In February, I wrote a piece titled “Can Saab Be Turned Around?” in which I pondered the chances of Saab being able to do a herculean amount of work with what little they had to work with, and, in the process, turn themselves around. 

Since that time, Saab has plunged into a financial abyss, been forced to shut down production, and taken on one Chinese investment partner (Hawtie), and then been forced to abandon that deal within two weeks because the Chinese company could not get the required permissions from the Chinese government to do the deal, and then, take on another Chinese business partner (Pangda). 

What bought on the aforementioned sudden fall, you might ask? 

To put it succinctly, the CEO’s rash actions. Saab had been paying all of their suppliers late for months, trying to conserve their cash flow, more or less “stealing from Peter to pay Paul”, which in this instance meant they were trying to put more money into sales, marketing, research and development; the first two things they desperately need to do to get more cash now (by selling some cars), and from the development perspective, they need to get the next generation of the 9-3 moving along, which is their volume model, and which needs an update. 

So, when a major supplier demanded more money on their account than what Saab was willing to pay, the supplier then threatened to stop deliveries. Victor Muller, CEO of Saab, has admitted publicly that he decided to call the supplier’s “bluff”. 

It wasn’t a bluff. The supplier halted deliveries, word quickly got out among the other suppliers to Saab, and like dominoes falling, Saab’s suppliers started clamoring to be brought current on their account one by one. Soon Saab production ground to a halt, Saab needed far more capital then they had available, and rather abruptly, just like that, Saab’s future was very much in doubt again. 

Saab then hooked up with Hawtie, a small Chinese manufacturer of SUVs that no one outside of China had  heard of. This was going to save the day for Saab, but, almost immediately, the deal fell through. The consensus is that little Hawtie jumped the gun and signed the deal before the people who matter in the Chinese state gave them permission to do so, although there are now whispers that Hawtie backed out once they got full financial disclosure from Saab, but this is believed to mostly a case of sour grapes and a way for Hawtie executives to save face at having their hands slapped by the government. 

Saab immediately fell into the arms of Pangda, a more well-known Chinese company that is a vehicle distributor in-country. Pangda currently imports and distributes Toyota, Subaru and Honda brands inChina.

This current agreement has a commitment by Pangda to buy Saab vehicles in two tranches. An initial purchase worth 30 million euros has already been agreed to and a subsequent tranch worth 15 million euros is scheduled right behind that, Victor Muller, CEO of Spyker, told journalists in Sweden several days ago. Muller added that the first tranch was already on a train, heading for China. 

Pangda will also take a 24 percent equity stake in Spyker for a total of 65 million euros, or 4.19 euros per share.

So, besides the money, the working premise here is that Pangda, who is much, much larger that Hawtie, the previous would-be investor, will have no problem getting the necessary approvals from the government to do the deal, AND, since they are already in the business of buying cars from overseas auto manufacturers, subsequently importing those vehicles into China, and successfully reselling the vehicles in-country. Adding Saab to the mix is merely expanding their existing business. Therefore, the logic goes, far fewer approvals will be needed in the first place. Pangda is a car distributor, not a car manufacturer.

If the deal can get done (and stay done), this is more advantageous for Saab, as they get the operating capital they desperately need in order to start their production lines again, they move a lot of iron (by Saab standards, anyway), AND, they get a partner who has the means and the existing infrastructure to support a sales network in China going forward. 

If you add everything up (the unit purchases and the equity stake), Pangda will invest around 110 million euro in Saab, and Saab will then not die a slow death.

Saab is like a Swedish cat with 9 lives, but it is using up those lives one by one. 

This real-life drama around Saab is a great example of what companies have to do in order to turn themselves around. 

First, they have to survive to live to fight another day. In this instance, a miscalculation and a gamble by the CEO put the company in a precarious position. That ill-advised misstep may yet still put Saab under. 

Second, you hope for the best and prepare for the worst. You better have a Plan B ready, and a Plan C ready to go if Plan B fails. You have to be prepared because you will need to quickly do whatever it is you decide to do. 

Third, even in the face of adversity, you need to keep delivering a consistent message, whether that is to potential investors or to customers. 

Muller told journalists, “I had a pretty good negotiating position. I positioned what I could sell as a stake in the last premium, independent European car company,” describing his effort to form an alliance with the Chinese investment partners. 

And Saab representatives portrayed the shut-down and scramble for new capital to dealers and consumers as mere hiccups on the way to their wonderful rebirth as a company. 

Now, whether those statements are 100% accurate is debatable, but the company stayed on message. 

So, the saga continues. It isn’t often that we get such a birds-eye view of an attempted turnaround, since smaller, less well-known companies don’t get this type of press coverage, and large corporations generally get far more done behind closed doors. Saab, probably to their consternation sometimes, is inside a fishbowl. Fascinating to us, and torturous to them.

Brendan Moore is a Principal Consultant with Business Turnaround Specialists, a management consulting practice based in the Washington, DC area, where he advises businesses in rebirth and rejuvenation. Business Turnaround Specialists can be found at http://www.business-turnaround-specialists.com

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