Reference Auto

Now that Mahindra and Mahindra has acquired 70% in South Korean automobile maker SsangYong Motor Company, it will have to chart a global marketing strategy to give a major push to SsangYong’s sports utility vehicles or SUVs, which are among the best in the world. Mahindra had paid $463 million for the Korean firm which was valued a tad over $300 million.

SsangYong is in a dismal state. It has a debt of over a whopping $600 million and has been mired in losses. SsangYong had registered losses of $344.6 million during the first half of 2009 and its revenue for the period had fallen by more than half.

Moreover, the global financial slump of 2008 also hit the company, leading to labour strikes at its units. So, a major challenge lies ahead of Mahindra to turn the Korean car company around. This is likely to take nearly a couple of years.

The deal will, however, bring some of the finest SUVs such as the SsangYong C200 compact SUV as well as the worldwide distribution network and technical resources of the Korean auto firm under the Mahindra fold.

SsangYong has a good presence in Europe and South East Asia and Mahindra needs to build up in these regions first before its spreads its wings globally. In other words, Mahindra must tread cautiously and not rush for worldwide presence.

So far as Mahindra’s plans go, the company will bring in SsangYong’s flagship Rexton and ready-for-launch Korando C SUVs in a completely-knocked-down (CKD) format into India. Both these high-end SUVs will slug it out with Toyota Fortuner, GM Captiva, Hyundai Tucson, Ford Endeavour and Honda CR-V, among others.

SsangYong’s two SUVs are likely to be priced economically around Rs 15-20 lakh, and with a higher per cent of localisation in place, prices could come down in future.

In a company release, Pawan Goenka, president (automotive and farm equipment sectors), Mahindra and Mahindra, said, “The coming together of Mahindra and SsangYong will lead to a competitive global UV (utility vehicle) maker. Mahindra is competent in sourcing and marketing. Whereas, SsangYong has strong capabilities in technology. We want to leverage combined synergies by investing in a new SsangYong product portfolio, to gain speed in the world markets.”

The deal was struck after a series of meetings between the two companies since August when the Korean company selected Mahindra as the preferred bidder among the seven in the fray. Another Indian company run by Dunlop’s Pawan Ruia also bid for the ailing Korean auto firm but unsuccessfully.

Despite 70 per cent acquisition by Mahindra, SsangYong is likely to function in an autonomous manner, with primarily a Korean management.

The SUV market in India may be hotting up but it is still in the nascent stages. As per estimates, the market for SUVs (total) could be around 40,000 units annually in the next four to five years. As of now, Mahindra would do well to sell 1,000 SUVs in a year.

Mahindra has tasted success with all its vehicles, including the Bolero, Xylo and Scorpio but its joint venture with Renault, which makes the Logan, had to bite the dust. Mahindra is likely replicate its success in India with the SsangYong buy but how successfully it leverages it marketing skills abroad is to be seen (it is unlikely to taste success in the short term though).