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Saab has not made a profit since 2001

An administrator has been appointed to handle the process. Saab is seeking to create a fully independent business.

GM has said that it wants to sell Saab. There had been concerns about the loss-making carmaker after the Swedish government rejected GM’s call for aid. GM took a 50% stake in Saab in 1989 and gained full ownership ten years later. Any restructuring would need the approval of Saab’s creditors, who meet on 6 April.

Expressions of interest
“Today is the beginning of a new chapter in Saab’s history,” said Jan Ake Jonsson, Saab’s managing director. He also said that several companies had expressed interest in Saab, though he declined to name any.

“Even though we have not been actively searching for new partners, we have had many knocking on our door showing interest in Saab,” he said. He also revealed that creating a separate unit of Saab and German carmaker Opel, also owned by GM, had not been discussed.

Separately, the German government said that it had not received an official application for a state guarantee from carmaker Opel. The government was waiting for a plan from Opel on its future before making any decisions, a government spokesman said.

Government aid
Despite turning down GM’s request for support, a senior Swedish government official has said the government has not ruled out providing loan guarantees to Saab following its restructuring. “It is not the case that we have closed the door to that. That will depend on what the plans look like,” Joran Hagglund, state secretary at the Swedish Industry Ministry, told the Reuters news agency.

Sweden said last year that it would provide up to 25bn Swedish crowns in aid to its auto industry to help it through the economic crisis. Mr Jonsson said Saab expected to be given access to the state funds.

Saab said in a statement that the reorganisation was “the best way to create a truly independent entity that is ready for investment”. In a restructuring plan submitted to the US Treasury this week, GM had said it planned to make Saab an independent business by the start of 2010.

Loss-making
Sales at Saab in 2008 were down 25% on the previous year. The Swedish carmaker has not made a profit since 2001. In 2007

Saab's managing director said this is the beginning of a new chapter

it made an operating loss of 2.19bn Swedish crowns ($248m; £175m), according to regulatory filings.

It estimates its losses in 2008 at around 3bn Swedish crowns and expects a similar loss this year, filings also revealed.

Stephen Pope, chief global strategist at Cantor Fitzgerald, believes GM “oversaw the destruction of the Swedish car company’s soul”. “Just look at the current ‘93′ [model] as an example,” he said. “The ‘93′ is just a Saab body skin placed on top of the Vectra from Opel/Vauxhall.”

Protection from creditors
The reorganisation process is the Swedish equivalent of going into Chapter 11 bankruptcy protection in the US, providing protection from creditors. Saab has plans to launch three new models over the next year and a half. “Reorganisation will give us the time and means that help get these products to market while minimising the liquidity impact of Saab on GM,” Mr Jonsson said.

Saab said funding for the restructured company would need to be secured during the three-month reorganisation process and would be sought from both public and private sources. During that period, the company is not allowed to pay off any debts accumulated before the reorganisation was declared.

Supplier concerns

Saab employs about 4,100 people in Sweden. Thousands more work for suppliers to the company.

Responding to concerns from Saab’s supplier base, GM Europe said it would establish “a viable mechanism for the timely payment of suppliers’ claims towards Saab”.

GM added that it hoped the gesture would encourage suppliers to support Saab’s efforts to reorganise into an independent business.

Union Givebacks, Rising Market Share Are Tied to Rivals’ Bad News; Why Some Shoppers Switch to Ford

Ford Motor Co., which hasn’t taken a dime of government bailout loans, is benefiting from the troubles of its two cross-town competitors in Detroit, General Motors Corp. and Chrysler LLC.

GM and Chrysler are required to seek cost concessions from the United Auto Workers union under the terms of their federal loans. That allowed Ford to open parallel talks with the UAW, which has a history of working out the same conditions at each company.

This week, Ford and the UAW reached an agreement to cut pay for laid-off workers, ease work rules and eliminate wage increases tied to the cost of living — two days before GM and Chrysler reached the same deal.

Ford CEO Alan Mulally, left, and GM CEO Rick Wagoner at the Detroit auto show last month. Ford has been winning more U.S. customers.

At the same time, while GM and Chrysler have been hit with a steady stream of negative news — including growing concern they may need to file for bankruptcy protection — Ford has been having more success at luring away its competitors’ customers.

