IHS Global Insight Perspective | |
Significance | The fraught relationship between SsangYong's management and labour union appears to have reached a critical juncture as the company's creditors' association has filed a petition for liquidation. Following a series of talks, the union has reportedly reached an agreement with management over the company's restructuring plans, although the automaker is yet to confirm the details of this. |
Implications | Relations between SsangYong and its union have been tense ever since the automaker announced its lay-off plans in April. The relationship deteriorated further as a result of the prolonged strike action, which resulted in violent clashes over the past two weeks. |
Outlook | The South Korean bankruptcy court has stated that it is yet to make a decision on whether or not to keep the automaker alive. Several media reports suggest that the court will wait until 15 September, which is the scheduled date for the automaker to submit a rescue plan. Meanwhile, the creditors did hint that they may reconsider the liquidation request if the conflict is resolved this week. |
During a second raid at SsangYong's strike-affected Pyeongtaek plant, the South Korean police have gained full access to most of the buildings on the site, except a paintshop, reports the Korea Herald. Kang Hee-rak, head of the National Police Agency, told the news agency that, "We have not set a deadline for our operations, and will take our time in moving into the remaining paint shop building." The union-occupied plant had been the scene of utter chaos over the past week as extremely violent clashes broke out. Over 100 people were injured in the last two days of clashes, according to Gyeonggi Province rescue workers. The police official has further warned the strikers to voluntarily leave the plant, as the final attack will take place "sooner than expected".
Talks between SsangYong management and the union have failed in the past over disagreements on the lay-off proposals and future of the company. However, the union again held "final" discussions yesterday. Following the meeting, several media reports claimed that both sides had reached an agreement on the restructuring plans. According to Yonhap English News, the union has accepted the management's proposals, with an unnamed source stating, "I understand that both sides reached a deal to save 48% of the [976] fired workers", on condition that they be put on unpaid leave for a certain period. However, a company spokesperson declined to comment on the news, adding, "We cannot confirm the report as the management and the union is set to hold more talks later." Union officials were also unavailable for comment.
Outlook and Implications
SsangYong has been hit hard by the collapse in demand for its vehicles both domestically and globally, coupled with the difficult relationships with its parent company, Shanghai Automotive Industry Corporation (SAIC), and its labour union. The automaker entered into bankruptcy protection during early February this year following liquidity concerns and has been desperately attempting various restructuring measures since then, including the relocation of its headquarters, a series of plant shutdowns and production stoppages, and the laying-off of 36%, or 2,646 members, of its domestic workforce.
Of this total, around 1,670 workers have already been eliminated through a voluntary resignation process, but the remaining 976 workers have staged a protest since the last week of May, initially demanding the complete withdrawal of the lay-off plans. However, the union later changed its demands, calling on the company to rehire at least 800 of the laid-off workers. In response, management proposed rehiring only 40% of the laid-off workers. Following the inability of the management and unions to reach a deal, the company's creditors warned SsangYong that they would request liquidation of the automaker at the South Korean bankruptcy court before the mid-September deadline, by which time the automaker has to submit a turnaround plan (see South Korea: 25 May 2009: South Korean Court Orders SsangYong to Submit Restructuring Programme by 15 September). Choi Byeong-whoon, head of SsangYong's sub-creditors' association, explained, "It was an inevitable decision to file a liquidation plan [for SsangYong] to retrieve even some of assets before their value falls further." Commenting on the creditors' move, bankruptcy judge Min Jung-suk stated, "The court may stop the court [bankruptcy] protection process and let the carmaker go as requested by creditors if their proposal makes sense…The filing is meaningful as creditors have tentatively concluded that the firm has little chance of surviving, whatever the rescue plan may be."
Although the court has earlier favoured survival rather than liquidation, it recently ordered an auditing firm to re-assess the value of the automaker as a going concern. The court also warned that it would end bankruptcy protection this month should the strike continue (see South Korea: 21 July 2009: South Korean Court Warns it Could End SsangYong's Bankruptcy Protection Early). The South Korean government remains uninvolved and also has "little hopes" for the automaker's survival. The creditors' association has also requested the creation of a "good SsangYong", with the most efficient parts and assets sold off to this new company, while the under-performing and unnecessary parts of the business would be sold off or closed down. The proceeds from the sale of these assets would go towards paying off creditors and debtholders for the "good SsangYong", allowing the company to emerge quickly from bankruptcy with only a minimal amount of debt. However, there remains a big question-mark over whether SsangYong would be able to find potential investors who would be interested in buying a company with outdated facilities, only one brand name that lacks an international presence, and an ageing product mix.
Even if the company's management and union do resolve their conflict, the question remains: is it too little, too late for SsangYong? Demand for its predominantly sport utility vehicle (SUV)-based line-up has plunged in recent times, falling by over 78.1% year-on-year (y/y) to just 13,091 units so far this year, and it has not been helped by the South Korean government's market stimulus programmes. The automaker has also postponed the launch of its fuel-efficient C200 crossover utility vehicle (CUV) until after 2010; this model was one of the few hopes for the automaker's survival and thus the opportunity for a product-led resurgence seems limited for now. The company has already lost 316 billion won (US$258.9 million) in sales revenues and 14,590 vehicles in production. Hundreds of the component manufacturers who supply the company are already bankrupt or under bankruptcy protection, meaning that restarting production may not be straightforward either. Although the police have captured most of the plant from the strikers, the company cannot restart production without a paintshop. An anonymous company official said, "We estimate that production can begin about two weeks after the situation has been resolved, but the exact period of time required before we can begin producing cars will depend on the condition the painting facility is in." He added, "A monthly output of about 5,500 units or more will be needed for the company to meet targets." SsangYong would need a superhuman effort from all stakeholders to meet this target, requiring the kind of co-operation from its reduced workforce that has hitherto been lacking. The next few weeks will be a critical time for SsangYong's survival, but it would appear that the company is too far gone to save.