Will Samsung Go Back to Auto Business?
By Kim Hyun-cheol
Staff Reporter
For the last decade, the Korean automotive market has been dominated by Hyundai-Kia after they merged amid the 1998 Asian financial crisis.
Now, with the near bankruptcy of Ssangyong Motors, an old rumor has been sparked that the upheaval could offer Samsung, the nation's leading conglomerate, another shot at the automotive business after its bitter failure in the 1990s.
Renault-Samsung and GM Daewoo Auto & Technology, the Korean units of the global carmakers, are also suffering amid the worldwide economic crisis. If Renault and GM pull out of Korea, the Korean government would be forced to look for other firms, which it could rely on to help consolidate the country's automotive industry. And some analysts and government sources say that company should be Samsung.
``Considering the current global slowdown, it might be a good time for Samsung to think about venturing into a new business field, and Samsung already has experience there,'' said Choi Dae-sik, an analyst at HI Investment & Securities.
Another researcher said Samsung could be interested in taking fresh dip into the market.
``Markets are getting bigger in auto-related electronics and chips, and this might offer motivation for Samsung if it were to decide to enter the field again,'' said Ahn Sang-joon, an analyst at NH Investment & Securities.
These scenarios have been talked about for a while. Recently, a local report breathed fresh life into the possibility following speculation that a high-ranking Cheong Wa Dae official said the government was open to Samsung entering the automotive business.
But Samsung denied the rumor. ``The group hasn't heard of anything about the issue from the presidential office,'' a Samsung spokesperson said.
Samsung has long-aspired to succeed in the automotive business. The conglomerate's main business is in semiconductors, but bosses view that field as too volatile.
The company embarked upon an ambitious venture in 1990s when it launched Samsung Motors in collaboration with Japanese carmaker Nissan. The pair made a remarkable start with the success of the SM5, which emerged as a strong contender to Hyundai Sonata sedans, and produced impeccable sales figures.
But an inability to develop the model originally envisaged eventually led to the demise of the venture. And the company could not hold out against the financial crisis that hit hard across Asia in 1997.
In 2000, France's Renault bought a 70 percent stake for $512 million. Samsung still owns a 19.8 percent stake of the now Renault-Samsung Motors.
The current auto market conditions are favorable for Samsung, with the cost of entry expected to be much lower than under normal circumstances and the government could also prove to be supportive.
``The Cheong Wa Dae official's remarks may be a signal to Samsung,'' Choi said. ``In my opinion, the government has enough reason to encourage Samsung to take over Ssangyong. It could be a satisfactory solution in many ways.''
Renault Samsung and GM Daewoo, Korean automakers under the control of multinationals, are facing difficulties, so a contingency plan could see their global partners opt out of Korea.
``It is possible either GM or Renault will give up on their Korean unit if the market continues to slow down,'' said an expert, who declined to be identified.
Ahn of NH Securities said Samsung's top-notch technology combined with its cash reserves would make it easier to get a deal done if it decides to enter the market.
``Samsung has been engaged in projects in some car-related technology fields, which can give it momentum in the development of new products such as fuel-cell and battery cars,'' he said.
The estimated cost of reviving Ssangyong is 800 billion won ($58.9 million). Korea Development Bank, Ssangyong's main creditor, said it currently has enough capital to make it through next month.
``Unfortunately, Ssangyong is not a very attractive option, even though Samsung is poised to have another shot at the automobile business,'' Ahn said. ``If it was really interested in the business, it would be better keeping an eye on some overseas companies that are up for sale.''