Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Creditors press SsangYong to cut labor costs to attract capital for revival
SsangYong Motor's plant in Pyeongtaek, Gyeonggi Province, in this file photo taken on Feb. 3. Yonhap
By Lee Min-hyung
By Lee Min-hyung
Creditors of SsangYong Motor have stepped up pressure on the cash-strapped automaker to drastically cut labor costs, in a bid to attract investment from new potential investor HAAH Automotive Holdings.
SsangYong is seeking to file for a prepackaged bankruptcy, but the plan has hit a snag after the company and the U.S.-based auto retailer failed recently to clinch a contract once again. HAAH was supposed to sign a deal with SsangYong for a capital injection by the end of February, but the plan has been delayed due to the automaker's weakening outlook for revival, amid falling sales.
The Korea Development Bank (KDB), the main creditor of SsangYong, has urged the company to show its strong willingness for a revival by taking its cost-cutting measures to a “radical level,” if it hopes to attract capital from the new investor and creditor.
As SsangYong is in dire need of capital to realize its plan for a prepackaged bankruptcy, the best-case scenario for the automaker's revival is to reach a swift agreement with the new investor. Such an agreement is important because KDB remains unwavering in its position to offer conditional financial support for SsangYong only after it reaches an investment contract with HAAH.
“As of now, SsangYong has few cards to play amid stalled talks with HAAH, and one possible and inevitable step is to reduce labor costs, which will signal its willingness to sacrifice in order to attract capital,” an industry source said.
Last week, KDB Chairman Lee Dong-gull reaffirmed the bank's position that no financial support would be made unless both the automaker and the potential new investor submit a joint investment plan for SsangYong's revival.
As of 2019, SsangYong employees' average annual income reached 86 million won ($76,200). But the firm's labor and management decided to cut their annual income by 20 percent last year as part of their self-rescue measures amid the company's deteriorating financial situation.
SsangYong's union is in talks with its management to take a temporary pay cut of 50 percent for the monthly salaries of March and April.
But industry sources remain skeptical over SsangYong's revival plan, as HAAH is merely showing interest in investment without taking any meaningful steps toward acquiring a large stake in SsangYong.
“SsangYong Motor and HAAH were expected to sign a letter of intent this month and receive approvals for the pre-packaged plan from interested parties ― such as creditors ― but the U.S. auto importer keeps delaying the timeline, which raises skepticism over HAAH's sincerity in investing in SsangYong,” another source said.
SsangYong will be forced to accept a court-led restricting process in the event of the worst-case scenario, in which it fails to reach a deal with HAAH by the end of this month.