Shanghai Automotive Industry Corp (SAIC, 上海汽車工業), one of China's biggest auto companies, entered the South Korean market in late 2004 full of high hopes, taking control of sport utility vehicle manufacturer Ssangyong Motor Co.
"This deal will be a great opportunity for our global strategy and also provide growth potential for Ssangyong," SAIC chief executive Hu Maoyuan gushed at the time. "Our lineup -- Ssangyong's SUV and our passenger vehicles -- will complement each other."
But now things don't seem to be going that smoothly. A conflict between SAIC and Ssangyong's labor union has sparked a crippling walkout that has entered its second month.
Through Tuesday, Ssangyong -- South Korea's fifth-largest automaker -- said it had recorded lost production of 12,800 vehicles, about 6 percent of its annual capacity.
The turmoil highlights the risk foreign companies face in investing in South Korea's auto industry, where strikes are an annual event.
In this case, Ssangyong's 6,680-member strong labor union went on partial strike on July 14 to protest a company restructuring plan that could eventually cost 1,000 jobs and an agreement in which the companies will use Ssangyong technology to produce SUVs at a joint factory in China.
Production at Ssangyong came to a halt when the strike went full-time on Aug. 16.
Representatives of labor and management were meeting yesterday in Pyeongtaek, though it was unclear if they would reach a breakthrough.
"Definitely, our management would like to stop the strike," Ssangyong official Mingo Park said from Seoul.
Officials with the union and with SAIC weren't immediately available for comment.
SAIC, a partner of General Motors Corp and Germany's Volkswagen AG, is the latest foreign manufacturer to take control of a South Korean auto company, holding a 51 percent stake in Ssangyong. Officials at SAIC weren't immediately available
The US$500 million deal was the third takeover of a South Korean car maker by a foreign investor, following General Motors Corp's US$400 million purchase of bankrupt Daewoo Motor Co in 2002 and Renault of France's acquisition of Samsung Motor Inc in 1999.
Ssangyong was first put up for sale after it separated from the Daewoo Group conglomerate, which was dissolved in 1999 under huge debt. Creditors then bailed out Ssangyong before SAIC moved in.
The strike came just as things appeared to be improving at South Korea's smallest automaker.
Ssangyong said earlier this month that it swung to a second-quarter net profit helped by its efforts to cut costs.
The company posted a net profit of 5.75 billion won (US$6 million) for the three months ended June 30, recovering from a net loss of 67.36 billion won a year earlier.
Those gains, however, are threatened by the walkout, said Yong Dae-in, an analyst at Goodmorning Shinhan Securities in Seoul, who expects the company to lose money again in the third quarter before perhaps breaking even in the fourth.
"I think the reason for this strike is basically miscommunication between the Chinese management and the labor union," Yong said. "I think this is not a cultural conflict."
Earlier this year, Ssangyong offered to spend US$2 billion over five years for new product development to boost output to 340,000 vehicles. Yesterday, the company said that about US$1.3 billion of that will be spent by 2009 to develop new products.