Ssangyong Motor considers scrapping plans to produce cars locally

A Ssangyong Tivoli car is displayed at an auto show in Beijing. [Photo/for China Daily]

South Korea's Ssangyong Motor may cancel plans to produce cars in China as carmakers from the Asian nation encounter hard times amid fierce competition in the world's biggest car market.

Ssangyong President and CEO Choi Johng-sik said the project is making slow progress and the company is seeking a plan B, according to the Korea Herald newspaper.

The remarks come a year after the carmaker signed a letter of intent with China's Shaanxi Automobile Group to build a new plant in Xi'an, capital of Shaanxi province, as well as an engine plant and a research and development center.

"Currently, we are revising the direction of the China business," Choi said.

"We are still thinking whether it is (the best option) to take the path of finding a private company to outsource (manufacturing)," he added.

An official from Shaanxi Automobile's strategic development department told Reuters the project has been canceled.

"This project no longer exists," the official said.

Choi said that even if the two established a joint venture in China, it may face difficulties if it failed to satisfy China's fuel efficiency standards and did not produce eco-friendly cars as well as petrol cars.

Ssangyong produces around 150,000 units a year in South Korea.

From January to September, it reported an 8 percent increase in domestic sales year-on-year while its exports, which make up a quarter of total sales, fell 29 percent.

Analysts say the prospect of Ssangyong producing cars in China was uncertain from the very beginning.

Because of concerns about overcapacity, China is no longer so enthusiastic about foreign automakers forming joint ventures, they said.

The authorities have also made it clear that in principle they will not approve new facilities that are dedicated to gasoline cars.

The performances of Hyundai and Kia, which have built joint ventures, is under great pressure in China because of increased competition from Japanese, German and Chinese carmakers.

Statistics from the China Association of Automobile Manufacturers show that South Korean carmakers accounted for 4.1 percent of the passenger car market in the first nine months of the year, three percentage points lower than the same period last year.

In the same period, Japanese carmakers garnered a 17.8 percent market share, up two percentage points from last year. German and Chinese carmakers each saw their shares grow about one percentage point. Hyundai and Kia are expected to sell a combined 1 million vehicles in China this year - a plunge of at least 40 percent from a year earlier, according to a S&P Global Ratings report in September.

Beijing Hyundai sold only 415,000 cars in the first seven months of this year, a 29 percent decline from a year earlier.

S&P Global Ratings has downgraded its outlooks for Hyundai and Kia from stable to negative. The ratings agency said Hyundai and Kia would continue to face profitability pressures over the next 12-24 months because of "intense competition and difficulties in their Chinese operations."