Mahindra & Mahindra have recently signed an MOU (Memorandum of Understanding) to take control of a majority stake in South Korean car manufacturer, Ssangyong. Ssangyong is a sports utility vehicle (SUV) manufacturer and the question that is on everyone’s lips is, what cars from the Ssangyong stable will it decide to launch in India?
One of the vehicles touted to be a candidate introduced in to the Indian market is the ultra-sporty, urban SUV the C200. This car was first displayed at the Paris Motor Show back in late 2008. M&M would do well to bring in the stylish SUV and it would slot in nicely above the Scorpio becoming the company’s flagship vehicle. This would allow Mahindra & Mahindra to give their car offerings some much needed gravitas.
Mahindra & Mahindra are looking to get a stake in Ssangyong and according to vice-chairman and managing director, Anand Mahindra, who was addressing a press conference in the city of Mumbai, “with Ssangyong, M&M aims to be a globally-recognized player in the niche SUV segment”.
These initial statements were further substantiated by Pawan Goenka, president of Mahindra & Mahindra’s automotive and Farm Equipment Sector. According to him there were certain criterion that was required for the bidding to be successful and these were the debt financing, bid price, presenting a viable business plan, arranging finance, stockholders / management’s will, employee guarantee and capability and the share stake it would lift. Mahindra & Mahindra appeared to tick all the right boxes in terms of these and the actual cost of the bid would be disclosed when the deal has been finalized.
In talks with reporters, Mr. Goenka also revealed that if all went well then the combined sales revenues of the two companies would exceed US $ 4 billion, thereby making it one of the largest SUV manufacturers in the world. According to other sources, the terms of the deal are that Mahindra & Mahindra should acquire 51 percent share in the company. By this bid most of the future debts of the company will have been cleared up according to Bharat Doshi who is the Group CFO and Executive Director of the Mahindra & Mahindra group.
Ssangyong is basically an SUV manufacturer and it handles operations presently from its two factories in South Korea. In accordance with this they also have around 130 dealer points in South Korea combined with approximately 1300 dealers serving 98 countries across the world. Their product range consists of seven different models including two that fall in the luxury car segment – the Chairman W and the Chairman. These are based on the Mercedes-Benz S-Class model and share similar styling cues. Along with this the Chairman also uses some innovative technical expertise and technology from Mercedes-Benz and the car is currently only being sold in South Korea.
The Chairman is fitted with two different sets of engines giving buyers a choice of the zippy 3.5 petrol or the very powerful 5.0 liter petrol engine. The reason for an increase in investment was that last year as compared to some other years, Ssangyong only managed total sales of around 40,000 units with the Chairman making up around 12,000 units, which is almost one0third of the total sales during the time from 2003 – 2006. One cause for the Chairman being sold only in South Korea was that Ssangyong and Mercedes-Bens had signed a deal that allowed sharing of technology and expertise on the condition that Ssangyong will only sell in the country. This agreement is about to come to an end so Ssangyong will be able to export the Chairman to other foreign markets soon.
The tie-up with Ssangyong and Mercedes-Benz to offer technical and technological support has been around since 1991 and this was quite visible in Ssangyong offerings like the MB100D and 140D, which were luxury vans that were incidentally also sold in India. One of the most common engines used in Ssangyong vehicles is the 2.8 liter diesel engine and this has been sourced from Mercedes-Benz and is the same unit that once provided that power for the previous generation E-class. There is also another 2.7 liter diesel, 5 cylinder engine that is now doing its job in the Mahindra Axe SUV and this is also a Ssangyong sourced unit which powered the W211 E270 CDI.
According to Vice Chairman of Mahindra & Mahindra group, Mr. Anand Mahindra the reasons for the acquision are good and this is a very sound business deal that is ultimately going to benefit both companies. The fact that Ssangyong has its own engine manufacturing and development capability coupled with the fact that they are ready to let Mahindra & Mahindra gain access to the new petrol engines that they are developing make this deal a very viable proposition. On the other hand Mahindra & Mahindra are also developing their own in-house petrol engine that has been on the table for the last two years and this would be used to develop its own project. Mahindra & Mahindra’s acquicision of Ssangyong would in all honesty make it the largest Indian acquicision of a South Korean company till today.
The acquicision of Ssangyong would eventually lead to an increase on the range of vehicle sold under the Mahindra & Mahindra brand and initially vehicles would be coming in via the CBU and CKD route. This would no doubt lead to the vehicle being less competitive in terms of price but that will only be seen at a later date. Mahindra & Mahindra are looking to bring in two of Ssangyong’s newest offerings, The Rexton 4×4 SUV and the Korando C Soft-roader. The Rexton would be an SUV in the price bracket of 25-30 lakhs and would thus compete with the likes of the Forturner and Endeavour, while the Korando falls in the slightly less expensive 15-20 lakh range and would compete with the likes of the Skoda Yeti, Honda CRV and Nissan X-trail. Mahindra will also look at the chances of getting other vehicles like the Actyon and Kyron SUV’s in India and do not rule out the possibility of the Chairman also making its way to these shores.
Both companies are looking at joint research and development of platforms and products to cut costs and these should hopefully begin by the start of the New Year. Since the platforms currently used on the Korando and World SUV the possibility does exist that the new offering from Mahindra & Mahindra would highly benefit from Ssangyong’s technological expertise.
Ultimately the acquisition will lead to Mahindra servicing the markets of South America, Europe, Middle East, Russia, Asia and Africa making them an additional contender not only in the Indian market but also putting them on the global map and showcasing Indian car manufacturing capabilities. Mahindra & Mahindra have the added advantage of time as their tractor and utility vehicle network is strong and they can afford to take their time to deliver in their newest venture.