Can money heal the SAIC-Ssangyong rift?

Shanghai, January 7 (Gasgoo.com) SAIC Motor Corp, the Chinese partner of global auto giants GM and VW, has finally agreed to inject 25.9 billion won ($19.89 million) into Ssangyong Motor, SAIC's 51%-held unit in South Korea, in a move to help the latter better “ride out the global financial crisis.”

Employees of the South Korean car maker expect to obtain their delayed paychecks of 29 billion won in total after the capital injection. Ssangyong, which faces a possible liquidity problem, has been reportedly urged by SAIC for restructuring by axing more than 3,000 jobs, including half of some 5,200 assembly line workers, in return for the lifeline cash.

However, the fund is not enough to save Ssangyong from the net loss of more than 100 billion won in 2008 it reported on Dec 23 due to a slump in demand. SAIC has also asked the S.Korean government and banks to provide Ssangyong with financial support for the sustainable operation of the Korean automaker.

The labor union of Ssangyong disagrees to the preconditions listed by SAIC for the cash injection. The employees may hold a strike against the possible job cuts. Ssangyong would hold a nine-member board meeting on Jan. 8 in Shanghai where SAIC is based, to finalize the restructuring plan and to decide the company's fate.

Last week, Korea Development Bank (KDB), Ssangyong's largest creditor, had asked SAIC to provide Ssangyong with 120 billion won in cash in return for the transfer of technology. South Korea media quoted a Ssangyong top executive as saying that the main purpose of SAIC's buying Ssangyong in the beginning of 2005 was to take away the Korean carmaker's SUV and hybrid technologies.

Other allegations against SAIC include the Chinese auto giant had planned to transfer Ssangyong's research and development of five new models to Shanghai and had not developed any new products in S. Korea to boost demands. And SAIC said it would quit Ssangyong if the Korean carmaker were unable to streamline its structure and workforce and to stop the sales downturn. This, along with the S. Korean media reports, has unexpectedly deepened the SAIC-Ssangyong conflict.

Will the nearly-20-million-dollar capital supply by SAIC narrow and mend its divide with Ssangyong? This is an open question. The stand-off between the company and the union may not disappear if no more money is available to pay off the delayed salaries. Even if the salary problem is solved, the huge losses made by the Korean carmaker in recent months are looming as a yawing hole.

As to the allegations of SAIC taking Ssangyong technology reported by the local media, Korea's judicial or legal systems would have the final say. Are the allegations made by Ssangyong and its union 100 percent truthful? That remains to be seen. However, if Ssangyong was making huge profits under SAIC's leadership, who would care so much about the "transfer of technology" between them?

Nevertheless, the SAIC-Ssangyong affairs may serve a timely wake-up call to some Chinese automakers who have been seeking mergers or acquisitions of international automakers. The various problems now SAIC has to confront in this issue should be viewed and addressed also technologically, culturally, and even diplomatically, not just financially.