SAIC under pressure to rescue Ssangyong

SAIC Motor, the Chinese carmaker that bought assets from MG Rover following its collapse, has come under pressure to rescue Ssangyong Motor, the South Korean sport utility carmaker it took control of in 2004.

The South Korean government on Friday said it would not aid Ssangyong, which has shut 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 global economic downturn.

SAIC began production of the MG TF sports car this year in Birmingham. Its purchase of Ssangyong was the first overseas buy-out by a Chinese carmaker.

State-run Korea Development Bank said yesterday it had asked SAIC, which holds a 51 per cent stake, to provide a total of Won320bn (£168m) 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 plunged 63 per cent from a year before as the world slowdown in car sales hit its vehicles hard. In the third quarter, it posted a loss of Won28.2bn. SAIC could not be reached for comment yesterday.

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, told the Financial Times SAIC was demanding concessions from the union.

"SAIC has not delivered the investment it promised," he said. "[But] we are open to talks with SAIC."

Since the SAIC buy-out, Ssangyong has frequently clashed with the union, with a 2006 strike shutting down production for a month.

Other South Korean carmakers are also struggling from the drop-off 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 slashed working hours at domestic production plants.

South Korea's Ministry of Knowledge Economy has raised hopes of the government providing assistance to struggling carmakers. In a new year policy report, it said it would consider ways of providing liquidity to automotive manufacturers.