The crisis in the Korean unit of General Motors reminds many Koreans of the case of Ssangyong Motors, from which a Chinese group pulled out in 2011.
In fact, the situation in both cases is similar: A domestic car company falls into crisis and is acquired by a foreign automaker. The takeover, however, fails to turn the company around and the foreign owner demands preferential financial assistance from the government and creditors in return for keeping the company float.
Ssangyong, now owned by India’s Mahindra and Mahindra, went into a debt rescheduling program in 1999, but failed to recover and was bought by China’s Shanghai Automotive Industry Corp. in 2004.
But Ssangyong continued to suffer from weak sales, and encountered a solvency crisis. In 2008, Shanghai Automotive requested financial assistance from the government and the state-run Korea Development Bank, which was the second-largest stakeholder at the time.
The Seoul government rejected the request, citing the lack of self-rescue efforts by Shanghai Automotive. The Chinese firm put Ssangyong into court receivership and eventually pulled out, selling its controlling stake to Mahindra and Mahindra in 2011.
Like those surrounding the partial pullout of General Motors, there were controversies over both tangible and intangible benefits Shanghai Automotive took from Ssangyong. For instance, Shanghai Automotive acquired technology related to sports utility vehicles, for which the Korean automaker had a competitive edge. Some Ssangyong technicians were relocated to China when Shanghai Automotive owned the Korean company.
The Chinese auto group also did not fulfill its promise to make considerable research and development investment in Ssangyong. These and other controversies led many Koreans to believe that the Chinese automaker had only considered short-term benefits.
The history of Ssangyong under Shanghai Automotive’s ownership looks similar to that of Daewoo Motors, the predecessor of GM Korea, which went into court receivership in 2000 and was taken over by the American automaker the following year.
GM Korea made efforts to resuscitate itself, including replacing the Daewoo brand with the Chevrolet brand for cars produced in Korea, but it began to encounter problems in 2013 amid weak sales and the US parent company’s realignment of its global production bases.
Now General Motors, like Shanghai Automotive did seven years ago, is pressing the Korean government and KDB to provide financial assistance, including participation in its efforts to increase capital by issuing new stocks.
GM -- as Shanghai Automotive did with Ssangyong -- blames high labor costs, low productivity and weak demand for the problems it now faces. It is also resorts to brinkmanship in seeking a deal with the Korean government.
Reuters reported that GM President Dan Ammann recently said that GM’s decision to invest in new models for the remaining three plants in Korea depends on the Seoul government’s willingness to provide financial aid and the union’s willingness to agree to cut costs.
This position will not help the automaker normalize its operations in Korea. GM Korea’s unionists, as their fellow workers at Ssangyong did, insist that mismanagement is to blame for the current crisis.
The standoff may re-enact the fierce labor disputes that further damaged the reputation and bottom line of Ssangyong at the peak of its crisis.
Moreover, the GM Korea union alleges that General Motors earned undue gains by lending money at above-market interest rates to GM Korea. It also claims that the Korean unit had to buy parts from the US parent company at high prices and deliver Chevrolet cars to be sold outside Korea at low prices. Korean lawmakers took issue with some of these matters last year.
But if this is true, it implicates the government and KDB, which has a 17 percent stake in GM Korea, and has the right to recommend three of the 10 members of its board of directors. It is incredible that the government learned of GM’s decision to close the plant in Gunsan only one day before the announcement and that none of the KDB-recommended board members had a role in the firm’s decision.
To make up for their faults, the government and KDB could carry out a thorough audit of the troubled automaker and demand it to come up with convincing self-rescue measures first, including plans for pay cuts, layoffs and investment in new models. Then they could consider offering aid to minimize the impact of the crisis at what was once the No. 2 carmaker in the country.
