miércoles, 26 de agosto de 2009

How much longer can Ssangyong survive?

By: Martin Kahl, Friday, August 07, 2009, AutomotiveWorld.com

This week, South Korean riot police made several raids on Ssangyong’s factory in Pyeongtaek in order to quell an illegal occupation of the plant by Ssangyong workers and protestors that began on 31 May. The 77-day plant siege – the most violent industrial action in the company’s recent history – followed a bankruptcy court’s approval of a restructuring plan involving the loss of 2,600 jobs, or approximately a third of Ssangyong’s workforce. The company was granted bankruptcy protection in February 2009 after its parent company, Shanghai Automotive (SAIC) and the Korean Development Bank (KDB) refused to provide the company with further funds.

The former Daewoo subsidiary was spun off in 1999, enabling it to escape the collapse of its former parent. Having effected a remarkable turnaround, it became a profitable SUV specialist, and in 2003 was put up for sale by its creditors. Chaotic negotiations ensued, with seven companies in the running, including Chinese state-run chemical company Blue Star Group, GM, Renault, a US pension fund and a Saudi prince. In January 2005, SAIC completed its acquisition of Ssangyong with a payment of Won 590bn (US$573.5m at the time) for a 48.9% stake, which it later increased to 50.91%.

The acquisition was part of SAIC’s plan to become the world's sixth-largest vehicle manufacturer by 2020; it provided SAIC a presence in the SUV segment and looked good for Ssangyong too, giving it access to the Chinese market and apparent financial stability.

However, for years, the Ssangyong numbers have failed to add up: one main plant with an annual capacity of around 220,000 units employing over 7,100 workers making just over 100,000 units of the entire Ssangyong range (Actyon Sports SUT pick-up; Actyon, Kyron and Rexton SUVs; Chairman and Chairman W luxury sedans; and Stavic/Rodius minivan) - less than 5% of which was sold outside the domestic market.

These inconsistencies were reflected in the company’s financials. Ssangyong reported a loss in 2005 of Won 103.4bn (US$110.7m), and a loss in 2006 of Won 195.9bn (US$209.74m). By 2008, losses stood at Won 709.7bn (US$530.3m), and in early 2009, the company faced liquidation. On 6 February, SAIC relinquished management control of Ssangyong (it retained its 51% stake, although this will now be reduced) and the company was granted bankruptcy protection.

From the outset, Ssangyong’s highly unionised workforce was suspicious of SAIC’s intentions, fearing it would drain off Ssangyong’s intellectual property rights and transfer manufacturing to China. Relations became further strained when it became clear that SAIC was unlikely to fulfil investment commitments, and worsened when the Chinese parent company sacked Ssangyong executives and replaced them with SAIC executives. The workforce has been in a seemingly constant battle with management, and strikes have become commonplace.

Frequent announcements of production cuts and plant idling at Ssangyong became confused with proposals to build two new production lines. Ssangyong even claimed it had five new engines and around 30 new vehicles in development, for launch by fiscal 2011. Although the company has displayed concept vehicles at recent motor shows, such as the near production-ready C200 crossover, and the Wz, said to be the replacement for the elderly Mercedes-Benz W124-based Chairman sedan, it has, in reality, an ageing model line-up of unattractive vehicles, with no near-term product launches planned.

The recent occupation ended with an agreement to reclassify a proportion of the redundancies as long-term unpaid leave of absence. The plant’s interior was relatively unaffected by the occupation, and Ssangyong management plans to restart production at the earliest opportunity. But such a move would completely ignore the stark realities facing Ssangyong: the company reportedly owes Won 300bn (US$244m) to around 600 suppliers and creditors, and a further Won 240bn (US$195m) to the KDB; the factory siege left a 15,000-unit sized hole in the company’s already dwindling output, costing it a further Won 316bn (US$258.3m); and if it does build more vehicles, Ssangyong has to sell them. Even before it went into court receivership in February 2009 it had a domestic market share of no more than 5%, and the 73.9% year-on-year decline in the company’s first half sales results does little to boost optimism.

If, or indeed when, the company is declared bankrupt, the chances of finding a buyer would be slim at best. Attractive in 2003 for its SUV specialisation, the company’s technology is now irrelevant, its increasingly unpopular product range is outdated, and there is no new model launch programme in place to attract even the most optimistic bidder. Under the terms of its bankruptcy protection, Ssangyong has until 15 September to come up with a reorganisation plan. The company’s management must now decide whether there is a business case for carrying on – perhaps only for a few weeks or months longer – or whether it would be better to simply throw in the towel now.

Published on Friday, August 07, 2009