Posted December. 29, 2008 04:35,
Ssangyong Motor, which is suffering from a huge deficit, needs 520 billion won (399 million U.S. dollars) to cover bonds that mature within a month. Overcoming this crisis will be tough without close cooperation among the automakers largest stakeholder Shanghai Automotive Industry Corp. of China, union and creditor bank. In contrast, things are slightly better at GM Daewoo, which can take out new loans to a certain extent. Other major carmakers such as the Hyundai Kia Automotive Group and Renault Samsung Motors are also not completely cut off from liquidity. Nonetheless, they have to hold their breaths given the global auto industrys drastic cut in production and plea for government help.
In the face of this crisis, the Korean government said it will consider measures on giving liquidity support to ailing carmakers centered on creditor institutions. Financial institutions have made it clear that support will be given only after considering factors such as chance of recovery and competitiveness. The government should emphasize that troubled companies will receive no support unless they conduct substantial restructuring on their own. Other countries have set examples to follow. Washington offered 13.4 billion dollars in short-term loans to General Motors and Chrysler on the condition that both companies conduct restructuring. In Japan, carmakers have taken the lead in pulling themselves out of trouble even before the government steps in. For example, the worlds top carmaker Toyota will adopt a four-day workweek next year, while 12 other companies will lay off 12,000 employees in the first half of next year.
Korean carmakers will also probably be affected by the global financial crisis once it hits the real economy. What is worrisome is that management and labor do not have a sense of crisis unlike their Japanese competitors. In an economic downturn, companies might find themselves engaged in creative destruction, which can foster healthy growth. It is pointless to help Korean carmakers with taxpayers money if management and labor are unwilling to work together. The automotive sector is a core industry that generates huge investment and production, but does not deserve government support without a commitment to remove moral hazard. It is unwise for the government to provide support just because other countries are doing so.
When the Hyundai Kia Automotive Group took drastic measures such as reducing operating hours at its plants in response to lackluster sales, its union strongly resisted. The current crisis cannot be overcome by managements unilateral measures, the union said. While the crisis cannot be tackled without cooperation from labor, taxes should not help companies whose management and unions are too busy fighting each other at a time of crisis that can determine their fates. Nothing will prove worthwhile unless Hyundais union kicks its chronic habit of going on strike. The companys management and union should be held accountable for putting the industry in crisis with their reckless management style and tendency to stage strikes with political intentions. The carmaker is 41 years old today, so it is high time both its management and union wake up to reality.