Saab’s finances running on empty

This is a perfecty timed news story for any students getting stuck in to A2 finance modules and in particular the issue of working capital. I spotted it via Twitter where it was posted by Allan Todd and is also a great example of how Twitter is such a good tool for spotting relevant stories as they emerge.

Saab are clearly in big trouble and have been for some time. However, what is interesting about this story is that Saab and it’s Dutch owners (somewhat confusingly called Swedish Automobile) have secured funding for the long-term future of the company through talks with Chinese firms. Where Saab are struggling is in meeting their short-term commitments, a classic case of working capital problems.

They have already had to shut down production after suppliers stopped deliveries due to a failure to pay for raw materials. Now SAAB have admitted they do not have funds in place to pay wages to employees. This is a great case study to use in discussing the importance of keeping enough capital to meet short term needs, and the influences upon the amount of working capital required. For SAAB and other car manufacturers, the length of time from taking delivery of raw materials to receiving payment for a finished car will be a major influence on what is needed in terms of working capital. Presumably SAABs trade credit from suppliers is vastly reduced or removed altogether, compounding their problems. It would be very interesting to see their accounts and do a bit of ratio analysis right now.

This is a story to keep an eye on as it develops over the next week or two.