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Spyker Faces Challenges After Saab Takeover

Dutch automaker, which hasn't made a profit in 11 years, must turn two loss-making car companies into one profitable one while operating under mountain of debt.

AMSTERDAM (AP) -- Spyker, the tiny and little known Dutch automaker which in its 11-year history never made a profit, has confounded critics by pulling off the acquisition of the much larger Saab with a fistful of promises and $74 million (euro52 million) -- less cash than Saab has on its books.

But now comes the hard part: turning two loss-making car companies into one profitable one while operating under a mountain of debt.

"You need some imagination to realize a relatively small company can buy a very large company," Spyker Cars NV Chief Executive Victor Muller said Wednesday of the improbable deal.

"But there's a perfect storm going on in this industry, in which very unusual things can happen."

The unusual circumstances included a motivated seller in the form of bailed-out automaker General Motors Co., which wanted to be rid of the loss-making Swedish unit; a motivated buyer in the form of Muller, eager to catapult Spyker onto a larger stage; and a motivated funder in the form of the Swedish government, which underwrote a $550 million loan to seal the deal because it wants to see the company's 3,400 Swedish employees remain in work.

The government-backed loan will tie Spyker's hands in terms of cutting Saab's labor costs, but Muller's plan to return the company to health involves raising sales rather than streamlining operations.

Muller said Saab's brand has suffered under GM's management and vowed to turn the company around by bringing back its traditional customer base, upper middle class families.

"I am a person who believes in brands. And Saab belongs among the 30 strongest brands in the world when it comes to cars. If I didn't believe in the brand I wouldn't be standing here today," Muller told Swedish news agency TT.

"I can give Saab its DNA back. That's actually what I am good at," he said. "It's actually easier to bring back Saab's DNA...than to make the company profitable."

He said the 1.5 million Saab owners worldwide are potential buyers and forecast sales will soon return to the 100,000 they last surpassed in 2007, before falling to 94,000 in 2008 and 40,000 in 2009.

Analysts see problems with that plan, though.

"Where are they going to get the time and money?" said Stephen Pope, an analyst at Cantor Fitzgerald, who said he was deeply skeptical of Muller's plans.

The latest Saab model, a 9-5 just entering production, is based on an Opel floor plan.

Pope said it would prove difficult to demand a premium for what is essentially an Opel. Regardless of branding and exterior design "customers see through it."

A new generation of cars will take years to design and bring to market, he said.

Meanwhile, finding a place in the market for Saab will require a deft touch. Position Saab at the high-end -- like Spyker's $200,000 luxury cars -- and it's impossible to sell enough of them to justify the company's current overhead, including its factory and highly paid work force in Sweden.

Position it much lower, and you end up competing with big carmakers that have better economies of scale.

Meanwhile, the companies' financial situation is little short of dire.

According to figures released by Spyker Tuesday, in 2009 Saab lost euro400 million on sales of euro1 billion.

At that rate, Spyker has funding for about two years of operations: Saab has around euro200 million in cash and Spyker has a credit line of euro150 million, in addition to the $550 million government-backed loan.

Pope said that, despite the loyalty shown by Saab fans in recent weeks, doubts about the viability of the carmaker would weigh on potential customers' minds.

"You're going to take a long hard look before buying," he said.

"They will be able to get parts, but can they get it serviced and not have to travel too far for anything more than an oil change?" he asked.

Spyker, based in Zeewolde, the Netherlands, is so small that its operations are largely irrelevant -- except that they don't inspire confidence. It has never made a profit, and lost euro8.7 million on sales of euro4.1 million in the first half of 2009, its most recent reporting period. It produced 21 cars.

Spyker did not have a balance sheet prepared for Tuesday's announcement, but after the deal it will bear considerable debt, beginning with the $550 million government-backed loan.

Muller, who is believed to have made his fortune at the stock market listing of Dutch fashion company McGregor, lent Spyker $105 million from his own pocket on Tuesday to pay off Russian creditors and cover the cash payment to GM.

In addition, as part of the deal, GM received preference shares in Saab resembling a $326 million loan. Spyker must pay 6 percent interest on that amount starting in 2012 and 12 percent interest in 2014.

Spyker investors and Saab workers applauded the deal, though.

"I have a message from your new shareholder: Long live Saab!" Muller told cheering workers at the Saab museum in Trollhattan.

"See you in the factory," he added, before posing for photos between a Saab car and a Spyker car.

"I feel a great relief that a great leap toward Saab's rescue has been made," said Stefan Lofven, head of Swedish metalworkers union IF Metall.

Spyker shares, which have already doubled in the past two weeks, rose 45 percent to euro5.675, representing a market value of about euro91 million.

Associated Press Writer Karl Ritter contributed to this story from Stockholm.

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