Ford’s share of the U.S. retail market rose in each of the past four months, while GM’s and Chrysler’s fell, Ford said.

In January, 45% of Ford buyers turned in cars or trucks of other manufacturers, up from 38% in August, according to Edmunds.com, an auto-shopping Web site. Meantime, the “conquest rate” for GM’s Chevrolet was 43% last month, down from 49% in August, and for the Chrysler brand, the conquest rate was 60% last month, down from 67% in August, according to Edmunds.

“That’s a sign that there is something definitely going on for Ford,” said Jesse Toprak, an analyst at Edmunds Inc.

For some domestic-car buyers, the bankruptcy talk has been enough to cause them to defect to Ford. John Grassi of Warren, Mich., recently turned in his leased Dodge Grand Caravan minivan and replaced it with a Ford Fusion.

“The future of GM and Chrysler certainly played a part in my decision,” said Mr. Grassi, 50 years old, who works for Warren’s parks and recreation department. “Ford seems to be the most sound in terms of staying solvent. I mean, you look at your warranty and you want that warranty to be good.”

Still, Ford has many challenges. Edmunds’s Mr. Toprak said the company is “weighed down” by the perception of many consumers that it is in the same boat as GM and Chrysler. All auto makers are suffering from the recession and credit crunch, which have sent sales plummeting. In January, Ford’s sales were down 40%. And the company continues to post huge losses, including $5.5 billion in the fourth quarter, which are eating up its cash.

Ford isn’t assuming its trend of recent market share increases will continue. “This market provides limited opportunities. You can’t will yourself to higher sales,” said Ford sales analyst George Pipas.

The terms of the government loans also require GM, Chrysler and the union to work out a way for the companies to put less cash and more stock into trust funds to cover the cost of health care for retired union workers. That has opened the door for similar talks at Ford, although no agreements have been reached yet.

Ford also is believed to be seeking concessions from its bondholders and dealers, also required by the loans given to GM and Chrysler. Ford has been less forthcoming about the state of these negotiations. But Ford Chief Executive Alan Mulally said during an earnings call last month that “I really believe from the ongoing conversations that we are having with all the stakeholders and the U.S. government that as we go through this and we continue to take the actions that we need to take that we will not be disadvantaged.”

Meanwhile, Ford seems to have made headway with customers as both GM and Chrysler nearly ran out of money over the past few months. In Centerline, Mich., Bob Thibodeau said he’s noticed more owners of other makes shopping at his Ford dealership. “We have certainly seen a lot more cross-shopping in recent months like we’ve never seen before,” he said.

Ford also may be seeing more customer traffic because it just launched a redesigned version of its F-150 pickup truck, the top-selling vehicle in the country, and its finance arm is healthier than the lenders GM and Chrysler work with, GMAC LLC and Chrysler Financial.

The taxpayers would be saddled with much higher costs

With U.S. automakers asking for billions more dollars in aid from the U.S. government, it’s worth asking something that was almost unmentionable just a few months ago: Shouldn’t General Motors and Chrysler just file for bankruptcy?

On Tuesday evening, meeting a deadline to file viability plans with the U.S. Treasury Department, GM and Chrysler asked the government for up to $21.6 billion in additional government loans by March 31 to survive the current recession. The funds would come on top of the $17.4 billion allocated to the automakers in December.

The automakers’ new requests were accompanied by plans for thousands more job cuts, slashing of models and brands, union concessions and the prospect of even further expense cuts — acknowledgments that the U.S. auto industry has grown significantly worse since late December, when the Bush administration granted the automakers billions in federal loans to stay in business.

Bankruptcy is the dirty word of the automotive industry’s current dilemma. Late last year, as the automakers sought financial help from the government, some industry observers argued that a traditional bankruptcy filing — or Chapter 11 proceedings, where a company gains court protection from its creditors while it reorganizes its operations — could create a vicious cycle, pulling down other automakers like Ford and their suppliers and ultimately have a devastating impact on the broader U.S. economy.

They also argued that consumers would not want to buy vehicles from an automaker that is in bankruptcy proceedings, for fear of not having their vehicle warranties honored.

