Shanghai Automotive vows to put cash into Ssangyong

China's Shanghai Automotive Industry Corp. (SAIC) has pledged to inject fresh capital into its auto-making affiliate in South Korea, Ssangyong Motor Co., if the affiliate grapples with a cash shortage amid dwindling sales, according to the Ssangyong union on Friday (May 30). 

The pledge came at a recent meeting in Seoul between Shanghai Automotive Chairman Hu Maoyuan and leaders of Ssangyong's 6,680-member labor union, the union said on its Web site.

"If Ssangyong Motor faces a cash shortage in the wake of lackluster sales, Shanghai Automotive will constantly provide a cash injection, including a guarantee for lending," Hu was quoted by the union as saying.

Hu also promised to offer investment capital for Ssangyong to develop a gasoline engine and new models, the union said.

However, Ssangyong Motor officials downplayed the reported remarks by the chairman of Shanghai Automotive, one of China's largest automakers.

"It's partially right because our Chinese parent Shanghai Automotive has said it will provide financial support, but a cash injection is impossible," said Cha Ki-woong, a spokesman at Ssangyong, by telephone.

"It would be difficult for Shanghai Automotive to pour cash into Ssangyong Motor because both companies are listed ones," Cha said.

Ssangyong's vehicle sales fell 27.9 percent from a year earlier to 32,000 units in the first four months of this year.

With diesel prices at gas pumps surpassing those of gasoline in South Korea, Ssangyong, which relies on the domestic market for more than two-thirds of its sales, may have no way to avoid losing sales because its lineup is dominated by diesel-powered sport-utility vehicles, analysts say.

Last month, sales of Ssangyong's two flagship SUV models, Rexton and Kyron, plunged 63.8 percent and 57.8 percent respectively to 264 units and 452 units, according to the Korean Automobile Manufacturers' Association.

The troubles at Ssangyong are likely to deepen because it has no plan to sell fuel-efficient models this year and next year, they say.

On the same day, Vice Finance Minister Choi Joong-kyung said in a speech that the government may cut taxes on diesel oil.

"The government must do something to help those who rely highly on diesel," Choi said.

Since the second quarter of 2007, Ssangyong has failed to make money.

In the first quarter of this year, Ssangyong reported a net loss of 34 billion won (US$33.1 million).

State-owned Shanghai Automotive bought a 51 percent stake in Ssangyong Motor for $500 million in 2002.