Socialist Sweden won't save iconic Saab auto company

Posted Mar 23rd 2009 6:00PM by Joseph Lazzaro
Filed under: General Motors (GM)

The Swedish government said it "is not prepared to own car factories," The New York Times reported Monday -- a stance widely seen as the government's refusal to bail out the iconic Saab Automobile company, which is owned by General Motors.

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.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: auto sector, General Motors, GM, Saab, Sweden

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Reader Comments (Page 1 of 1)

3-23-2009 @ 10:39PM

ij70 said...

The horror!

3-24-2009 @ 5:46AM

Al Coholic said...

Saab won't be missed. but years ago it was a very inventive company. When I was in college in the sixties I bought a Slob to bum around in. It had front wheel drive, which was unheard of then, and a goofy free wheel feature which allowed you to disconnect the driveline with a foot controlled button and coast to save fuel. Oh yes, it was a two cycle engine and you had to mix oil with the gas.....Oh to be young again. LOL

3-24-2009 @ 6:03AM

Allie said...

"Sweden is already a banana republic, perhaps on its way to becoming an Islamic republic. Swedish culture is disappearing with astonishing speed in front of our eyes. If the trend isn't stopped, the Swedish nation will simply cease to exist in any meaningful way during the first half of this century. The country that gave us Bergman, ABBA and Volvo could become known as the Bosnia of northern Europe. The "Swedish model" will no longer refer to a stable and peaceful state with an advanced economy, but an Eurabian horror story of utopian multiculturalism, Socialist mismanagement and runaway immigration."
http://www.faithfreedom.org/oped/Fjordman50506p3.htm

3-24-2009 @ 6:44AM

Paolo said...

@Allie Maybe they should also mention that Stockholm is Europe’s first "green capital" http://bit.ly/oXGEQ and that Sweden now rules the web http://bit.ly/YiNtf. I know this country pretty well and I would bet that they will come out of the crisis in a much better shape than most of us...

3-24-2009 @ 8:58AM

lass said...

think it the other way, why would swedish goverment bail out a failing business? that would be bad business for sweden, if it goes bust then all the saabs assets in sweden are basically up for grabs for free. if the bailout or even takeover money comes from elsewhere then it's good business.

the question really is if anyone else wants to buy saab or it's assets, say some chinese manufacturer that could really use a design house, but not a factory.

3-24-2009 @ 9:10AM

sgentilejr said...

Joseph Lazarro overlooked an important point in writing this article. Mr. Lazzaro said "Meanwhile, GM's departure from Saab will not appreciably change the U.S. auto maker's outlook" that statement is far from accurate. IF GM closes down Saab they stop the bleeding of losing money on their Saab operations. In his own article Mr. Lazzaro said GM lost $340 million operating Saab last year. If they close it down they can curtail and eliminate that loss in the future... and it allows them to concentrate more on their domestic operations.

4-01-2009 @ 3:00AM

rs_1127 said...

They are down to a saab 9-5 which is 20 years old, saab 9-3 which comes no where near a 3 series. 9-7x is just a rebranded gm product. No wonder.

In a good dream of mine, Volkswagen buys Saab. It would be a unique saab/german design with Audi quality, 5 star crash safety. Saab 9-3 - 09 Audi A4 Platform. Saab 9-5 Audi A6 Platform (one of the best cars today). Saab 9-9 - Audi A8 Platform. Saab 9-7x - Audi Q7 Platform. A couple more coupes and convertibles would be nice too. That is the only way people will start buying Saabs. After all the Audi A8 is considered in buying more than an S class now. Every car company that Volkswagen touched has moved up a place.