NEW DELHI: Indian conglomerate Mahindra & Mahindra is re-thinking the strategy for its loss-making Korean automaker Ssangyong Motor Co, tapping the brakes on its planned push into the United States to focus instead on China.
Mahindra's executive director Pawan Goenka said the company was in talks with Chinese firms to enter into a contract manufacturing agreement or form a joint venture to build Ssangyong vehicles in China, where it currently exports to from Korea and sells through a local distributor.
Mahindra rescued Ssangyong from near-insolvency in 2011, acquiring a stake of just over 70 percent, but South Korea's No. 4 car maker has struggled to break even, reporting a net loss of 61.9 billion won (US$51.6 million) for 2015, although it made a net profit in the final quarter.
Making cars in China would mean Ssangyong could lower its prices there, and Goenka said it made sense to focus on expanding sales in an existing market before going to the United States and building a distribution network from the ground up.
"China is easier to look at right now because Ssangyong already has a presence there. We have some traction and need to ramp up our products for local manufacturing," Goenka told Reuters.
"China is here and now, US is the future. We are still deciding what it takes for us to launch in the US"
Boosting overseas sales has taken on a greater urgency for Ssangyong due to slumping sales in Russia, once its biggest export market contributing more than 20 percent of total shipments. Exports made up only a third of Ssangyong's total sales of144,764 vehicles in 2015, down from more than half in 2014, when it sold 141,047 vehicles, and substantially short of its target for exports of 60 percent of total sales.
Also, the Korean car maker does not currently have a vehicle that meets US regulatory requirements, Goenka said.
"The US is not somewhere you can go in without significant investment in product and brand development. Given the various priorities we have, the US is now somewhat on the back burner, but not stopped," Goenka said.
Goenka, who is also chairman of Ssangyong, did not give details about which Chinese companies it was talking to.
Under Mahindra's ownership, Ssangyong is investing nearly US$1billion in refreshing its product line-up. Mahindra hopes the launch of its new compact sport-utility vehicle (SUV) Tivoli, which has seen strong demand in South Korea, will help drive up sales in China, where smallish SUVs are booming.
While the China market might appear a good fit for Ssangyong's budget-focused models, growth in the world's biggest car market has slowed significantly and an effort to set up production there faces challenges.
Most global car makers already have a joint venture or production agreement with local companies, which could make it tough for Ssangyong to find the Chinese partner it needs to build cars there.
Also, given rampant excess auto production capacity, China's industrial policymakers are no longer so generous in allowing foreign automakers to form a joint venture with a Chinese firm.
