Ssangyong Creditors Start Negotiations with SAIC for Sales

Creditors of Ssangyong Motor Co. selected Shanghai Automotive Industry Corporation (SAIC) as a preferred bidder on July 23. Much attention is now on whether the debt-ridden automaker can find a new owner.

SAIC’s acquisition of Ssangyong, once completed, is expected to have enormous influence on Korea’s automotive market because SAIC, which has a joint venture with General Motors (GM), is likely to establish a partnership between Ssangyong and GM Daewoo Auto & Technology Company in one way or another.

Sales of Ssangyong: Highly Possible—

After reviewing LOI from the bidders, creditors of Ssangyong, including Chohung Bank, announced that they chose SAIC, which received the highest score, as a preferred bidder.

SAIC was picked for its professionalism as the largest automotive company in China and the creditors found SAIC most suitable if Ssangyong is to enter the Chinese market in the future.

Price and other details on the sales are expected to be announced after the creditors and SAIC exchange MOU on July 27 in Seoul. The price, however, is reportedly lower than the price proposed by National Bluestar Group, a Chinese chemical firm, leaving the possibility of controversy over selling Ssangyong too cheaply.

The creditors plan to engage in full negotiations with SAIC until late September and finish the sales by the end of October. However, the deal may be faced with obstacles at the last minute because of Ssangyong’s labor union, which is asking SAIC for job security.

Automotive Market to be Dominated by Two Strong Competitors—

SAIC owns 50 percent of Shanghai GM shares (the U.S. GM holds the other half) and is also a shareholder of GM Daewoo, holding 10.6 percent of the shares.

For this reason, some expect GM Daewoo to buy a certain amount of Ssangyong shares in the process of SAIC’s acquisition of Ssangyong. Once SAIC acquires Ssangyong, the company is projected to actively operate in the Korean market through cooperation with GM Daewoo in sales, production, and other areas.

The acquisition is also expected to bring changes in the Korean automotive industry, making GM Daewoo and Ssangyong the biggest competitors of the current leaders, Hyundai Motor Company and Kia Motors Corporation. Last year, Hyundai and Kia held 42.4 percent and 22.5 percent of market share in passenger cars respectively, while GM Daewoo and Kia accounted for 11.6 percent and 12.5 percent respectively.

SAIC is China’s state-owned company that operates Shanghai Volkswagen and Shanghai GM through joint ventures with Volkswagen and GM. Shanghai Volkswagen ranked number one in automobile production and sales in China last year. In 2003, Shanghai Volkswagen and Shanghai GM produced 600,000 cars in total, recording sales of $11.74 billion (approx. 14.08 trillion won). SAIC is forecast to make $13 billion (approx. 15.6 trillion won) in sales this year.

Joong-Hyun Park Wi-Yong Jung sanjuck@donga.com viyonz@donga.com