Withdrawal of Major Shareholder Funding Amid Sales Cliff... Ssangyong Motor Faces Survival Crisis

[Asia Economy Reporter Suyeon Woo] Ssangyong Motor is once again facing a survival crisis due to the withdrawal of financial support from its major shareholder caused by the novel coronavirus infection (COVID-19) and a domestic and international sales cliff. The failure of additional investment from the parent company, which was one of the government's support conditions, has turned the traffic light red for the implementation of Ssangyong Motor's business normalization plan.

On the 3rd (local time), Mahindra & Mahindra, the automotive subsidiary of the Mahindra Group, the major shareholder of Ssangyong Motor, held a special board meeting to discuss the allocation of funds among affiliates due to COVID-19. The board anticipated a deterioration in the group's cash flow due to COVID-19 and rejected Ssangyong Motor's request for a new capital injection of 500 billion KRW. Instead, it approved a plan to inject a one-time fund of up to 40 billion KRW to ensure the continuity of Ssangyong Motor's business operations.

Earlier, Ssangyong Motor had requested 500 billion KRW from Mahindra over three years until 2022 to normalize management. Until early this year, Mahindra had promised a new investment of 230 billion KRW in response to Ssangyong Motor's request, and Ssangyong Motor had been drawing up a blueprint for business normalization by combining support from the parent company and the Korean government with self-help efforts.

However, on this day, Mahindra effectively rejected the previously promised new investment of 230 billion KRW, causing a major setback to Ssangyong Motor's business normalization plan. Furthermore, Mahindra advised Ssangyong Motor to find alternatives for raising funds and stated that it would actively support the search for new investors.

Ssangyong Motor Pyeongtaek Headquarters Exterior View

Despite the suspension of support from the parent company, Ssangyong Motor maintains its position to steadfastly continue the business normalization measures it has been pursuing. Since last year, Ssangyong Motor has been implementing a high-intensity management reform plan, including suspension of employee welfare, improvement of financial structure, and cost reduction measures such as rotational leave.

A Ssangyong Motor official explained, "To secure short-term liquidity, we will resolve it through various cash-raising measures, including the sale of non-core assets such as the Busan logistics center," adding, "The 500 billion KRW needed over three years for business normalization will be secured without disruption through various support measures proposed by Mahindra and cooperation with multiple stakeholders."

However, despite these self-help efforts by Ssangyong Motor, there appear to be limits to business normalization without external capital injection. This is because Ssangyong Motor's main models have experienced sluggish sales in the domestic market since last year, and enormous development costs are required to introduce new models.

In the severe management crisis and with the suspension of financial support from the parent company, Ssangyong Motor inevitably has to raise expectations for government support. In January last year, Pawan Goenka, Mahindra's president, visited Korea and met with the Korea Development Bank to discuss support measures for Ssangyong Motor. At that time, the bank mentioned conditions such as the responsible role of the major shareholder, pain-sharing among stakeholders, and a sustainable business normalization plan.

With Mahindra's withdrawal of its investment plan this time, the major shareholder has failed to fulfill its responsible role, making the possibility of government support uncertain. However, there is a variable in the form of COVID-19, which has shaken the domestic and international economy. For the government, there is a justification for support to save the collapsing automotive industry ecosystem due to COVID-19. On the other hand, the government may face criticism for providing support that compensated for a foreign company’s 'eat-and-run' during the crisis. Ultimately, the survival of Ssangyong Motor, which is in a survival crisis, seems to depend on future government policies.

A Ssangyong Motor official said, "From a long-term perspective, we plan to continuously seek cooperation and support from stakeholders through a feasible future business plan," adding, "We ask for national support and social interest so that we can accelerate securing product competitiveness and increasing sales."

This content was produced with the assistance of AI translation services.