Jan Ake Jonsson, the CEO of Saab, is in Detroit today – along with a number of Swedish government officials – in hopes of speaking with other potential buyers after the deal with Koenigsegg Automotive AB fell apart.

Three potential buyers have slowly come forward including Beijing Automotive Industry Holdings, The Renco Group Inc. and investors Merbanco Inc. Obviously, the biggest name on the list is BAIH, and they are truly in a position to execute a Saab business plan; however, will BAIH and GM be able to finish a deal?

Frankly, this sounds like a last, desperate, Hail Mary type of play on the part of GM but if Beijing Automotive Industry Holdings plays their cards right they company can walk away with Saab at a fire sale price.

On another note, it looks like the problems of Dubai are going to magically go away… OK, the situation is not exactly that happy but it now looks as if the central bank of the UAE will provide a funding to insure against a default of Dubai debt. The roughly $700 billion the UAE central bank has on the books is more than enough to save Dubai, it is sad to see this happen.

Why?

Quite simply the action will calms fears and perpetuate the unrealistic belief that there will always be someone to bailout those in need, that too big to fail is a reality. If a default can happen to Dubai, it can happen to any government, but not every government will have an angel to provide them with a rescue package.

What would the world to then?

My guess is panic.

What was a shock yesterday is truly reality today.

GM is not in talks with another party to purchase Saab in the wake of the failed attempt to sell the brand to Koenigsegg Automotive AB. Unless something major happens, and happens quickly, the 60-ish year old car company will be a causality of the financial downturn – along with roughly 3,400 jobs world wide.

I wonder how many other classic brands and companies will fail during the downturn.

Here is some big news – GM’s deal to sell off Saab to Koenigsegg Group AB has fallen apart. When it first became apparent that GM was going to sell or shut down Saab the Swedes had their sense of national pride kick, leaving Koenigsegg with the desire to turn their VERY small car company into the savior of Saab (and the Swedish brand).

Initially the deal made no sense. Koenigsegg only produced 34 cars during their first years of operation, how could the company become a high volume company?  They do not have the capacity or management experience to run the brand.  Turns out the deal didn’t make sense in the end as well seeing the stockholders did not believe Saab could switch from being a “high volume” brand to a luxury brand.

Without a buyer Saab is heading to the giant junk yard in the sky, that is to say Saab is going to close down. If the deal does fall apart it will be the third time GM has failed at selling off a unit – Opel and Saturn being the other two. These broken deals only go to show how bad the car industry really is.

I was wondering when someone was going to point out that the small banks (or companies) that did not get bail-outs can not compete against those that obtained government funding.

Ironically, it is the FDIC head that points this out:

Community banks are coming under intense pressure from a crumbling commercial real estate market, a weak economy — and lop-sided competition with banking goliaths deemed too big to fail, FDIC Chairman Sheila Bair said Monday.

…

‘Too big to fail’ has become worse,” Bair told USA TODAY. “It’s become explicit when it was implicit before. It creates competitive disparities between large and small institutions, because everybody knows small institutions can fail. So it’s more expensive for them to raise capital and secure funding.”

When will “too big to fail” end?

Does the fact that FDIC Chairman Sheila Bair says “too big to fail” must end act as a warning to anyone?

Another perspective on the bail-out subject – Will other industries experience the same results?  Will Ford be able to, ultimately, compete against a government backed GM?

As noted back on 9/21, auto sales were in the tank after the “cash for clunkers” program stopped. Individuals in the auto sales noted the drop off was back to early spring sales numbers.  Now we know just how bad sales were…

General Motors Corp. says sales fell 45 percent from a year earlier. Chrysler Group LLC says sales slid 42 percent. Ford Motor Co. was down 5.1 percent, breaking a two-month streak of gains.

Cash for Clunkers created a false demand, GM and Chrysler continue to circle the drain, and it will only continue as there are no drivers (no pun intended) for the market to turn.

I haven’t posted business bits in the last few days, trying to take care of a few other things made my time limited, but there are a number of things in the financial world to pass along.

GM to sell Swedish unit Saab to Koenigsegg

Frankly, I’m surprised GM managed to pull off the deal. From a U.S. sales and distribution point of view, Saab’s footprint is insignificant compared to other luxury auto makers. When you look at the company that purchased Saab, however, one can see that any footprint is a good footprint:

Saab Automobile, General Motors Corp.’s struggling Swedish unit known for its family cars, was rescued Tuesday by a consortium led by Koenigsegg Automotive AB, a tiny company which produces only a dozen custom-made super cars a year.

GM said in a memorandum of understanding that the sale would include an expected $600 million funding commitment from the European Investment Bank, guaranteed by the Swedish government. Additional funding for Saab’s operations and investments would be provided by GM and Koenigsegg Group AB, it said.

On a dozen custom-made cars a year? Does a company that only employs 45 people and produces 12 cars each year have the ability to take over a company of 4500 with a global presence? Hmm… Why am I skeptical of this purchase? Oh, and take a look here for some facts on both companies.

Saab only sold 93,295 cars last year.  Ouch.

Two notable bankruptcies

To recreational (for lack of better words) companies filed bankruptcy in the last few days. Six Flags Theme Parks went belly up due to $2 Billion in debt. Also, the Extended Stay hotel chain fell to the crushing $7.6 Billion it had on the books.

Further signs the consumer is hurting

Credit Card default rates hit another record high.

