received far less, and for non-production suppliers, of things like services or office materials, I suspect that these received even less (but don't know for sure.) Note: Because I had been the great advocate of this action, I was re-assigned by the board of management to manage the issue; I was never sure if a) they felt I was the most competent one to handle it (which I humbly claim is true, being the most part, not that they knew this part) or b) they wanted to have a guy to hang this on if it went down poorly... Regarding the instant case of the tooling shop trying to recover its money, this was what they had to do to be the squeaky wheel. If they have been, and remain to be, a good supplier in all other aspects, and if SAAB is honest with itself, then there will be a continued, mutually beneficial, relationship in the future. In our case, we could have absorbed and survived any Chrysler-induced loss (but that is not my approach to business). But we were quite concerned that there was a high-likelihood of a general-stop in U.S. production orders, and income, from Chrysler and Ford (because of uncontrolled collapse of the supply base) if Chrysler and/or GM suffered a messy and protracted shut-down and dissolution/re-orginazation (then, even I was short-working 4 days of 5 due to the crisis). In the case of a much-smaller company, like SwePart, they may not have the luxury of having fat global contracts to cushion them against the failure in one market, or of one customer as we did. And that a non-recovery of what is owed to them, was not an option, and that against their better hopes (due to history, sentimentality, patriotism, etc.) as stated in their application to the judge, they probably needed to do this to not be sucked down and drowned by the suction of a sinking SAAB. SwePart, if it was playing the "squeakiest wheel in the supply base" angle, probably could only do what they did to try and get their cash. As I know, for deep personal experience, how hard such a call is, and then seeing it through to completion, I salute the balls of the guy (or gal) that made the call to do this, and wish them luck, and success in the future. (I hope this story was not too boring.)

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    • Robert.Walter Robert.Walter on Jul 22, 2011

      @Darkhorse Poor Darkhorse the bail-out hater. I've judged you for what I think you are, and more than this comment would seem like pouring water into the desert. So in the interests of constructive, productive, adult discussion, I think I'm going to mostly ignore you. Regardless, some of your questions are legitimate, so I will respond to them. Receivables payment came from Ch.7 DIP financing. For a-c it was re-amortized by increasing the PO piece price for the period following Ch.7 until each of the programs reached their end of production. So in essence, all of this money came from the sale of cars. My company was more diversified, apparently you missed that point. We worked hard over the last 20 years to become not too dependent on one region or customer. At the time the contracts had been let, for most of the programs, Chrysler was an integrated part of DCx, and although they were restructuring it, nobody had a clue that it would go thru Ceberus-ville, or that the mortgage and banking industry was going to destabalize itself or the general economy (I had, however, for several years been pointing out that we were riding a bubble since 2001, and that easy money was not a sustainable game - but since most people were not clued-into this, and our corporate parent was not concerned with it, my local management didn't have a way to plan for this in their budget.) Why did management not react sooner? Why do people practice denial, hope, or suspended disbelief? That they didn't read the blogs of Mr. Farrago half a world away is no wonder, and that the industry magazines didn't really go into it was no wonder. And how many auto industry managers thnk in terms of Black Swan events, or casually track stories like Franklin Raines and wondering how his criminal actions might affect their economic sector? Why, even after I started ringing the iceberg collision bell, did our boat not immediately turn? Because people are complacent, they hope, they fear, they have invested so much into building something up, they don't realize that they have to change direction to save themselves (this last part should resonate with a seemingly sanctimonious hagiographic guy like yourself). Perception-lag, denial-delay, whatever, it is not always (sometims I think it it is rarely) possible to alter thinking or course before the collision comes. That Chrysler could really go belly-up, or that the government might not just save it (my bets were that D.C. would save GM, but would let CLLC die on principle, or that nobody would be enticed to step forward to try to save it, or that there would be no DIP financing facility available due to credit being locked-up) was something like a Black Swan topic to my management. But in fairness to them, judging how other 1st tier companies did not position as we did, I think that the lack of appreciation for the depths of the situation was not apparent or comprehensible to many suppliers (or investors.) The REAL Ch.7/11 argument is for knuckle-heads. Some investors (these being the bond or shareholders who refused to believe their investments might blow-up) got really screwed, but not by the action taken by the government. They screwed themselves by not recognizing that their risk was growing, that their formerly-safe investment was becoming more speculative, and they did not dump their stock or their bonds. The rest that saw the rising risk and were there to make speculative purchases of the stock, or the bonds, at pennies on the dollar took their speculative gamble and lost, but again not due to the government. (The oddest thing about the reorganization was that the govt provided the DIP financing, but in exchange, they got their stock and warrants ... their game was not necessarily to be made whole, which would have been a nice goal, but to pragmatically keep a shit situation from getting a whole lot worse really quickly and for a long time... This was a real reorganization, and if not, it would have been blocked with an injunction in a lower court, or writ of certiorari from a higher court. It wasn't, it went forward, it was not the Executive Branch acting in a vacuum, no matter how much the tinfoil hat crowd would like to claim that it was. Just as you are convinced otherwise, I am convinced (and Pch101 has already give comprehensive arguments elsewhere) that the costs of doing nothing, with consequences concentrated in a very short time period, with respect to the PBGC, additional welfare payments, further destabilization of the supply base, and how that would shut down other OEM's due to lack of parts (in the plural) would have been far greater than the costs (and marginal loss taken on Chrysler in the end) of having taken this action. The free-market is not very good at addressing critical problems in a very short time frame, especially when confronted with the Tragedy of the Commons.

  • Robert Fahey Robert Fahey on Jul 22, 2011

    If Saab were a horse ... BANG!

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    • Pig_Iron Pig_Iron on Jul 22, 2011

      @SecretAznMan Agreed.