Saab sale: A quick buck vs ongoing income

There is some legitimate concern about GM’s intentions when it comes to a Saab sale and these concerns have only heightened with GM’s actions yesterday, nominating a liquidator to commence the wind-down of Saab’s operations.
It seems now that there are two options being considered for Saab and the real reasons to sell or not sell are probably written in a spreadsheet, residing on a computer somewhere at the Renaissance Center.
Sentimentality and potential most likely have very little weight here. GM owe a shipload of money to the US government and one path will lead them to make more than the other in the timeframe they require.
That’s what it will most likely come down to – a quick buck vs ongoing income.
——
A quick buck
It’s a cruel irony that the quick buck theory might have come to GM’s attention through a good deal done by Saab and the Koenigsegg Group earlier this year.
That deal was to sell the outgoing Saab 9-5 along with older Saab 9-3 technology for a sum of around US$200 million to Beijing Automotive. The Saab sale we’re waiting for now is for more than this, but not so much more that the idea of raising the money via model and tech sales would be prohibitive for GM.
GM have the current 9-3, 9-3x and convertible. They have a new 9-4x they could sell or re-badge. And then there’s technology from the new Saab 9-5, which they could possibly still license elsewhere as well as building it for the potentially lucrative Chinese market.
Given a baseline of $200m for the old technology that’s already been sold and factoring in the various divisions and property of Saab, there’s a chance they could realise as much as a couple of billion dollars by selling Saab off in pieces. And what’s attractive to them about this option is that they could do it in very quick time.
——
Ongoing Income
Balancing that option, however, is the fact that they could expect hard action from Saab dealers in the US and elsewhere. There’s suppliers to pay and employee entitlements to take care of. And whilst the Saab plant is quite valuable while operating as a car factory, its value plummets when it becomes just another piece of real estate in western Sweden.
The alternative to selling Saab off in pieces is to sell Saab as a going concern.
GM get a smaller amount up front, which is not so good for paying back the US government quickly, but it’s what they get in the medium term that’s attractive about this option.
Providing they select a viable partner, GM can look forward to parts, engine, manufacturing and platform deals that could easily exceed that couple of billion dollars, but over a longer time period. They don’t get the initial rush of funds, but they get more in due course.
Of course, they could get an ongoing income from rebadging Saab’s models as vehicles for other brands (like building the 9-5 as a Buick in China), but that will involve more direct costs for them, too, and there’s no guarantee that their margins on those vehicles will be much greater than if they get that money from a new Saab.
Breaking Saab up will also involve a significant reputational risk both within the industry and especially amongst consumers. Europe should make a big deal out of this. Combine a breakup of Saab with the deal for Opel and governments in Europe will quite possibly be more wary of dealing with GM.
And an effective global Cadillac presence? Forget about it.
——
GM could quite easily make more money if they do what they’re supposed to do – concentrate more on building great cars that people want over the long term instead of making a quick buck in the short term.
The possible death of a 62 year old icon for the sake of a quick dollar now is a penny-wise, pound-foolish decision that GM should consider seriously.
GM could possibly make a slightly bigger deposit to the US Treasury in six months from now, but at what cost? Wouldn’t it be better to have a more lucrative, ongoing source of income and avoid the inevitable negative press?

wpDiscuz