UPDATE 3-China's SAIC seeking S.Korea support for Ssangyong

(Adds a media report on job cut proposal)

By Fang Yan and Cheong Jong-woo

SHANGHAI/SEOUL Dec 29 (Reuters) - China's SAIC Motor Corp (600104.SS) said it and South Korea's Ssangyong Motor (003620.KS) were seeking support from the Korean government and banks for Ssangyong in the wake of plunging sales and high raw material costs.

SAIC, which owns 51 percent of Ssangyong, said the two companies were also discussing with union representatives how to cut labour costs at the Korean firm.

"At present SAIC and Ssangyong are actively seeking support from the Korean government and banks," SAIC said in a brief statement.

SAIC did not elaborate on the nature of any support and did not say whether it might provide fresh financial assistance itself to Ssangyong, South Korea's fifth-largest automaker.

Carmakers from the United States to Britain and Europe have sought state support to help them survive the worst industry downturn in decades. Earlier this month, the U.S. government agreed to a $17.4 billion emergency loan package for Detroit's Big Three to stave off a potential bankruptcy.

Last week, an official at state-owned Korea Development Bank (KDB) said the bank had urged SAIC to provide Ssangyong with 120 billion won ($93 million) in cash in return for the transfer of technology. KDB also called on SAIC to guarantee a combined 200 billion won worth of loans from two Chinese banks to Ssangyong.

The KDB official said his bank would be willing to consider extending new loans to Ssangyong, but only if SAIC first granted assistance to the Korean company.

Ssangyong was hit badly by the global market downturn. In November it sold 3,835 vehicles, down 63 percent from a year earlier, while monthly sales by all South Korean auto makers fell 8.6 percent.

SAIC shares fell more than 2 percent in afternoon trade, underperforming the broader market, while Ssangyong was down 0.5 percent. Ssangyong's shares have slumped more than 60 percent in three months amid concern over its financial health and a prolonged industry slump.

SHORT-TERM PAINKILLER

Ssangyong needed to sell at least 10,000 units a month to break even, said Song Sang-hoon, an auto analyst at Kyobo Securities.

"I think SAIC is worried that its support may be a short-term painkiller, not a fundamental medicine," Song said.

But Chinese analysts said they expected a deal would eventually be worked out between SAIC and the Korean side to help the troubled automaker.

"SAIC certainly does not want Ssangyong to go under as it is China's first cross-border auto acquisition," said Chen Qiaoning, an analyst with ABN AMRO TEDA Fund Management.

"Neither will it just blindly throw more money into Ssangyong as no one knows how much it takes to revive Ssangyong in a fallout like this."

In a new year policy report to President Lee Myung-bak on Friday, the Ministry of Knowledge Economy said it "will consider measures to lend liquidity support to some automakers, centred around creditor institutions".

Ssangyong, the maker of the Rexton and Kyron sport utility vehicles, has an annual capacity of 200,000 units. It said in mid-December that it was halting production until the end of this month because of slumping auto sales.

The Korea Economic Daily on Monday quoted a KDB official as saying Ssangyong might be liquidated unless SAIC injected money and the Korean company cut its workforce and announced new car plans.

Maeil Business Newspaper reported in its early Tuesday edition that SAIC had asked Ssangyong and its union to cut more than 3,000 jobs, including half of production line workers.

Ssangyong planned to come up with a restructuring plan with cost saving details by mid-January, the newspaper said, citing an unnamed company source. ($1 = 1,285 won) (Editing by Andrew Torchia and Jean Yoon)