Mahindra the fourth owner of SsangYong is hoping that its acquisition of the Korean auto company will be a lucky break for them both
It is strange how much can change in a year. Last August, SsangYong Motor’s main plant at Pyeongtaek was the scene of trade union militancy rarely seen anywhere in the world in recent years. Molotov cocktails and metal bolts flew and tires burnt as workers took over the factory and fought the police in a strike that lasted 77 days. They were fighting to keep their jobs and force the government to abandon plans to sack about 1,000 of them. SsangYong eventually agreed to drop the lay-off plans and the workers agreed to a wage freeze. The company that had already filed for bankruptcy then started looking for someone who would bail it out, once again.
Almost from the time SsangYong went into court receivership in January 2009, the smallest of the Korean automakers had started blipping on the radar of Indian auto major Mahindra and Mahindra (M&M). The mergers and acquisition team at the company headquarters in Mumbai began evaluating the utility vehicle maker. “We followed developments all through the battle with the unions. We knew there was a fit, and kept tracking until the bids were called,’’ says M&M executive vice-president V.S. Parthasarathy, who works on mergers and acquisitions for the group. Analysts say M&M is paying about $400-500 million for a majority stake in SsangYong. A final agreement will be signed by November. The company will not say how much it is paying, but this is clearly one of its biggest acquisitions and a lot rides on it — not just to realise M&M’s plans to be a global utilities player, but possibly more importantly, to guard its flank on the home turf.
Though the synergy from the troubled Korean company is clear, turning it around will be no cakewalk. In slightly over a decade, three large, global players — the SsangYong Business Group, Daewoo Motors and Shanghai Automotive Industry Corporation (SAIC) — have tried to make SsangYong work for them. All three failed. So how does M&M hope to make it happen? Pawan Goenka, president for M&M’s automotive and farm equipment sector says there is a strategic fit between the two is far clearer than ever before.
Fixing SsangYong
High on Goenka’s priority is investing in SsangYong to offer financial stability to the bankrupt company. The last two years under the ownership of Shanghai Auto have probably been its worst. Sales of its SUVs in Korea dipped every year as diesel prices soared and consumers preferred more fuel-efficient vehicles from manufacturers like Hyundai. The Chinese car maker had paid $500 million for SsangYong, but could never keep up with the investments, especially when sales plunged in the downturn.
“The company needs financial stability to resume normal operations and we intend to make the necessary investments that are required,” says Goenka. As of December 31, 2009, SsangYong had debt of $640 million. Creditors will take haircuts as part of the restructuring and unions have already agreed to job-cuts. M&M will takeover a zero-debt company and the fresh investments will be used to revive operations.
The other big difference, compared to previous owners, will be M&M’s plans to use the combined global network to develop both brands in India as well as globally. “Together there is a continuum of products with Mahindras at the mid to lower end of the market and SsangYong at the mid to premium end,’’ Goenka says.
Cho Jin Seo, staff writer at The Korea Times, who has been tracking the company in Seoul says, “I’m not sure about SsangYong’s chance in Korean luxury sedan market anymore, but it still has a good brand power in the SUV segment here.” Its overall market share in Korea is now at 2 percent with almost 13-14 percent in the utility vehicles segment. The company sells about 7,000 vehicles every month utilising only about 70 percent of its installed capacity in its two plants.
M&M vice-chairman Anand Mahindra is clear that the top management in SSsangYong will be Korean. Problems with SAIC had worsened because of Chinese management and the impression among factory-workers that the foreign company was taking technology out and putting in too little capital in return.
(This story appears in the 10 September, 2010 issue of Forbes India. To visit our Archives, click here.)