First with Financial Comment from Arabia

Saab will not be the last brand to die in this recession

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It is sad to hear that efforts to save the Swedish car maker Saab have come to nothing and that GM will now let this brand die. Only recently it was the future of GM that lay open to doubt. But Saab is apparently small enough to fail.

It is an old brand. I remember when my father died how the tragedy seemed most apparent on having to sell his lovely Saab. My brother-in-law was once a petrol head who could have been a Saab salesman, so dearly did he enthuse on this brand.

Swedish car subsidies

Then again you have to wonder at the economics of producing cars in a high wage, socialist country like Sweden. For how many years has this luxury executive brand been subsidized to continue the employment of those making it?

Recessions separate out the bad companies from the good, at least in terms of economics if not in terms of brand loyalty. You have to wonder which brand will be next?

In Dubai the government has just promulgated a special insolvency law in case the restructuring of the Dubai World units Nakheel and Limitless proves impossible. Then we heard last week from local quoted jewelry group Damas that it is also going to have to seek a restructuring of its debt.

Indeed, Dubai promises a more comprehensive bankruptcy law for small and medium enterprises very soon. At the moment all bankruptcies are handled by special decrees, and there is a feeling that this is inadequate and clumsy for modern times.

Bankruptcy law

Of course, the government is not rushing this legislation forward for the fun of it. Officials know that there are many local companies too deep in debt after the collapse of the recent real estate boom to survive.

It will be a question of organizing the orderly demise of some companies in a way that will best protect their creditors and minimize damage to the local business community. Sadly that will not alter the losses for most firms that take this route, although as GM itself has showed restructuring does not have to be fatal.

In fact, market theory suggests that the weaker players need to die so that the stronger can thrive, and supporting lame ducks weakens the strength of the business community as a whole. But this is not going to be a happy business.


Written by Peter Cooper

December 19, 2009 at 5:58 pm

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