About a year ago I asked Dr Pawan Goenka, Mahindra’s automotive business head, whether he saw acquisitions as a way for Mahindra to grow its automotive presence. He was cautious in his response, preferring to emphasise the firm’s organic growth efforts.
“We have to give priority to our billion-dollar investment programme and we have to be cautious about any acquisitions.
“We wouldn’t want to close the doors completely on it, but it would have to be something that aligns with our strategy. We would have to be able to afford it and we would have to be able to see what we could do with the business that the current owners could not do. But we are not going around looking for something to invest in.”
Well Mahindra has now confirmed interest in bidding for the assets of troubled Ssangyong, the small Korean maker of cheap but robust SUVs and it is not alone. Interested parties are also said to include Renault-Nissan and a number of other Asian-based firms.
Why the interest in a company – or its assets – that until recently looked so washed up?
The clue to the widespread interest in the company is in Goenka’s phrase of last year ‘do with the business what the current owners could not do’.
Ssangyong got itself into a near terminal financial crisis under its previous owners. There were big debts, sagging sales, delays to new product programmes and a Chinese stakeholder that was allegedly only interested in technology transfer. Whether that allegation is true or not, the much talked about ‘Chinese dimension’ and synergies that SAIC’s involvement with Ssangyong was supposed to generate never materialised.
Ineffective management caused confidence to drain away further when the market environment worsened sharply last year – both in Korea and in export markets. And that quickly led to a liquidity crisis that culminated in bankruptcy and the industrial relations turmoil that halted production altogether last year.
Ssangyong’s very survival was seriously in doubt, asset liquidation a real possibility.
But that was then.
The industrial relations problems eventually ended. Crucially, the support of the Korean government and major creditor the Korea Development Bank secured approval from creditors for a restructuring plan at the end of last year. After last year’s disruption, production lines started have started up again. Sales are slowly picking up.
Ssangyong can be presented to potential investors as a going concern.
Where’s the value? Well, there’s a big manufacturing plant in Korea. That would potentially be of interest to an OEM. There’s also the Ssangyong supply chain.
Renault-Nissan already has a presence in Korea via Samsung; adding the Pyeongtaek plant would present more possibilities on the manufacturing front to make other Alliance vehicles in Korea for local consumption. The Korean vehicle market is one with a high share for ‘national champion’ brands that ought to fragment further in the future. This middle income country is one with good sales growth potential.
Those troublesome workers? The ones who are left will relish a second chance under a new owner.
The Ssangyong products? They will certainly be of interest. The Rodius may be an oddity, but the SUVs are based on old Mercedes technology that is said to make them robust. There may well be a feeling that the product cupboard is far from bare.
Crucially, the C200 compact crossover is now just about to go into series production. That vehicle has been a long time in gestation and could turn out to be a very successful addition to the Ssangyong portfolio.
Could an OEM make a success out of Ssangyong’s assets? Maybe. Besides the manufacturing infrastructure, there’s also the potential to look at overseas distribution arrangements to lift sales.
What about the long-term? If sufficient revenues can be generated and Ssangyong is part of a wider vehicle manufacturing group, there would of course be opportunities to make the usual product development, platform-sharing and parts procurement savings. Ssangyong could well be a brand with specific values and market presence that work within a family.
Mahindra also specialises in utility vehicles and it is not too surprising that it is interested. Adding Ssangyong would help to lift Mahindra’s international presence and would boost its international strategy.
Other firms – including private equity – also appear to see value in Ssangyong. The sales process will be taken further in August when preferred bidders will be named. To be cynical for a moment, some may say that if Ssangyong was going down it would surely have sunk last year. But it has powerful backers in Korea who wouldn’t let it disappear. For a prospective new owner, that could be good to know.
There is still a lot to be worked out, but Ssangyong is not quite the busted flush it had so recently appeared to be.