Yesterday’s confidential conference call between Victor Muller and suppliers with outstanding balances did not remain confidential for long. Saab Automobile is offering to pay a tenth of its debt to suppliers in a bid to get production up and running, reports Dow Jones Newswire [via Morningstar]. Not a good move: “Muller has said that all suppliers have to agree and give their answer by Tuesday to the proposal in order for Saab to resume production in two weeks’ time and make initial repayment.” Putting a gun to the head of a few hundred suppliers who hold your production at ransom is not considered wise.
The Dow Jones report is sourced on a story in Dagens Industri, the paper that judiciously chronicles the ups and downs (mostly downs) of the sad affair. DI says the proposal offers cash payment for all new deliveries until mid-September when the remaining debt, plus 6 percent interest, will be paid.
Dagens Industri figures that Saab owes between 500 and 600 million Swedish Kronor ($78 to $93 million) to suppliers.
No official supplier reaction is known. However, there had been more than 100 comments to the story in DI when I wrote this, and few are sympathetic to the cause. The first comment opines that there might be some “desperate vendors” that could agree to “Muller’s ridiculous proposal.” One commenter puts it best when he says: “Can I order a Saab and pay only 10 percent?” Some of them say they are or work for suppliers, and they don’t seem to be amused.
I have been in the auto business for a while, and I can tell you this: If there is a serious disruption in payment, suppliers usually insist on payment in full until the next order ships. The following orders are typically C.O.D. until the matter settles. For a more detailed insight, refer to Robert Walter’s previous comments.
With this proposal, Victor Muller outs himself as an amateur in the auto business. Get real, Victor: What’s left of the parts industry is riding high and has a hard time filling orders of their biggest accounts. The tsunami destroyed capacity in Japan and did put added stress on the industry. Even with an impeccable payment record, Saab would be considered small fry by most suppliers. The OEM business is high volume at small margins.
Order a few hundred parts delivered just in time, and you’d probably hear: “Have you tried NAPA?”
Or to put it this way: When the phone rings and you hear “We have your kid. You get it back for a million” – what do you think will happen if you answer: “How about 100,000? The next kids can be C.O.D.”
Update: According to several press reports, the “Tuesday” is Tuesday the 21st of June 2011, i.e. today. That’s pretty brazen for a letter that just went out. On the other hand, we should see the reply quickly.
Update 2: Dagens Industri talked to Lars Holmqvist, chief of the European supplier’s association CLEPA. Holmqvist does not think that all suppliers will accept the proposal. “Victor Muller says Cash On Delivery, but it actually is five to six days – that’s not Cash On Delivery. If I buy a pizza, it’s Cash On Delivery. I won’t say I’ll come back in a week and pay.”
Update 3: Dagens Industri reports that Swedish automobile supplier and technology consultant i3tex filed an application for corporate restructuring as a result of unpaid bills by Saab. The debt is said to total 10 million Swedish kronor ($1.6 million). Staffan Grasjo, deputy CEO of i3tex told DI: “They clearly do not have the means to settle their debts.”
I guess it’s time for the undertaker to roll out the hearse. Oh, wait, this corpse doesn’t have a cent to its name to pay for the funeral, so try Hart Island, N.Y.!
So I guess the 9-4 suv becomes a Buick now. Since GM is actually building the things. Just slap different nameplates on them.
Not sure that what Victor Muller is doing really qualifies as: “Putting a gun to the head of a few hundred suppliers who hold your production at ransom is not considered wise.”
Rather than a gun to the head, sounds more like: “To All Suppliers: We face the real possibility of ceasing operations. You have a choice to evaluate: Stop supplying us now and receive whatever relief bankruptcy court offers, or we can offer to pay 10% of our balance now, and if we survive, we will pay the full balance with interest in September.” And setting a deadline is not unreasonable. Why prolong the agony if cooperation is not forthcoming?
Doesn’t sound that irrational for a company that is in such dire straits, and probably (we don’t know all their cards) has no other alternative. Saab offers a concise repayment plan, and the suppliers will decide whether or not to take the risky gamble. If they say no, and there is no plan B, well, that’s all she wrote, right? End of Saab. If the suppliers say yes, Saab lives until the next inevitable crisis.
I admire Saab for not going down without one hell of a fight.
Funny news from China:
Youngman agrees with Victor that 10 cents on the dollar is a fair rate, and will be cutting their offer by 90%…
Even better. He is willing to pay ten percent of the debts and then start paying C.O.D 5-6days. A completely new definition of C.O.D!
Only five comments? I can’t believe there’s flagging interest in such a fascinating story! That’s especially puzzling since update 3 signals a possible transition to court hearings and attorney pronouncements. Now we’ll get to see if the Swedish bankruptcy proceedings are as subject to politically inspired modifications as our own.
shut up
I just wonder why TTAC hasn’t started the Saab Deathwatch…
To me, it seems long overdue.
Nobody is gunna give these idiots parts for free SAAB is DEAD
The Saab-lovers comment to this story: “Just another unsubstantiated rumor spread by Dagens Industri as part of their ongoing struggle to discredit Saab.”
No, we know its dire, but we also know that the good qualities that made SAAB special, have been totally erased. It looks like the others are right, it will be like Rover again. String it along to collapse, then swoop in or the tooling and IP for peanuts. Or not.
My previous post was an actual quote from a Saab-fan on another site reading this news, not something I made up by myself.
By the way, today’s Saab news is that employees won’t get paid on time this month.