China Watch : SAIC pressured to aid Korea’s SsangYong
Christian Oliver and Kang Buseong, Financial Times, 27th December, 2008
SAIC Motor, China’s largest carmaker, has come under pressure to rescue SsangYong Motor, the South Korean sport utility maker it took control of in 2004.
The South Korean government on Friday said it would not aid SsangYong, which has idled its main production line for three weeks and delayed payment of salaries, unless SAIC put in more capital first.
SsangYong has emerged as a test both of how far Seoul will go to protect large manufacturers hit by the global downturn and of how willing Chinese companies that bulked up on overseas acquisitions will be to defend their assets through the economic downturn.
SAIC, which bought up assets in the collapse of MG Rover, began production of the MG TF sportscar earlier this year in Birmingham. Its purchase of SsangYong was the first overseas buy-out by a Chinese carmaker.
State-run Korea Development Bank said on Friday it had asked SAIC, which holds a 51 per cent stake, to provide a total of Won320bn ($241m) to help save SsangYong. The funds represent Won120bn in cash for technology transferred to SAIC from SsangYong and Won200bn to guarantee loans from Chinese banks to SsangYong.
SsangYong’s November sales dropped 63 per cent from the year before as the global slowdown in car sales hit its primary segment particularly hard. In the third quarter, it posted a loss of Won28.2bn. SAIC could not be reached for comment on Friday.
The question of whether SAIC will help SsangYong hinges on the fractious relations between the Chinese management and the Korean carmaker’s union. Lee Chang-geun, head of the union’s planning department, said SAIC was demanding concessions from the union.
SAIC has not delivered the investment it promised, but we are open to talks
Since the SAIC buy-out, SsangYong has frequently clashed with the union, with a 2006 strike shutting production for a month. Other South Korean carmakers are also struggling from the drop in overseas markets and the slowing domestic economy. Hyundai Motor and affiliate Kia Motors, together the world’s fifth-biggest carmaker, have frozen administrative wages and cut working hours at domestic production plants.
The Ministry of Knowledge Economy has raised hopes the government could assist struggling carmakers. In a policy report, it said it would consider ways of providing liquidity to carmakers.
[Source: Financial Times]
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