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Saab After Gm
Saab After GM
According to Financial Resource Management course, it simplified conceptsof understanding financial statement to measure financial performance of acompany, using techniques to evaluate a companys financial position such asfinancial ratio, and applying economic idea to make decision for business realitysuch as break-even analysis and economic of scale. Therefore I would like topick up Saab Automobile bankruptcy as a case study to analysis through thefinancial method. In my opinion, under the above concepts we could figure outwhat is going on with Saab until it bankrupts. And this example is obviouslythe extremely terrible case because it shows all things we should not be.
Saab Automobile,which is better known as Saab, is a high talented Swedish car manufacturer, butnow this high profile marque is going to be the automobile scrapheap because ofpoor cash flow and diminishing of scale. At the beginning, Saab had been adivision of Saab, Svenska Aeroplan Aktiebolaget, a domestic military aircraftSwedish company, since 1940, and it was the exclusive automobile Royal Warrantholder as appointed by the King of Sweden. Unfortunately, in 1989 General Motorsacquired 50% of its car operation, and took 100% in 2000 that everything hasbeen changed. Nothing is the same for Saab, and this tragedy has begun. The essaywill interpret how this iconic brand missteps into financial problems tillbankruptcy by focusing on liquidation in statement of cash flow, ownineffective balance sheet plus poor profit and loss statement, mistake inoperating economic of scale and fail to reach to break-even point during subprimecrisis.
The tragedy occurredin 2008 when the subprime crisis happened Bear Stearns was acquired by JPMorganChase. The impact was like a domino that wrecked majority of car industry-includingGeneral Motors which was quickly going down the same path. There was no doubtthat it needed a serious restructuring. It burned through $9 billion of cash inthe first 9 months of 2008, but it had a labor cost 50% higher than U.S.-basedToyota plants while it was producing cars nobody wanted. Sadly, its totalliabilities that were more than 50% greater than the book value of the assetsdumped its position to bankruptcy. Luckily, General Motors was too big to failthat trended the U.S. Treasury Department agreed to lend up to $1 billion to GeneralMotors and put it as a part of a program to assist the domestic automotiveindustry like Ford on December 2008. To survive General Motors has decided torestructure; it was dropping Pontiac, selling Hummer and Saturn and working tounload Swedens Saab. Surprisingly, General Motors got an unbelievable offerfrom a tiny Dutch luxury car maker, Spyker, on December 2009. On January 2010,Spyker bought Saab from General Motors for roughly $74 million in cash, whilethe European Investment Bank would provide a 400 million euro loan ($566million) guaranteed by the Swedish government. As part of the deal, GeneralMotors would also retain preferred stocks worth about $326 million in Saab Atthat time; Saab had total assets, including plants, equipment and cash of about1 billion euro, and liabilities of 528 million euro. This would be ahappy-ending story, but does this day-dream become true?
Now lets look at Saabs financial statements by starting with income statement which tells how anature of business it has and result of its performance. In 2009 (Figure 1) Saabsells none of its car, but administrative expense and financial expense stillexist; therefore at the end of the year it loss 22,953,000 euro as the result.For year-2010 (Figure 2), net sales boot up to 819,235,000 euro, however itstill faces operating loss as 140,128,000 euro because of ineffectivemanagement in operating expenses. And the result of the period, it continuesuffers with net loss at 218,283,000 euro. By the way, net sales in the thirdquarter of 2011 have little increased to 434,764,000 euro, but it struggleswith net loss at 366,938,000 euro. This means since Spyker acquired Saab, ithas never met the profit.
FIGURE 1: Consolidated incomestatement for the year ended 31 December 2010
FIGURE 2: Interim consolidatedincome statement for the period ended 30 September 2011
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