Pilsoo Kim Director of Automobile Research Institute, Professor at Daelim University
I am curious about what the auto industry will do this year. Korea’s domestic demand last year was very good compared to other countries, and exports declined due to the corona pandemic in Europe and the United States. Fortunately, we have achieved very positive results compared to other countries. Domestic sales are also expected to show good results as the government’s individual consumption tax cut continues, competitive new cars, and above all, the possibility of improvement in the second half due to overcoming the coronavirus.
It’s not just possible. There are various factors of anxiety, such as when Corona 19 will calm down and whether the economy in major export destinations will revitalize, but Ssangyong Motor is the most serious of these. Ssangyong Motor is not a mid- to long-term, but a serious task to be solved right away. After filing for court management in December of last year, investments by investors or Mahindra of India must be made by February for three months during the midnight restructuring period.
HAAH Automotive, an American automobile distribution company that has been mentioned as an investor since last summer, has not yet made any meaningful comments. It has been said that Mahindra is considering a plan to reduce its stake, but some say that reducing the stake of a foreign company by 25% or more is contrary to Indian law, making it difficult to invest. Therefore, there is currently no actual movement that can save Ssangyong Motor.
Can Ssangyong Motors survive? First of all, the problem is that Ssangyong’s future value is not great. As SUVs are limited, there are many models based on diesel engines that are disappearing, and the original technology for future mobility such as electric vehicles is weak, so there is a limit to attracting investment interest. In some cases, if the liquidation value is judged to be greater than the future value, serious consequences may occur.
Ssangyong Motor has been on a difficult road. It was acquired by Mahindra, India in 2009 after experiencing serious side effects such as the acquisition of Shanghai Motor Company in China, technology leakage, and corruption. If Ssangyong Motors does not find a new owner, 100,000 of its partners as well as the finished car will lose their jobs.
Mahindra’s attitude is the most important for Ssangyong Motors to regain strength. It is difficult for anyone to move easily unless Mahindra invests directly or finds a place to invest. It is difficult for the government to intervene if the parent company does not move. There is not much justification for the government to invest public funds in private companies that do not have a single stake. Other private companies and equity issues may arise. Therefore, it may be the answer at this time for the government to find a plan depending on the direction of investment in the parent company.
There are also talks about nationalization through the Industrial Bank, but this can cause serious problems, so the possibility of success is very slim. There was also talk about the acquisition of Hyundai Motor, but there is no further possibility of realization. Hyundai Motor Group’s production capacity is already sufficient, and in order to solve the problem of completing the future mobility platform, it is necessary to focus on overseas rather than domestic. Even from the government’s tendency to pursue a worker-friendly policy, the possibility of acquiring the Hyundai Motor Group is very slim. Rather, the government is more likely to directly intervene in solving the Ssangyong Motor problem.
There is also mention of consignment production, but this is also not easy. Consignment production requires considerable competitiveness compared to other factories. First of all, you can’t even start unless you lower your annual salary to a reasonable level. This is possible only by lowering the production cost by reducing the annual salary and raising the quality to the highest level. As the recent trade war between the US and China is expected to continue even after the Biden government, there are also mentions that Chinese companies can use Ssangyong Motors as a bridgehead for overseas expansion.
It is believed that it is possible to enter the overseas market through’Made in Korea’ Chinese cars through consignment production through Ssangyong, not’Made in China’. This is why it is possible to be interested in Chinese companies such as Geely and BYD. It is worth paying attention to HAAH in the United States as there are also Chinese companies in the background.
In order for Ssangyong Motors to survive, it is urgent to tighten the belt, stabilize labor and management, and one or two new models. At the same time, domestic surplus assets must be handled and investments must be made, whether parent companies or new companies. Ssangyong Motor can survive if the government provides possible support based on this. Recently, the expectation is raising by saying that Mahindra will only find a 30% stake and will seek investors on condition of giving up the majority shareholder and management rights.
It is analyzed that 500 billion won of money is needed right away for the next three years, and survival is difficult even if more than 1 trillion won is invested. It is not easy for Ssangyong Motors to come back to life, but there are many alternatives to consider. At the same time, it is also necessary to consider the market logic that it can become a zombie company that only prolongs life if wrong. Still, it is urgent to find an investment destination and open your breath.
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