I’ve tried to be pretty quiet on the questions I have about Koenigsegg’s investors when it comes to the Saab deal. I’ve outlined those questions in previous posts and my modus operandi is to try and seek real answers to those questions rather than posting a whole bunch of possible theories, however credible. Fact is – you can easily lose sight of the question at hand if you pose too many possible answers.
Overnight, Dagens Industri were the source for a new article that was re-hashed in several other news services.
Börjesson was kind enough to provide a translation of the full article in comments, which I’ve reproduced here.
I’ve got a few thoughts, which I’ve scattered through the document.
SAAB DEAL WILL REQUIRE AT LEAST 5 BILLION
The unknown investors behind Koenigsegg Group must put up capital of at least 5 billion kronor to take over Saab Automobile.
That is a prerequisite for the Swedish government to agree to a loan guarantee of the same amount. Otherwise, the deal will fall through. This is the unanimous view of DI’s sources in the Swedish car industry, which are all sceptical to the play for Saab and various statements from Koenigsegg’s owners.
That the investors are unknown have created distrust.
“This looks like a parody. The statements made by representatives of Koenigsegg are astonishingly uninitiated. They want to develop new Saab cars, but hugely underestimate the costs and the work required,” says one source who has worked in a management position in the Swedish car industry for many years.
I’m not sure sure about the pre-requisite status, though it wouldn’t surprise me if Maud played hardball on this (at considerable political risk, mind you).
The new Saab cars are all ready to go. Koenigsegg’s challenge will be design and construction of a new Saab 9-3. This whole deal will, in my opinion, live or die with the next Saab 9-3.
Profitable already in 2011
Saab’s business plan, which is based on attaining profitability at a yearly volume of 130 000 cars already in 2011, is seen as unrealistic in a new and tougher automotive world. The newer, more premium-oriented cars that Koenigsegg’s representatives are talking about will take between three and five years to develop, at a very large cost.
“Which investors would put up billions on such uncertain premises?” asks one of DI’s sources.
I’m not so sure it’s unrealistic. Saab’s profitability is essentially unknown thanks to GM’s ways of diverting revenues and accounting for entities. Saab have made huge investments in efficiency at Trollhattan in recent years.
It’ll be tough going, without doubt, but Saab have been saying for some considerable time now that they can be profitable at a volume in the mid-100,000s. They were saying that well before this sale process was even a glint in GM’s eye.
Here’s Autoweek on the same subject, published earlier today:
Saab’s business plan is reasonable, based on minimum production of 130,000 units a year, or about what Saab built in 2006. Strong profitability will come at 150,000 units or more. The company sold 93,000 cars in 2008.
Cutting the GM apron strings should clean up Saab’s financial position. Last year, GM’s accountants said Saab lost $384 million, but the word from Sweden is that money from sales in the States never came back to the homeland, making the company’s financial position look worse than it really was.
With a new 9-5, 9-4x and some new emphasis on marketing Saab properly as a new global entity, I’ve got absolute faith that sales of 130,000 to 150,000 are attainable.
Not assured, but definitely attainable.
But no one wants to completely rule out the possibility that the bid can succeed if the investors are willing to take the big risk. Final negotiations between General Motors and the group around Koenigsegg are now at an intense stage after the announcement last Tuesday of a declaration of intent between the parties.
Silent sources hedging their bets. What’s the chances they work for someone other than Saab?
Binding purchase agreement
Within two weeks, according to GM’s plan, a more binding purchase agreement will be presented. It will contain a new ownership structure, purchase price and financing. But it will be until the end of September before all the details are worked out.
The big question today is if the investors behind Koenigsegg are really willing to invest the large amounts required to save Saab in the long term. Both Christian von Koenigsegg and main owner Bård Eker have made several statements claiming this and underlined that they have considerable capital. But several of DI’s sources in the car industry are doubtful.
I wrote a few days ago that the media is a beast, and that beast will be fed. This is one area where Koenigsegg needs to feed the beast. They need to outline at least some of the details as to their finance or else the speculation will continue and the questions linger.
How good is the new Saab 9-5 needs to be the question asked by the media. That needs to be the story. If their funding remains as the story, then they’re shooting themselves in the foot.
Saab have also underlined that no additional investments or capital will be needed to realize the company’s business plan. It will be enough that the EIB and the Swedish government put up 4.8 billion kronor, and that GM remit loans and deliver equipment to the new 9-5 model for 3.2 billion kronor.
This is the plan that will result in a positive cash flow by 2011, and then profits from the operation will do the rest.
The risk is that the group behind Koenigsegg have seen a business opportunity in this and aren’t interested in investing several billion in Saab.
Koenigsegg have obviously bought into the business plan as presented by Saab. The skepticism of previous commentators in this article indicates that those commentators haven’t.
Now it’s due diligence time for Koenigsegg, I guess they’ll get to find out the real detail of this business plan.
Bring the Swedish government onboard
A key factor for the buyers is to bring the Swedish government onboard to get the crucial EIB loan approved. The government, which have so far rejected Volvo Cars and several subsuppliers, want to minimize its risk.
“The govermnemt will end up in a kind of blackmail situation where they run the risk of getting the blame for Saab going bankrupt. Already, arguments are being prepared for laying the blame on the other party”, says one source with experience in global automative deals.
One factor is that GM only contributes “paper money” to the funds of new Saab. The 3.2 billion kronor that GM are remitting seem to be made up of the of 2.5 billion kronor and some additional demands, plus the supply of equipment.
But the government demands more venture capital from the new owners.
For those concerned over Koenigsegg’s strength, this is your safety valve, I guess. We have to hope that the government actually do their homework and don’t take a stance based on ideology rather than facts.
Hmmmm. Fat chance of that happening.
But – it’s one thing for Maud to stop funding because they’re wary of Swedish money going to GM. Is it not another thing all together to stop funding because they don’t figure they’ve extorted enough money from GM?
Pot, meet kettle.
“The usual in situations like these, like for instance The Green Car and other government projects in the car industry, is that the government puts up half and private enterprise supply the other half”, says one of DI’s sources who has worked at the top level in car companies for many years.
He is convinced that the government will back off unless Koenigsegg invest at least 5 billion kronor in new Saab.
I think the commentator is off base here.
This is not one of those luxury projects that car companies commit to when times are good. This is Saab’s freaking survival!!
What this guy’s saying, in essence, is that the government will not only require the new owner to fund Saab’s regular operations, they will also require a new owner to put up an amount equivalent to that being sought from the EIB to match the government’s guarantees for future project research.
I understand the historical context for this theory, but a 50/50 commitment was never mentioned when the government first passed legislation for these loan guarantees.
I think this one’s scaremongering on the part of a motoring industry type who possibly has some motivation for seeing this fall over.
DI’s sources underline that the commitment from the owners must be wholehearted if the market and the customers will come back to Saab. With only a minimal investment, Saab’s sales will never take off.
This is not going to be easy. CvK & co are going to be in it up to their eyeballs. I hope they’ve got the support they need.
One alternative that is being discussed is that GM or Opel go in as part-owners. Both the Swedish government and the new owners would most likely welcome this.
“They could convert some of the demands on Saab to provide their own capital. It wouldn’t cost anything and would give Saab greater weight in the future”, says one of DI’s sources.
I know there’s differing opinions on having GM retain a share. I can see the merit in it, but personally I’d like to get as far away from GM’s influence as possible.
For Aussie sports fans, an appropiate analogy would be to say that “a little bit of Damir Dokic is OK, isn’t it?”
No, it isn’t.
My thanks once again to Börjesson for the translation.
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