The SU primer on who’s got to give

A contingent from the Swedish government is apparently heading to Trollhattan tomorrow. Maud Olofsson will be there, and hopefully some of her more creative officers at the Enterprise Ministry will accompany her.
These are just my thoughts but they are based on some pretty good intel from various parties.
There are three parties involved in what will be the eventual sale of Saab Automobile. The first is GM, Saab’s current owners. Saab themselves are part of this group.
The second party is the as-yet unknown buyer, who could theoretically be anyone out of Koenigsegg Group, Merbanco, Renco Group, Spyker or BAIC. Whilst some of these parties have been identified as being out of the process, most are still interested and all it would take to get back in the room is an offer in the right ballpark. There maybe other unidentified groups here as well.
The third party is the Swedish government, who are involved in this reluctantly but will have to be a part of any agreement here. Attached to the Swedish government is the European Union, who must approve the aid offered by the Swedes.
So to each of the parties, then, and a little of what they might do.


Buyer
The buyers want to buy, but they’re not going to put themselves in a risky position to do so. We’ve all seen Koenigsegg Group back out of the transaction because the risks associated with the purchase became too great due to delays in various parts of this process.
Buyers will be risk averse and in a situation like this, they really do hold all the cards. I believe that some of these buyers have a genuine affection for Saab and want to build it up as a competitive profitable business (they’re not in it for altruism’s sake, after all). Others are looking at it purely as a transaction involving assets and products. Whichever approach they take, all will be doing their sums and none will pay over price.
GM have a stated desire to sell Saab and are in a pressure situation. There’s no doubt it’s a buyers market but there is a point where it’s not worth it for GM to sell, where it would be cheaper for them to wind Saab up. The trick for the buyer is to find this point and offer $1 more.
GM – the seller
GM want to sell Saab and I believe that it’s really in their best interests to make the transaction stick. If they can do so, they get a little trickle-down business later on, they can get access to future Saab technologies and they get the goodwill associated with finally getting one of these transactions to work.
The most flexible thing GM have is the price, which is made up of various components, mainly near-term and long-term future commitments. It’s my understanding that Saab are currently building new 9-5s on a test line at the factory in Trollhattan and clearing space for the new tooling to go into the main production line. Some of that tooling is still in Germany, however. Who pays for the considerable cost of moving it to Sweden?
Negotiable.
How much operating cash should Saab have in the bank when the new owner takes over?
Negotiable.
Do GM retain a stake in the company in exchange for cash concessions made in the near term? What form does that stake take and when does it mature?
Negotiable.
What price does Saab pay for the manufacture of the 9-4x in Mexico, or the acquisition of other GM parts in the foreseeable future?
Negotiable.
As you can see, there’s millions of ways for GM and a potential buyer to make this work. What they have to do is find the balance that satisfies both GM and the buyer according to the conditions the buyer will face according to their business case.
If GM really want to sell and the buyers really want to buy, then they’ll find a way to get this done.
The Swedish Government
The government is playing the part of Adam Smith’s invisible hand here. The market for selling/purchasing car companies is probably not going to adjust quickly enough for the normal supply and demand to determine a price. The balancing point will most likely have to be nudged to the left or to the right by the Swedish government.
And here’s where it’s all got sticky.
The Swedish government are ideologically tied to staying out of this as much as they can. It’s a determination they stuck to up until recently, but the withdrawal of the Koenigsegg Group has most likely been the size 12 in the backside they needed to feel a little bit of motivation.
If there’s one thing government’s hate more than backflipping on a stated position, it’s losing an election. Don’t worry about those polls with people saying 60/40 that Saab should be left to flounder. If that actually happens, the reality of the situation will hit home. The press that turned on Saab will continue their love affair with bad news stories and many of those will come from western Sweden and they will haunt a government that knows it should have done more.
And they know it.
There are various things that the government can do to help. They can give the EU a big hurry-up in approving the nature of the loan guarantees, for starters. They’ll say it’s out of their hands but where there’s a will, there’s a way.
The government also has their assistance package, passed by the Swedish parliament earlier this year. So far none of that money has been accessed by either Saab or Volvo because the terms attached to it are too onerous. It’ll probably take another parliamentary vote to change it and I don’t know if the parliament sits again this year, but it’s an avenue that they can explore.
They also have various grants and programs that will be available to Saab when a new owner steps in. Things such as research projects that are normally a combined effort between Saab, Volvo, universities and companies associated with the project’s aims. It’s comparatively small potatoes, but it’s something.
Then they have those two other things that governments can use when they really, really want to: creativity and will.
I guess the trick will be to get them to do something without that something looking like a concession to their own ideals.
I really hope Maud’s got a rabbit she can pull out of her hat in the next few days.

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