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| Mahindra & Mahindra Managing Director and SsangYong Motor Board Chairman Pawan Goenka enters the Korea Development Bank headquarters on Yeouido, Seoul, Thursday. Yonhap |
By Nam Hyun-woo
Ssang Yong Motor's largest stakeholder, Mahindra & Mahindra, is throwing a conundrum to the Moon Jae-in administration, billing government aid on the ailing Korean carmaker as a cost for Moon government's apparent intervention on rehiring laid-off workers.
Since the administration and the ruling Democratic Party of Korea count heavily on job security amid the looming general election in April, Mahindra's move is interpreted as a well-timed tactic forcing the government to choose between the collapse of SsangYong or expenditure from state coffers.
On Thursday, Mahindra Managing Director Pawan Goenka visited Korea and met Korea Development Bank (KDB) Chairman Lee Dong-gull, to demand the state-run lender provide aid to SsangYong, which has been piling up losses since the first quarter of 2017. Goenka is also the chairman of SsangYong Motor's board.
SsangYong has been suffering from a deteriorating bottom line in recent years as its vehicles have struggled to compete with other carmakers. Last year, SsangYong delivered 135,235 vehicles, down 5.6 percent from a year earlier.
The details of their talks were not disclosed, but they appear to have failed in narrowing their perceptual gap, as Mahindra demanded the KDB provide aid to SsangYong before Mahindra will inject support and make investments for SsangYong's sustainability. The KDB has been claiming vice versa that Mahindra should fulfill its "responsibility as the largest stakeholder" and then it will consider aid.
After their meeting, an official at the KDB said, "(KDB is) expecting SsangYong's prompt normalization through a viable management plan and the participation of all stakeholders," laying down the KDB's stance that Mahindra and SsangYong's self-salvaging plans should come first.
On Friday, Goenka met officials at the Presidential Economic, Social and Labor Council and the Presidential Committee on Jobs and delivered similar messages.
Mahindra is assumed to be seeking at least 270 billion won ($233 million) aid from the government, given Goenka's remarks in Korea. According to sources, Goenka told SsangYong employees that the company needs at least 500 billion won over three years for normalization, and Mahindra has an intention to invest 230 billion won in cash for SsangYong, but only once the KDB provides aid to the company.
The KDB has no deep financial relationship with SsangYong. The state-run bank has 190 billion won in outstanding loan to SsangYong, but does not have stake in the carmaker. Mahindra has 74.65 percent stake in SsangYong and the remainder is held by minor shareholders.
The KDB's involvement in the SsangYong issue is in line with the government's moves to influence rehiring of laid-off workers in September 2018.
SsangYong launched a mass layoff in 2009 and 119 workers have staged protests demanding rehiring for 10 years since then. In July 2018, President Moon met Mahindra Chairman Anand Mahindra and made mention of those workers, which was soon followed by the Presidential Economic, Social and Labor Council's pledge for support to SsangYong after the company rehires those workers.
SsangYong Motor said they and Mahindra are in discussion over the self-salvaging plan and mid-term strategies, such as exploiting Mahindra's alliance with Ford, and it is not a question of whose aid should come first. However, agreed that it has to seek financial aid from not only the KDB but also other financial institutions.
"To our knowledge, Goenka's visit was more aimed at introducing how the situation is in SsangYong and Mahindra. Currently, SsangYong and Mahindra are working on mid-term strategies and demand for aid should come after that," a SsangYong Motor official said.
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| SsangYong Motor's plant in Pyeongtaek, Gyeonggi Province / Courtesy of SsangYong Motor |
A bitter lesson
For the KDB, however, accepting Mahindra's demand is not an easy choice, given the bitter lesson it learned from GM Korea.
In 2018 GM Korea, after watching its sales plunging over some years, closed its plant in Gunsan, North Jeolla Province, and demanded the KDB provide aid. After a tug of war, the KDB, GM Korea and General Motors reached to an agreement, in which the lender injected $750 million to the company in return for GM Korea's pledge to stay in the country as a manufacturing base for at least 10 years and General Motors' promise to make investment into its Korean unit.
After the deal, however, GM Korea's normalization effort has not been picking up speed, while GM Korea is taking steps which appear to be preparation for it leaving assembling vehicles in Korea. Last year, GM Korea set up an R&D spin-off, GM Technical Center Korea, despite lawmakers and union opposition, and registered it as an import car brand to the Korea Automobile Importers and Distributors Association, drawing suspicions that it may reduce domestic output further.
"The KDB has faced mounting criticism as it injected a huge amount of aid to GM Korea," an industry official said, asking not to be named. "With many concerned SsangYong may follow in the footstep of GM Korea, it is unclear whether the KDB will offer a helping hand to SsangYong."
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| SsangYong Motor's Rexton Sports Khan / Courtesy of SsangYong Motor |
