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Attorney Leonard Bellavia representing Saab dealers
<p> <strong>Attorney Leonard Bellavia representing Saab dealers. </strong></p>

Saab Dealers Head to Court

Dealers want a preferred place in line as the liquidating Swedish auto maker pays off creditors.

Rumors about Saab getting an eleventh-hour reprieve are just that – rumors. But talk of U.S. dealers retaining counsel is real.

“We notified creditors that it is our opinion there is no way to salvage the company,” says Jim McTevia of McTevia & Associates, a Bingham Farms, MI, consultancy hired by Saab Cars North America to oversee the company’s U.S. operations wind-down phase.

He squelches talk that new buyers for the group have emerged.

“I’m in daily contact with Sweden (Saab) and we’ve received all kinds of rumors, but no tentative buyers have surfaced at this point,” he tells WardAuto. “There are always rumors about distressed businesses being bought, but in my experience that doesn’t happen.”

Saab North America suspended operations and hired McTevia’s firm after parent company Saab Automobile filed for liquidation Dec. 19 in a Swedish bankruptcy court.

The subsidiary retained McTevia to assure all creditors are treated fairly, says Tim Colbeck, Saab Cars NA’s president and chief operating officer.

Saab filed for liquidation after former owner General Motors blocked a deal to sell the company to Zhejiang Youngman Lotus Automobile, a Chinese competitor.

“It’s my hope and desire, based on all I know, that the parts-distribution business will continue,” McTevia says of a Pennsylvania-based operation. “I’m going to predict it will continue in some fashion.”

Dealerships and shops need the parts business to continue in order to service and repair Saabs that remain in operation. More than 2 million Saabs were sold in North America over the years.

Business at the Saab Cars NA headquarters in Royal Oak, MI, has nearly ground to a halt. The company laid off about 90% of its employees by Jan. 13. “Only a handful, six or seven, remain at its headquarters,” McTevia says.

Of 188 U.S. Saab dealers, so far 161 have joined forces to ask Saab Cars NA to offer warranties for cars sold after 2010 and to reimburse them for losses incurred in selling the vehicles. Some dealers have engaged in heavy discounting to clear their inventories.

In January, the dealers retained Bellavia Gentile and Associates in Mineola, NY, for legal counsel as they seek to have Saab meet their requests. The firm has represented hundreds of Chrysler and GM dealers in their termination cases against those auto makers.

In turn, Saab is asking the dealers to give its U.S. subsidiary time to work out the issues and not file a Chapter 7 involuntary bankruptcy. New buyers were sought after GM rejected a purchase offer by a Chinese firm to take over the insolvent auto maker.

Leonard Bellavia, a partner at the law firm, estimates the liquidated assets are worth between $75 million and $125 million, including money GM owes dealers for warranty work. He estimates liabilities at $10.5 million.

The law firm had said it was prepared to force Saab Cars NA into involuntary bankruptcy if the subsidiary didn’t safeguard its assets from its Swedish parent.

On Jan. 30, a group of 41 Saab dealers represented by Bellavia petitioned a U.S. bankruptcy court in Wilmington, DE, to place Saab Cars NA into Chapter 11 bankruptcy protection.

The legal matter apparently will affect GM, which discontinued Saab as part of its government-orchestrated bankruptcy and restructuring activities beginning in 2009.

“This case will involve GM, as it owes Saab more than $20 million for warranty claims,” Bellavia says. “The dealers will seek to compel GM to pay that debt so their own warranty, incentive and advertising co-op funds can be paid, as well as losses on the sale of remaining new-vehicle inventory.”

Bellavia says GM still owns about 15% of Saab, and it vetoed an offer that might have led to financial rescue by the Chinese auto firm. GM said it was seeking to protect its technology investments.

GM holds $326 million in stock received at the time it sold Saab. GM spokesman Jim Cain says those are preferred shares “that we carry at zero-value on our balance sheet.”

They aren’t voting shares, meaning “we don't have the ability to block a sale,” he says.

But he adds, “There are technology licenses that we will not agree to renew. In addition, supply contracts would have to be renegotiated if there is a change of control.”

GM is “not in discussions with anyone related to the sale of Saab,” Cain says.

After GM declared bankruptcy in June 2009 and shed some brands, Saab was sold in 2010 to Victor Muller, CEO of Spyker Cars, a Dutch low-volume luxury sports-car maker.

However Muller failed to raise enough cash to pay bills, make Saab solvent and get the Swedish plant fully up and running.

At first, Saab dealers were starved for new inventory. After Saab declared bankruptcy, many dealers slashed prices to unload unwanted stock.

Bellavia says his dealer clients seek to obtain compensation from GM, “as well as claw back some large preference payments made by Saab to preferred creditors within the last 90 days.”

The petitioning dealers also want preference over other creditors and are asking the company for financial transparency as it winds down operations.

“Our intention is with all our dealers and our creditors to be as transparent as possible,” Colbeck says. “That is McTevia’s role.”

But it doesn’t look good for dealers, says John Symes , a Saab dealer in Pasadena, CA, who is a party to Bellavia’s bankruptcy-court petition.

“Saab has assets in North America and dealers are looking for some sort of compensation for loss of the value of their products and past-due warranty claims,” Symes says. “We are eating the warranty costs.”

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