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Saab forced to seek bankruptcy protection

Swedish firm tries to buy time to find new sources of funding

Swedish carmaker Saab has been forced to apply for protection from bankruptcy after failing to raise new cash, pay staff their wages and keep vehicle production rolling.

The 64-year-old company said it was confident the legal move would buy the time it needed to stabilise its financial position by bringing in money from two potential Chinese shareholders plus cash from other sources.

Saab’s parent group, Swedish Automobile, said: “The eventual purpose of the proposed voluntary reorganisation process is to secure short-term stability while simultaneously attracting additional funding, pending the inflow of equity contributions.”

Saab is just one of a number of big names in the car industry that have struggled to cope with new, often Asian-based, manufacturers turning out cheaper models at a time when recession has undermined global sales.

The Swedish company faced closure under its troubled former owner, General Motors (GM) of the US last year, but was saved when Dutch-based Spyker Cars stepped in to buy it and renamed the new combined group.

Swedish Automobile hoped to bring in outside investors to help put Saab on a sounder footing but has struggled to turn promises into hard cash, causing car parts suppliers to refuse to co-operate.

There have only been small bouts of normal car production since March at the factory in Trollhättan, Sweden. Staff wages were not paid in August for the third month in a row. Last year Saab built only 30,000 cars, compared with the 120,000 it needs to break even.

Trade unions at the plant were threatening to force the company into bankruptcy unless it paid wages, but Swedish Automobile decided to take the voluntary protection route to buy itself time.

If the court gives its approval as expected, Swedish Automobile said it should pave the way for workers to be paid, but it admitted a new internal restructuring plan would involve a big reduction in costs.

Jan Maarten Slagter, director of the Dutch shareholders’ association, VEB, said: “Obviously a restructuring is preferable to bankruptcy. But receivership is still a step closer to bankruptcy. We’ve always warned investors it was extremely risky.”

In June, Saab said two Chinese car companies, Pangda Automobile Trade Co and Zhejiang Youngman Lotus Automobile, had agreed to take a combined majority stake in the firm, but the deals are still awaiting approval from the Chinese authorities.

Industry experts point out that Beijing has previously refused to back similar moves, such as Saab’s failed deal with Hawtai Motor Group in May and Sichuan Tengzhong Heavy Industrial Machinery’s bid for GM’s Hummer, which collapsed in 2010.

Swedish newspaper Dagens Industri said late on Tuesday that Youngman would not get the necessary Chinese official approval to take part in the deal, citing several sources.

Instead, state-owned Beijing Automotive Industry Holdings Co or 4×4 maker Great Wall Motors, were seen by Chinese officials as being more suitable partners, the newspaper said.

A source told Reuters in May that Great Wall had been talking with Saab’s owner about a possible tie-up. Tom Muller, an analyst at Theodoor Gilissen, said: “At this moment, there is no money and they [Saab] have been waiting for money for more than five months. The problem is still the same – they need the money.” © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds