Mahindra thinking of manufacturing SsangYong cars in China
Mahindra & Mahindra (M&M) is rethinking the strategy to revive its loss-making South Korean auto manufacturer SsangYong Motor Co, putting a halt to its planned push into the US and focusing instead on China. M&M's executive director Pawan Goenka said that M&M was in talks with Chinese firms to enter into a joint venture or contract agreement to build SsangYong cars in China.
In 1986, the SsangYong Business Group in South Korea took over Dong-A Motor and renamed it SsangYong Motor Company. In 2009, after recording a loss of $75.92 million, SsangYong Motor was put into bankruptcy protection. In April 2010, the company released a statement soliciting interest of local/foreign companies in acquiring SsangYong Motor. In August 2010, Mahindra & Mahindra was chosen as the preferred bidder.
Mahindra & Mahindra, in its biggest ever outbound deal, signed a definitive agreement to buy a 70% stake in the struggling Korean auto maker, SsangYong Motor Co. The deal was valued at $463 million - $378 million worth of new SsangYong shares, and $85 million in corporate bonds. The transaction was scheduled to be completed by March 2011, after receiving approval from SsangYong's creditors.
SsangYong Motor, a subsidiary of Mumbai-based Mahindra & Mahindra, is reportedly planning a push for the yet unexplored US market. SsangYong is particularly targeting the SUV market in the US, especially after the recent launch of its compact SUV Tivoli. However, M&M executive director Pawan Goenka said that an investigation of the US market was underway, and the decision would rest on the results.
Things turned worse for SsangYong Motor Co, which was already struggling to break even since 2009. The Mahindra & Mahindra-owned South Korean company reported a sales revenue of Rs.13,417 crore in nine months as of 30 September 2015, marginally down from 2014's Rs.13,865 crore. However, despite its modest revenue, net losses rose from Rs.189 crore in 2014 to Rs.450 crore in 2015.
Mahindra & Mahindra's South Korean subsidiary, SsangYong Motor Co, is reportedly planning an investment of $1 billion over the next few years to freshen up and develop its product range. Despite its losses, SsangYong has seen an upward trend in sales volume, with its domestic market share increasing by 20% in 2015. SsangYong sold 144,764 vehicles in 2015, up by 2.6% from 2014.
Possible reasons for M&M's move to manufacture SsangYong cars in China include lowering production cost and improving sales. If SsangYong moved for sales in the US, it would have to build up its distribution network from the ground up. Instead, manufacturing cars in China would enable SsangYong, which already has a market presence in China, to sell its cars in China at lower costs.