SAIC finetunes Korean strategy

Executives at Ssangyong, the South Korean carmaker controlled by Shanghai Automotive Industry Corp, are extremely sensitive when it comes to discussing their Chinese owners.

Since its high-profile acquisition of the sports utility vehicle maker in 2004, SAIC’s management has been plagued by criticism over a lack of synergies and suspicions about a possible relocation of Ssangyong’s production lines to China.

But Philip Murtaugh, SAIC’s vice-president and Ssangyong’s representative director, sweeps aside the criticism. “[Critics say] SAIC is stealing their technology and they are just gonna take the products. They are gonna move manufacturing to China. That’s all crap,” says Mr Murtaugh. “SAIC owns 51 per cent of Ssangyong and SAIC is spending a lot of money to help ensure Ssangyong’s long-term viability.”

Far from exploiting its Korean unit, he says SAIC is planning to spend about 8 per cent of Ssanyong’s annual sales on product development and other facility investment to produce 30 new models by 2011.

But its workers and analysts are not yet convinced that SAIC will follow through with such promised investment.

The company may face liquidity problems if domestic sales fall further. “I wonder how committed SAIC will be in turning around the company by injecting cash,” says Kim Hak-ju, an analyst at Samsung Securities.

Mr Murtaugh, a veteran of the automotive industry who headed General Motors in China for five years from 2000, sees little difference between managing the Korean carmaker and running an auto business in other parts of the world.

SAIC entered the Korean market three years ago full of high hopes, becoming the first Chinese company to take control of a foreign carmaker. But it had to grapple with strong resistance from the labour union and widespread concerns among the Korean public about possible technology leak.

The conflict between SAIC and Ssangyong’s labour union sparked a crippling walkout last year, which cost the company 10,200 vehicles in potential production losses.

Ssangyong had to suffer a net loss of Won196bn ($210.6m) in 2006, partly due to the month-long strike, and 430 Ssangyong workers quit their job last year through an early retirement programme.

But Mr Murtaugh says that labour relations have improved dramatically since then, calling the current relationship “outstanding”.

Indeed, its union recently pledged to negotiate this year’s remuneration packages without a strike and to work closely with management to make it a “win-win” relationship.

In spite of visible progress in labour relations, Ssangyong still faces many challenges to compete against bigger rivals such as Hyundai Motor in the competitive domestic market.

Suh Sung-moon, at Korea Investment & Securities, notes that SAIC’s acquisition of Ssangyong has created few synergies so far. “There have been no visible synergies realised in terms of taking advantage of SAIC’s network over the past two years.”

Mr Murtaugh, meanwhile, says that synergies take a long time to become apparent. “The criticism of no evidence of synergies is unjustified criticism in my view,” he says. “There is a lot going on and it’s not obvious. It won’t ever be obvious, but we will have improved results.”

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