Cash flow crisis at Saab: what went wrong?

Worrying times for stakeholders at Saab, with the business ‘teetering on the brink’, according to the BBC. Last month it was clear that the firm was struggling to break even.

What has gone wrong?

- The first indication how bad things have got must be the fact that the business has run so low on cash it cannot even pay its staff. It had already suspended production after failing to pay suppliers.

- Saab failed to reach its break even point: it was selling too few cars to cover its costs. It sold just 30,000 last year, with analysts suggesting it needs to sell 120,000 just to break even. No business can sustain such losses for long, let alone a relatively small company with very little cash in the bank.

- Saab was owned for 20 years by US car giant General Motors (GM), during which time the business was able to sustain losses. GM got in to trouble themselves and sold Saab (before ultimately ending up collapsing and being rescued by US taxpayers). Some analysts argue that when Saab were part of GM they suffered from long term under-investment.

- The firm’s product portfolio was too small and failed to update their models in time with fast-changing product life cycles.

- Saab were operating in an extremely competitive segment of the car market.

- It’s very difficult to be a cost effective small firm in the car market as economies of scale are so important.

- As debts piled up (and lifelines dried up) paying interest on loans became another significant cost.

- Saab has been unable to find a buyer for their business, so industry watchers are now very gloomy. “Potential buyers may be interested in the Saab name, but when they buy it is another matter,” says one. If a buyer does want the brand, it is likely to wait for Saab to go under and then buy the name for next to nothing - precisely what happened at MG Rover.