Wednesday, April 01, 2009

Sweden’s ‘Saab’ Story

New York Times; Financial Times; Financial Times

The Swedish government recently announced its decision to refuse the nationalization of iconic automaker Saab after reports of impending bankruptcy surfaced last February. General Motors has decided to phase out the carmaker by 2010 as part of its pitch to win a loan from the U.S. Treasury and keep itself afloat. Yesterday marked the original deadline for GM to demonstrate its solvency as a condition of that government aid, but the deadline was extended by 60 days and the aid predicated upon an agreement with the United Auto Workers union.

Saab recorded $343 million in losses last year. The company has long been known for its innovative engineering, but with pressure from GM and consumers to focus on economy and volume, the brand has lost its edge over the competition. Unless Saab can quickly find a private buyer, an estimated 15,000 Saab workers will be laid off in the next year. According to Saab representatives, 6 investors, both Swedish and not, have expressed serious interest in buying the company but no names have been released.

Saab finds itself the first large-scale victim of Sweden’s policy shift away for the traditional Nordic socialism to free-market economics since the election of the new right-leaning government in 2006. The Swedish model of nationalizing and recapitalizing businesses, from banks to carmakers alike, had long been criticized as protectionism by the United States; curious considering that the latest congressional plans have outlined nationalizing both industries.

World governments have endorsed various loan, bailout, and takeover plans for the auto industry. Germany, France, and England are lending the most aid to failing carmakers, though in March, they clarified that the numbers would be much less than they originally pledged. Yesterday German chancellor Angela Merkel announced the establishment of a task force to negotiate the future of GM's European subsidiary, Opel.

Since the EU was formed as an economic union, should the bailout policies for automakers in Sweden and Germany be aligned? Should Sweden reconsider its denial of state aid to Saab? What will this news mean for other Swedish brands such as Volvo and Ikea?

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