Bank of America—the largest U.S. bank—said its default rate, those loans the company does not expect to be paid back, soared to 12.50 percent in May from 10.47 percent in April.

In addition, American Express, which accounts for nearly a quarter of credit and charge card sales volume in the United States, said its default rate rose to 10.4 percent from 9.90, according to a regulatory filing based on the performance of credit card loans that were securitized.

As unemployment continues to rise, so will the default rate.

Manufacturing has slowly moved from the U.S. too all parts of the world.  Slowly Mexico, Asia and Europe began to pick up the production slack while the United States built the ultimate collection of intellectual property. As production left the country, it seems that major manufacturers started to make business decisions that maximized short term profits while ignoring long term stability and demand.

Welcome to GM.

General Motors, the worlds largest automaker, ignored consumer demand, production trends and economic realities for decades on end. Instead of providing products the consumer wanted, the company tried to tell people what to buy.  Forget cutting production cost by outsourcing, allow your labor cost to climb.  Ignore the realities of costs related to health care, borrow from the pension funds and short change the workers.

As the company was one of the largest in the world, it could do what it wanted and get away with it… as long as economic conditions were favorable. Who was going to stop them?  They had money, they had influence, and they had means. Who was going to stop them?

After the SUV craze of the 2000s came and went, GM started to lose money – and lose it fast. In 2008 General Motors last 31 Billion dollars.   As economic conditions continued to deteriorate throughout the year, pressure on the company began to grow.  Suddenly, the well ran dry and the debt overtook the company.  The giant automaker was on a lifeline when it turned to the government late in 2008 for financial assistance.  They claimed the loans would provide them with the necessary flexibility to weather the storm while rightsizing the company.

That didn’t happen.

So, as we sit here talking about trends in manufacturing, poor management and a product line that doesn’t meet consumer demands, we need to note GM is roughly 12 hours away from declaring bankruptcy.

Plans are being put in place to make the process “quick”, all the while giving the United States government upwards of 70% of control in the post-bankruptcy company.

Tomorrow the world will see President Barack Obama stating how this is an unfortunate day for the United States and the auto industry.  He’ll note how he and the administration do not wish to take over a company but wish to do what is best for the country.  Politicians will say how this will give the company the flexibility to compete in a new world economy…

Bunk.

What the world is witnessing is the failure the American auto industry.  Frankly, if the government were to stay out of the process, we would be witnessing Capitalism at work but we are not.  Instead, the world will watch the United States government reward a company for years of failure.

GM will have the the debt on the balance sheet removed, screwing the bond holders and debtors, and it will create a “lean” company putting all other automakers at a disadvantage.  Oh, yea, and the U.S. (and Canadian) taxpayers will have lost billions because the “loans” from last year will be wiped away.

Not only is tomorrow the death of the U.S. auto industry, it is truly the end of what was once considered free market capitalism.

An update on the General Motors situation:

General Motors Corp., the world’s largest automaker until its 77-year reign ended in 2008, plans to file for bankruptcy protection on June 1 and sell most of its assets to a new company, people familiar with the matter said.

GM’s path will be smoothed by an accord today giving some of its biggest bondholders an equity stake in the reorganized automaker. The U.S. Treasury is requiring that an unspecified percentage of debt holders accept the terms by 5 p.m. New York time on May 30, Detroit-based GM said in a regulatory filing.

If you doubt that GM has plans to go into bankruptcy, take a look at a comment by the Vice Chairman, Bob Lutz:

While not confirming GM’s intentions or a possible bankruptcy venue, said any court restructuring would be quick.

“We intend to get in and out very soon,” he said today at an Automotive Press Association luncheon in Detroit. “The U.S. government wants its money back, and our plan is to pay it back as quickly as possible. The U.S. government doesn’t want to own auto companies.”

If you didn’t have intentions of bankruptcy, why would you “intend to get in and out very soon”?

At this point, it’s just a matter of time…

This is exactly what I expect to see with a number of automotive suppliers in the next several months.

Auto parts supplier Visteon Corp. said Thursday it — along with some of its U.S. units — has filed for Chapter 11 bankruptcy protection, as the company struggles with reduced demand from automakers amid plans for extended plant shutdowns this summer.

Just a bit of history on Visteon – this company found independence from Ford back in 2000 but has struggled along the way. With worldwide sales of roughly 8.7 billion the company depended on Ford, GM, Chrysler, Nissan and Hyundai for the majority of their sales. Obviously, with none of those companies putting out stellar performances, Visteon was going to take a hit.

Roughly 30,000 people will be impacted by this bankruptcy but it is unclear how they will be impacted? Will it be in the form of cuts? Will the company assets be sold off? All we know is the company has roughly 5 billion in debt and liabilities that will need to be addressed.

Well, the GM mandated bond restructuring has arrived, and the bondholders are telling GM… NOPE.  Not gonna do it.

The largest U.S. automaker had so far failed to gain anywhere near the 90 percent of bondholder support desired to stave off bankruptcy, two sources familiar with the discussions told Reuters on Tuesday. Bondholders have until midnight to make their final decision on the tender.

As of midday Tuesday, the source said the company had only “low-single-digit” interest from bondholders.

Reuters’ sources said GM will likely file for bankruptcy some time after midnight Tuesday, but before June 1.

The bondholders made the right choice as they were getting screwed with the other deal.  This all but guarantees GM is going into bankruptcy.  The next question will be this – will the government screw the bondholders during that process?