Ssangyong Fails To Make M&M A Global SUV Maker
Mahindra & Mahindra is looking to sell its South Korean subsidiary SsangYong Motor Co. But why?
When Mahindra & Mahindra Ltd. acquired troubled SsangYong Motor Co. nearly a decade ago, it wanted to become a global utility vehicle maker. That didn't go as planned.
M&M’s market share in India's utility vehicle market has since fallen by half, and SsangYong accounts for less than 5% of the vehicles sold in its home market of South Korea. Losses and capital spent to turn around SsangYong soared. After repeated attempts failed to revive the firm, M&M said in its latest earnings call that it has decided not to invest any more money into the company and is looking to divest its stake to below 50%.
The economic disruptions caused by Covid-19 perhaps made the company realise that SsangYong’s revival isn’t near. More so when India's auto industry was grappling with the worst slowdown even prior to the pandemic. Auto analysts BloombergQuint spoke with said this decision should have come sooner.
After trying to revive the brand multiple times, it became a cash guzzler for M&M, Awanish Chandra, auto analyst at Centrum Broking, said. “Somewhere the product wasn’t that strong. SsangYong wasn’t even a big global brand,” Chandra said. M&M also failed to boost sales of its products in Korea, the way M&M has done for its domestic products, he said.
To be sure, SsangYong wasn’t in good shape even when M&M acquired it in 2011. It wasn’t even a major global player. The Mumbai-headquartered company was its third buyer after Daewoo Motor and SAIC Motor Corp. failed to generate profit with the troubled utility vehicle maker.
SsangYong, which had filed for bankruptcy, was reeling under strikes by workers as its management had planned lay-offs. Soon after the acquisition, M&M reversed the lay-offs and rehired the workers.
SsangYong in its annual report for 2012 said it would accelerate development of a small compact utility vehicle, crossover utility vehicle, and other new vehicle models. To fuel that, M&M had set an investment plan of nearly $900 million for the next four years, the company had said in 2013.
For M&M, it seemed like a good deal as well. The then largest maker of sport-utility vehicles in India—including Scorpio and Bolero—was well positioned in the Rs 6-20 lakh range, while SsangYong could cater to the more than Rs 20 lakh market.
At the time of acquisition, Pawan Goenka, managing director of M&M, had said that the collaboration between M&M and SsangYong will result in a competitive global utility vehicle player, adding there’s an opportunity to introduce a premium portfolio of SUVs in India that could further strengthen its dominant position in the UV segment. SsangYong, with a network of 1,000 dealers in over 90 countries, could extend Mahindra’s reach.
By 2013, Mahindra said the Korean firm was on a “road to a dramatic turnaround ”. It had launched new product line-ups apart from scrapping non-performing vehicles, focusing on growing its utility vehicle segment.
SsangYong had set an ambitious target of increasing overseas sales to 200,000 units and annual sales of 300,000 units by 2016.
But around the same time, the Indian UV market started growing, evincing interest from global and domestic automakers—and competition.
Renault Duster and Ford Ecosport, among others, were runaway hits, taking a toll M&M. Rexton, the first product launched in 2012 from the SsangYong stable in India, became the first victim as it failed to gain traction.
In July 2017, Maruti Suzuki India Ltd. unseated M&M as India’s top utility vehicle maker, riding on the demand for its compact SUV Vitara Brezza.
“Mahindra wanted to go outside India via SsangYong, but as the Indian auto market exploded after 2012, its focus slowly shifted towards defending its home turf,” Gaurav Vangaal, principal analyst at HIS Automotive, told BloombergQuint over the phone.
For the acquisition to work, SsangYong had to do well on its own as well.
Russia, its biggest export market, had started to contract in 2014, as demand for automobiles collapsed in the country. Demand in Iran, too, started to dry up. Amid increased competition and shunning of diesel vehicles, its other markets like Western Europe, too, started to contract.
Exports, which accounted for 66% of Ssangyong’s sales when M&M acquired it, started declining, mirroring the trajectory in its key markets.
In 2015, SsangYong witnessed a spurt in sales when it launched the compact SUV Tivoli, helping it gain traction in domestic and international markets like Iran, Europe and South America.
That boosted the firm’s production to more than 1.5 lakh domestic units in South Korea—its highest annual sales in 2016, according to Bloomberg wholesale data. In the year ended March 2017, it also posted a profit for the first time, according to Mahindra’s annual report for 2016-17.
The turnaround, however, was short-lived.
The company couldn't sustain momentum as a result of squeezing exports, intense competition in global and domestic markets, and failure to churn out more successful products like the Tivoli. Sales in Iran and Russia never picked up. Exports declined nearly 39% to 37,008 units in 2017.
In 2018, Mahindra said it won’t be launching SsangYong products in India, and will sell it under the Mahindra brand or re-engineer them for India. Mahindra launched two products built on SsangYong platform—XUV300 and Alturas G4—but is yet to sell them on a large scale.
“Mahindra got the technical know-how from SsangYong but lack of competitive pricing and at times overpricing worked as a deterrent to scale the product,” Vinkesh Gulati, vice president of Federation of Automotive Dealers Association, said. “Alturas, despite being an M&M-badged product, isn’t doing too well because it failed to attract customers in the absence of competitive pricing against the established vehicles like Toyota’s Fortuner and Ford’s Endeavour , and also because the segment is small."
Alturas is available at a starting price of around Rs 28.72 lakh (ex-showroom). Endeavour and Fortuner, according to company websites, are priced at Rs 29.9 lakh, and Rs 30.67 lakh respectively.
Failure to capture two of the world’s largest SUV market limited its exposure. SsangYong postponed its plans to enter the U.S. repeatedly, and struggled to push sales in China. Exports further fell to 25,010—the lowest in a decade—in 2019.
The car market in South Korea had plateaued, too. As many as 1.6 million vehicles were sold in the country in 2019—3% lesser than four years ago.
Amid increased competition in its home market from Hyundai and Kia, and lack of successful launches further inhibited SsangYong’s growth.
SsangYong posted its worst production in seven years in 2019, and reported its biggest loss of Rs 3,029 crore in the year ended March 2020.
While its consolidated debt has risen nearly threefold to around $423 million during 2016-19, according to Bloomberg, its market value has declined by nearly a third to $630 million in three years through March 2019. M&M, in an analyst call in June, said a one-time impairment of Rs 2,719 crore in the quarter ended March 2020 was largely led by SsangYong.
M&M is yet to respond to BloombergQuint's emailed queries.
Mahindra has so far have invested Rs 2,450 crore in equity in SsangYong, according to its annual report for FY20, and it had last infused Rs 319 crore in FY19.
With M&M deciding to stop investments, finding a buyer may be tough, with many companies in trouble during the pandemic. Ashwin Patil, senior research analyst who tracks automobile sector at LKP Securities, said, “It’s not easy to sell a loss-making business.”