But even though GM and Chrysler are burning through hundreds of millions of taxpayers’ dollars each month, most analysts still say bankruptcy, or some form of it, would not necessarily be a good option for the struggling automakers.

“If these companies went into bankruptcy right now, in exactly the position they are in today, they would be liquidated because no one out there would supply them with the financing they need to get through bankruptcy,” Mark Zandi, chief economist with Moody’s Economy.com, told CNBC Wednesday.

That would mean a few million jobs lost, Zandi said, which would be “cataclysmic” for the U.S. economy, already shedding about a million jobs every two months. A better option would be to give the automakers the extra funding they need to stay in business until March 31. Then the government could prepare for a bankruptcy later on with provisions for securing financing to bring them through Chapter 11 and guarantee vehicle warranties.

On Tuesday afternoon, the White House said it has not closed the door to a government-backed bankruptcy for the struggling automakers. This is not a common or garden bankruptcy. In a government-run, “prepackaged” bankruptcy — one in which a company prepares its reorganization in cooperation with its creditors and implements it as soon as it enters bankruptcy — a company can keep operating while it gets relief from its obligations, including any contract with its union.

Analyst David Leiker at financial services firm Robert W Baird still sees bankruptcy as the best option for the automakers. Although it is likely to be “painful near-term, we continue to believe that the challenges to restructuring GM and Chrysler are too complicated to be met outside of a bankruptcy,” he said Wednesday.

Large U.S. companies have successfully emerged from bankruptcy in the past. In September 1983, Continental Airlines’ Chairman Frank Lorenzo put the airline into bankruptcy. He brought it out again days later as a new, restructured Continental, hiring back employees at lower salaries than the airline had originally paid.

Bankruptcy would cost more

“Bankruptcy doesn’t mean a company shuts its doors and fires all the workers; it doesn’t mean liquidation,” Lorenzo told CNBC. “But if the government is not willing to subsidize a company it’s probably the only realistic option. There’s a view that GM won’t make it through bankruptcy, but I remember people said Continental wouldn’t make it thought bankruptcy, but we were the first airline to fly through bankruptcy, and I have little doubt GM can make it through this and continue to make cars.”

GM and Chrysler argue that their businesses are best served by restructuring the company outside a bankruptcy filing. The two automakers still must resolve some major issues before March 31 — a government-imposed deadline for them to implement their restructuring plans — including major concessions with the union and debt-holders. They must also work with President Barack Obama’s new cabinet-level task force to oversee a restructuring of the auto industry.

In its report to Treasury, GM said bankruptcy would cost the government more in loans. It said the Obama administration would have to finance the companies though their restructuring, as banks are doing very little “debtor-in-possession” financing — the funds they typically lend to companies working to emerge from bankruptcy.

GM, the largest U.S. automaker, said a “prepackaged” bankruptcy would cost the government $36 billion, while a traditional Chapter 11 bankruptcy would require the government to put up between $71 billion and $86 billion. Both figures are larger than the amount already provided to keep the automakers in business. Chrysler estimated that the bill for bankruptcy could cost hit $1,200 per taxpayer.

An outright liquidation of either of the companies — which would bring massive unemployment, lost tax revenues, and would place the burden of the automakers’ pension liabilities on the government’s shoulders — would cost the government more, according to Rebecca Lindland, director of the Automotive Group at consultancy IHS Global Insight.

“If taxpayers are complaining now, wait until the pension obligations are swapped over — it will cost a lot more than the $39 billion the automakers are asking for now,” she said. “So in any scenario, it’s not as if the taxpayer’s going to get away with this scot-free. With so many workers losing their jobs there would be a lot of federal aid required.”

Lindland also argues against backing out of the current plan to reform the industry, adding that the $39 billion figure still pales in comparison to the $300 billion paid out to prop up the banking sector.

“The government has committed to rebuilding these companies, and if we the taxpayers want to get repaid on these loans we need to put more money in,” she said.

“We are not yet at the point of diminishing returns,” Lindland added. “If they can get the cost-cutting measures from the union, if they can restructure their brands and close plants, there will be long-term benefits. They are scheduled to start repaying these loans in late 2011, and while that might be a little aggressive because the market is bad, they are still going to repay the loans. If we allow these companies to go bankrupt there could be no chance of recouping all these taxpayer dollars.”