M&M to face challenges to turn Ssangyong around

SUV maker Ssangyong, which is in bankruptcy protection, said Mahindra, India’s top utility vehicle maker, had been chosen after making the highest bid and securing financing plans. No financial details were disclosed, however, and the uncertainty helped send Ssangyong shares down more than 8 per cent.

Sources told Reuters last week that Mahindra was willing to pay up to $400 million to acquire a majority stake in Ssangyong as it seeks to become a major global utility vehicle maker.

The deal will help Mahindra build a worldwide footprint as the Korean maker of the Rexton and Kyron SUVs and the Chairman luxury sedan also exports to Russia, Europe, China, and the Middle East.

But some analysts said it would take a while for Mahindra to see benefits from the deal with Ssangyong, which holds only 2 per cent of the Korean market, is under court-led restructuring and has a debt pile of about $634 million. It also has a history of labour disputes.

Slightly negative
“The acquisition could be slightly negative for Mahindra in the near term because Ssangyong is a small player and scalability is limited. So Mahindra will have to make some investments,” said Surjit Arora, auto analyst with brokerage Prabhudas Lilladher. “I am guessing it would take two to three years for Mahindra to turn around the company.”
Mahindra said it would invest in Ssangyong’s product portfolio, but added that the Korean automaker would continue operating as an independent entity with Korean management.

Mahindra Chief Financial Officer Bharat Doshi told reporters Thursday afternoon its bid money would be used to settle Ssangyong’s long-term debt.Automakers from emerging markets such as India, South Korea and China have become increasingly important on the global stage in recent years.

Korean market leader Hyundai Motor was a clear winner during the global crisis, stealing market share and growing profits as US rivals struggled to survive.

China’s Geely completed its purchase of Volvo cars from Ford Motor this month, while Mahindra and Tata Motors fought in 2008 to buy luxury brands Jaguar and Land Rover from Ford.

India’s Ruia group, which also bid for Ssangyong and was named a reserve bidder, purchased tyremakers Dunlop and Falcon Tyres. The deal, if agreed, will mark a third change of main shareholder for Ssangyong. Now defunct Daewoo group took over the company in 1998 and Ssangyong was sold in 2004 to China’s top automaker SAIC Motor Corp, but both failed to grow the automaker to challenge Hyundai.

Second investment
It would also mark the second investment by an Indian automaker in Korea after Tata Motors bought Daewoo’s commercial vehicle arm in 2004.Ssangyong said the final acquisition price would be decided in October after due diligence. It plans to close the deal in November.

After a dismal 2009 and nearly two months of strikes to block layoffs, Ssangyong has been recovering fast from one of the industry’s worst ever downturns. Its sales more than trebled in the first seven months of this year to 43,811 vehicles.