Saab Can't Pay Its Employees: Is The End Near?

June 23, 2011

Saab's troubles since leaving the General Motors fold for Dutch ownership and Russian banker courtship have been many. Production halts, inability to pay its suppliers, and now, inability to pay its employees--the list is growing more and more desperate, and the company is too. This could be the end of Saab.

In mid-June, Saab's corporate parent Spyker was still seeking financing for the ailing Swedish brand by courting various Chinese automotive firms, including Pangda Automobile Trade Co., a network of dealerships, and Youngman Lotus Automobile. Those deals fell through, leaving Saab without any cash or much in the way of prospects.

Just this week, Saab extended its production shutdown, which has been in place intermittently since April, through July 3. Saab said at the time that it planned to return to normal production from July 4-24, but the latest development casts that in doubt. A day later, Saab revealed it was unable to pay its suppliers, asking them instead to take 10 percent of the debts owed, with the rest promised to come in September. Saab's supplier debts were estimated at $47 million.

Today, Saab announced it is no longer able to pay its employees because it hasn't received any short-term funding. Discussions with "various parties" are ongoing, but at the moment, it's not clear where the funding would originate. Saab itself acknowledges that there can be "no assurance that these discussions will be successful or that the necessary funding will be obtained."

If Saab can't pay its workers, and financing isn't found very soon, it may be the last straw for the company. Employee unions at Saab have already threatened legal action against the carmaker for unpaid wages. If that lawsuit gets enough traction, it could force Saab into bankruptcy. That Saab would emerge relatively whole from the process, given its current straits, is unlikely.

[Bloomberg, Reuters, Auto News (2) -- sub. req.]

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