* Ssangyong needs success in China before Mahindra entry
* Mahindra to announce entry into U.S. car market soon
* Mahindra to build new $540 mln India factory by 2014
By Henry Foy
MUMBAI, May 24 India's Mahindra & Mahindra
is finding it tough to exorcise the ghosts of failed
Chinese ownership at its South Korean car unit Ssangyong as it
looks to push the brand into China's auto market, the world's
At the same time, the Indian car, tractor and truck maker,
the core part of the $14.4 billion diversified Mahindra Group,
will take its own rugged sport utility vehicles (SUVs)
elsewhere, to emerging markets such as Brazil and South Africa -
though it is developing engines to be used across both brands.
Mahindra's muscular jeeps have for decades been a favourite
in India's rural hinterland, and its tractors work fields from
Arizona to Zimbabwe. Cracking the Chinese market with Ssangyong
would mark the next frontier for a company that has used booming
domestic growth to fuel its global ambitions.
"China is a high priority for Ssangyong, but not for
Mahindra," said Pawan Goenka, president of Mahindra's automotive
and farm equipment sectors and chairman of Ssangyong, which the
Indian company bought for $460 million in March last year.
Ssangyong Motor Co, which trails far behind Korean rivals
Hyundai Motor and Kia Motors but is
popular in Russia, was close to bankruptcy under its Chinese
owners SAIC Motor Corp when Mahindra stepped in to
buy a 70 percent stake.
The Indian firm started importing Ssangyong cars into China
late last year, but has had "limited success" in a market that
is slowing and which regards Ssangyong as a premium brand,
Goenka said in an interview at Mahindra's headquarters in
"An important hurdle we faced was the 'ghost of the past' at
Ssangyong. They were clearly badly bitten by SAIC."
"It's said that SAIC did not do justice to Ssangyong. And
there's an apprehension, a feeling, a concern that we may be a
repeat of the same. To remove that concern has taken time. And I
can't say it's gone 100 percent," he added. "That has been a
little harder than we thought.
Goenka declined to say how many cars Ssangyong sold in
China, but said the total lagged expectations. "The ramp-up has
not been as we'd expected," he said. "If Ssangyong was a very
strong brand in China, then clearly the market slowdown would
not have affected us as it has."
"There is an action plan that includes brand building and
pricing and what kind of product tinkering we do; whether there
is a specific requirement of product the Chinese customer would
want," he said.
The Ssangyong project is a career-defining initiative for
Goenka, who spent 14 years at General Motors before
joining Mahindra almost two decades ago.
Ssangyong, which makes the Korando and Rexton SUVs and the
Chairman luxury marque, sold 114,000 vehicles in the year to
end-March, exporting two-thirds of its production. Goenka
expects sales to increase to 125,000 cars this year, and has set
a target of 160,000 for 2013.
He said plant capacity could probably be increased to
180,000-200,000 vehicles at minimal extra cost. "It will take us
to 2014 until we sweat the assets fully. That's very important,"
he said, noting depreciation as a part of Ssangyong's revenue
was above the industry norm as the assets are under-utilised.
Ssangyong made a loss of around $80 million in 2011, three
times bigger than its 2010 loss, but it was offset by unlocking
working capital tied up in the company.
"As of now we have no plans (to take Mahindra to China),"
said Goenka. "We are entering China through Ssangyong. Once that
is successful, then we will evaluate whether it makes sense to
bring Mahindra products there.
"Once the volume picks up, and we reach a certain economic
level, then we will look at manufacturing in China," he said,
adding that all new vehicle platforms will be shared by
Ssangyong and Mahindra cars. "Together we are developing
next-generation transmissions, which is a fairly expensive
program that neither Mahindra nor Ssangyong could justify doing
on their own."
BRAZIL IN FOCUS
With a shipment of 600 jeeps to the former Yugoslavia in
1969, Mahindra became India's first car exporter. In market
value, Mahindra & Mahindra is about half the size of Tata Motors
, which owns the Jaguar and Land Rover brands. Today,
Mahindra and its subsidiaries sell more than a quarter of their
passenger car and commercial vehicles outside India.
The auto unit - which contributed around two-thirds of
Mahindra Group revenue in the year to March 2011, and 86 percent
of net profit - assembles and sells its own-branded tractors in
the United States and Australia, and exports cars and commercial
vehicles to Africa, Europe and South America.
"For Mahindra, Brazil is a big focus market," said Goenka,
who plans to take the company's Scorpio jeep and new XUV 500
sport utility to that market soon. Goenka played a major part in
developing the popular Scorpio, and drives a white XUV 500.
One market where Mahindra does not sell its passenger cars
is the United States. It was forced to suspend its entry plans
by a long-running legal dispute with a former distributor. That
was settled in March, and Mahindra, but not Ssangyong, should be
heading into the market shortly.
"We will soon be making our plans known as to what we plan
to do in the United States," said Goenka. "The U.S. is turning
around, its auto industry is in better shape than many other
markets. The love for large SUVs and pick-up trucks is back,
which is good for us."
While Ssangyong won't be part of any planned assault on the
U.S. market, the brand last month entered South Africa in
conjunction with the Mahindra distribution network there, and
could soon use its parent company to enter other markets.
"We have three distribution companies, in South Africa,
Australia, and Italy. They do nothing but sell Mahindra
vehicles, so they could sell Ssangyong also," Goenka said.
India's biggest SUV manufacturer saw its car sales grow 15
percent in the year to end-March, well ahead of the industry's
2.2 percent overall growth. In response to rising demand, Goenka
said Mahindra will spend around 30 billion rupees ($541 million)
on a new 250,000-vehicle factory in India.
(Additional reporting by Tony Munroe; Editing by Ian Geoghegan)