Korean Carmaker Ssangyong Seeks Receivership

Posted by: Ihlwan Moon on January 9, 2009

South Korea’s cash-strapped Ssangyong Motor sought court receivership on Jan. 9 to buy time to restructure itself in the face of plunging sales and a liquidity crisis. The move came after China’s SAIC Motor Corp., which has a controlling 51% stake in Ssangyong, declined to come to its rescue. It virtually ended SAIC’s four-year management of the first overseas automaker controlled by a Chinese company.

The Seoul Central District Court has one month to either liquidate the company or grant receivership. If the court accepts Ssangyong’s request for protection from creditors, SAIC will keep its stake but will have to relinquish control of the firm. Ssangyong, the smallest of Korea’s five carmakers, mainly produces sport utility vehicles and has posted four straight quarterly losses.

SAIC recently came under pressure to rescue Ssangyong, but analysts say the largest Chinese carmaker appears unwilling to invest further in the Korean company as the global auto industry is caught in its worst contraction in decades. SAIC paid $45 million to Ssangyong for technology development last month to help improve short-term liquidity. But it has been reluctant to provide additional support, unless the labor union agreed to a wrenching plan to cut costs.

The Seoul Korean government has refused to aid Ssangyong, whose main production line stayed idle for weeks last year, unless SAIC put in more capital first. Ssangyong has been plagued by labor strife, with the union accusing the Chinese management of failing to keep its promise of investing nearly $1 billion in research and development. Since the SAIC buyout in 2004, Ssangyong has frequently clashed with the union, with a 2006 strike shutting production for a month.

Some analysts point out SAIC has little incentive to keep investing in Ssangyong, given that it has secured technologies it needed from the Korean company. Ssanngyong has been the worst performer among Korean automakers, with its December sales down 53%, against 13% fall in the local industry’s combined sales. SAIC also has options to buy other troubled foreign car makers with better brand names if it sought expansions.

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