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October 29, 2004

COMMENT: SAIC: driving growth with Ssangyong

Having been put up for sale earlier this year, Ssangyong is reportedly to be sold to the Shanghai Automotive Industry Corporation (SAIC).

By bcusack

Having been put up for sale earlier this year, Ssangyong is reportedly to be sold to the Shanghai Automotive Industry Corporation (SAIC). The move is symbolically important as it marks the first foreign takeover by a Chinese automotive manufacturer, but it also gives both SAIC and Ssangyong a platform for meaningful future expansion.

When it was put up for sale in 1999 following the collapse of parent company Daewoo, Ssangyong would almost certainly not have imagined finding itself in its current situation. Five years later, despite weighty debts, the South Korean carmaker has seen three consecutive years of profits, and is on the verge of what is likely to prove a highly lucrative sale to the largest carmaker in China.

SAIC will, no doubt, be in rather good spirits too. The purchase not only marks the first ever Chinese acquisition of a foreign owned carmaker, but will widen SAIC’s distribution channels and allow for advances in technology at the company. SAIC has so far relied on technology from other automakers, but the ability to produce cars on its own puts it in a much stronger position.

For Ssangyong, the move signals a major upturn in its fortunes. The company is set to benefit from SAIC’s vast marketing network in China and heightened exposure in markets around the world.

However SAIC already has strategic arrangements in China with Volkswagen and General Motors but the Ssangyong deal raises the question whether SAIC would be willing to continue these relationships in the same capacity, if at all, in the long term. VW and GM may therefore feel somewhat threatened by the Ssangyong acquisition, as they could struggle to find similar Chinese alliances quickly should SAIC choose to alter or end their partnerships.

SAIC and Ssangyong have good reason to be pleased – such a mutually beneficial acquisition could not have come at a more opportune time. The emergence of the Chinese automotive industry, supported by the continued growth of the economy, should give the companies an ideal platform for vigorous future expansion.

SOURCE: DATAMONITOR COMMENTWIRE (c) 2004 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.

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