If the Swedish government's decision does not change, that would mean that mostly-socialist Sweden will not provide loans to a major, domestic automaker, while the mostly-capitalist United States will. General Motor's (NYSE: GM) shares closed Monday up 17 cents to $3.35.
Investors may legitimately ask: how can this be? The answer isn't simple.
First, although Sweden currently has a right-of-center government after extensive rule by the Social Democrats, unemployment and economic dislocation in Sweden caused by the recession and/or by globalization do not have the same social consequences as they do in the United States. That's because Sweden has a vast and comprehensive social safety net that eases the transition to new employment and make wholesale individual economic devastation less likely than in the United States. Sweden's public sector accounts for 52% of GDP, according to U.S. CIA data -- and this is without the large military spending that occupies a considerable portion of federal government spending in the United States.
In other words, if you're downsized in the U.S., you're pretty much on your own: public assistance is minimal and limited, compared to Western European democracies. Conversely, if you're downsized in Sweden, you'll receive much more support in transitioning to a new job, including retraining, and a longer period for unemployment compensation/income maintenance.
Second, the Swedish government's relationship with General Motors has not been harmonious: bailing out Saab would be seen as using Swedish taxpayer money to help a foreign auto marker that it doesn't like. Saab also lost more than $340 million last year.
Stock Analysis: GM has long-planned to pull-out of its Saab operation by the end of 2009. Hence, Saab's fate is in the hands of other investors: the manufacturer must find alternate capital sources to continue. Meanwhile, GM's departure from Saab will not appreciably change the U.S. auto maker's outlook, and the company obviously remains a Don't Buy at this juncture.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.