Mahindra’s acquisition of Korea’s SsangYong Motor in 2011 was in some ways an aspiration to become a legitimate global auto-maker, especially in the passenger vehicle space.

For its part, SsangYong hoped to recover from the struggles of the past under new ownership and achieve its own global status. SsangYong’s previous owner, Shanghai Automotive Industry Corp (SAIC), made no new investment in product development after its takeover of the Korean auto-maker, while urging SsangYong to cut its workforce.

In addition, SAIC transferred SsangYong’s technology and design to be used for its vehicles built in China. In response, SsangYong’s workers’ union struck work in 2006 and 2009 (with the latter resulting in street fights between workers and police outside the Pyeongtaek factory gate, and followed by arrests, lawsuits and firing of workers) to protest against job losses.

Workers also feared their company would be relegated to being a sub-contractor of SAIC. All told, SsangYong’s experience under the ownership of SAIC was not a pleasant one.

In contrast, the relationship between Mahindra and SsangYong has been trouble-free for the past eight years. Mahindra’s ownership has provided stability with the belief that it is a stronger and more serious owner with SsangYong’s long-term interest in mind.

Its policy of “controlling but not meddling” and entrusting local management with major business decisions has built a good relationship with workers. This is why SsangYong has not faced any workers’ strikes during its annual wage negotiations for the past eight years. This is an outstanding and exceptional achievement, compared to the militant unionism at Hyundai and Kia, for instance.

Behind the scenes, Mahindra and SsangYong have created synergies and reduced costs especially in components’ sourcing. Mahindra rightly recognised that SsangYong was paying too much for components being sourced from European suppliers due to its erstwhile relationship with Mercedes-Benz. Correcting this to procure components from Korean and Indian suppliers has thus rationalised production costs.

Synergies in India

In India, a product of these synergies will be seen in the recently unveiled Mahindra-badged next-generation SsangYong Rexton Y400. Most likely to be named as the Mahindra XUV700, the new vehicle is due to arrive during the festival season.

Likewise, the S201, derived from the Tivoli platform, is going to be an extremely critical product for the Indian SUV-maker, which has been facing the heat of competition lately. This vehicle has the potential to do good volumes pretty much on the lines of the Tivoli, which has done brisk business.

Mahindra and SsangYong have also jointly developed four engines — the 1.6L gasoline engine, the 1.6L diesel engine, the 2.0L gasoline turbo engine and the 2.2L diesel engine. But more needs to be done. SsangYong urgently needs to develop engines to meet even more stringent tail-pipe emission regulations.

For example, all of its models except the Tivoli virtually operate on one engine — the 2.2L diesel engine — in advanced markets. And while it has developed gasoline turbo engines for the potential US market and to comply with the WLTP (the Worldwide Harmonised Light Vehicle Test Procedure) emission standards, they may have arrived a bit late.

Realising this disadvantage, Mahindra and SsangYong are jointly developing more small-sized turbo engines such as 1.5L gasoline turbo engines. In addition, a more pressing problem for SsangYong is that its exposure to alternative fuel models is nil. Worse, its future plan is still not very clear.

Given its lack of resources to do all of xEVs(BEV, HEV, PHEV and FCEV), SsangYong needs to focus on a select few options. The biggest bet amongst these is likely to be BEV although the company is a laggard on this front. Nevertheless, Mahindra’s expertise in BEV through Mahindra Electric is likely to benefit SsangYong in terms of joint product development.

SsangYong also faces additional risks. Its geographical presence is heavily skewed to the Korean market, with 70 per cent of production catering to the domestic market so far this year, compared to 30 per cent back in 2011.

This is because exports to Russia, Brazil, China, Ukraine and Australia almost dried up in the last few years. As a result, SsangYong’s total exports halved, from 74,000 units in 2011 to 37,000 units last year.

Simultaneously, its sales in Korea grew exponentially, from 39,000 units in 2011 to 1,07,000 units in 2017, accounting for three-fourths of its global volume. The biggest driver of this volume came from the addition of the highly popular Tivoli in 2015.

Importantly, SsangYong also needs to return to profitability since any new infusion of funds can only be justifiable in a positive balance sheet. It will, however, have to go international to achieve this.

LMC Automotive anticipates the auto-maker to begin sales in the US and Canada around 2022, and further predicts the North American region to account for 12 per cent of SsangYong’s global volume by 2025 on the back of the Korando C and the Tivoli.

Mahindra too wants to enter the US market, but is yet again facing hurdles. Its plans to sell the Roxor off-road vehicle are being blocked by allegations of trademark infringement of the Jeep brand by Fiat-Chrysler Automobiles.

The auto-maker’s previous entry in the US market about a decade ago was also scuttled with lawsuits from dealers and its US distributor, Global Vehicles USA. It is yet unclear how these latest troubles for Mahindra in the US will be resolved, but it will certainly delay the start of Roxor’s sale at the very least.

To conclude, both Mahindra and SsangYong need to expand beyond their domestic markets to mitigate the risks of over-dependence on a single market. However, only time will tell if they succeed.

Ammar Master is Senior Manager, LMC Automotive, Bangkok and Ik Sung Heo is President, AutoDataBowl, Seoul

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