beyondbrics

As the FT has noted, Anand Mahindra, managing director of Mahindra & Mahindra, is a man of great ambition. His companies’ recent feats include launching a small aircraft and overtaking John Deer as the world’s biggest tractor maker by volume. Speculation is rampant that he may soon acquire Saab, the embattled Swedish automaker.

So re-launching a relatively little-known South Korean car company on the subcontinent would not seem to be beyond his scope.

Exactly how the diversified Indian automaker plans to do that became clearer on Monday when Choi Jong-sik, vice president of sales for Ssangyong, Mahindra’s Korean subsidiary, told the Economic Times the company was considering making India a manufacturing base, involving investments of $1.2bn over the next three to five years to roll out four new models.

“If you see manufacturers like Hyundai, they are exporting cars to many countries; so possibly, we may explore such opportunities in future,” Choi told the Economic Times. “We know the cost of manufacturing is lower in India, but the quality should be of international standards.”

Analysts say the company could not only save money by manufacturing in India but also gain better access to global markets. Ssangyong’s presence in India is very limited but could be helped by a focus on low pricing and products targeted to the Indian consumer – particularly the SUV,  a model that has been very successful for Mahindra itself.

“[It] depends on the kinds of products they launch and at what price point; one thing which is clearly coming out is that the SUV portfolio is gaining momentum in India and new products are helping companies to increase sales,” one Mumbai-based analyst who did not wish to be named told beyondbrics.

Mahindra’s rugged, low-cost Scorpio SUV, which since its 2002 launch has helped to increase the company’s market capitalisation by 50 times, is a prime example – as is the company’s new XUV 500, which attracted a months-long waiting list at its launch and is now being sold on a lottery system.

As the FT has reported, foreign players including Ford, Peugeot Citroen and Hyundai along with local companies such as Tata and Maruti Suzuki have all increased investment on the subcontinent in recent years as they seek to take advantage of lower manufacturing costs and to tap into one of the fastest growing auto markets in the world.

“I think [this move] will bring costs down significantly for Ssangyong because India does have an advantage in manufacturing and Mahindra will also have the advantage of its well established supplier base so they can use the same suppliers for Ssangyong,” said Deepesh Rathore, managing director for IHS Automotive in India.

“Perhaps they are also looking to take the Ssangyong brand and expand it in other regions where it’s not currently present,” he added. “India is a great base to target the African or Middle East markets – it’ll save many thousand kilometers from a logistics point of view.”

Mahindra bought a 70 per cent stake in Ssangyong last year for $466.2m and said it would turn the company around by introducing its cars in India and by taking Mahindra’s car financing business to South Korea, as part of a drive to boost sales by 50 per cent to 121,000 vehicles a year.

The global economic downturn pushed Ssangyong into bankruptcy protection in January 2009 after four years under Shanghai Automotive’s management control.

Related reading:
Undimmed ambition as economy’s lights flicker, FT
India woos foreign capital to regain lost sheen, FT
Indian auto industry prognosis: negative, beyondbrics