How Mahindra's gameplan to become a global SUV player backfired | Economic Times

It was an ambitious purchase for Mahindra & Mahindra when it acquired South Korean automaker SsangYong Motor Company for Rs 2,100 crore a decade ago.Anand Mahindra and his lieutenant Pawan Goenka broke the news and explained how the acquisition would propel the country’s largest manufacturer of SUVs to the next level. However, 10 years later, the dream soured as SsangYong went into court receivership on a growing mountain of debt, supplemented by poor performance.Cynics were quick to point out why this marriage of convenience did not work. Starting with non-alignment of product strategies to a crashing export market for SsangYong and managerial misgivings, each one seemed to play its part. However, a decade was time enough to fix any problems.Perhaps nothing embodies the failure of SsangYong more than falling sales volumes from 2010. It appeared that Mahindra had bought SsangYong without a plan to channelise and increase sales. Barring the compact SUV Tivoli, which was introduced under M&M’s ownership, SsangYong could barely take its core portfolio of Korando and Rexton to the next level. Leaders Hyundai and Kia always had an edge. “SsangYong saw stagnation in volumes and growth and that caused it to bleed,” said Mahantesh Sabarad, retail head at SBI Securities. “The Korean major could not raise volume growth for it to become profitable. Automobile companies need to constantly innovate and refresh portfolio. That did not happen with SsangYong, including lack of R&D support.”One of SsangYong’s biggest challenges was to build scale and regain its foothold in China and Russia, which used to be critical volume contributors. The company sold over 135,000 units in 2019, with 27,446 units exported.At home, the company sold over 100,000 units for the fourth consecutive year despite intense competition. However, cumulative volumes never went beyond 160,000 units. While the product portfolio of SUVs was complementary, SsangYong barely had any differentiator that could have enabled it to stand its own against Hyundai and Kia. “It was the wrong selection. SsangYong was a fringe company. M&M was enamoured by the idea of how SsangYong could grow into emerging markets of Russia, China, Brazil and Latin America, which Mahindra could then piggyback on and grow, but it never happened. Plus, the technology transfer was very difficult,” said an expert who has tracked the company. 79957631When M&M took over the company, SsangYong had significant exposure in Russia and China, but over time, SsangYong’s distributor partner was compelled to shut shop due to a weakening currency and the economic crisis.The automaker’s attempts to enter India, China and the US were futile. The high-cost 300,000-unit plant could barely make money and changing regulations demanded further fund infusion to upgrade the portfolio. VG Ramakrishnan, MD at consultancy firm Avanteum Advisors, said with its core utility vehicle market in India facing a huge hit, M&M has been compelled to redraw its future strategy, especially its global ambitions.“M&M had a good start with SsangYong, but eventually, it could not translate the synergistic benefits, especially on the technology, to its Indian operations. Under M&M, SsangYong could not build scale, add new markets or bring in product innovation,” Ramakrishnan said.While Tivoli helped SsangYong improve its domestic volumes and market share, the shrinking export markets – especially Russia, Iran, Chile, Egypt and some Western European countries – had a negative impact on its total volumes. “SsangYong’s volumes did not pick up as per desired levels, so the pricing power was limited and they couldn’t report desired profitability,” said Mitul Shah, head of research at Reliance Securities.In hindsight, M&M’s biggest mistake may have been to allow SsangYong to operate independently without too much day-to-day interference. The decision to keep an arm’s length did not give Mahindra the wherewithal to monitor SsangYong’s growth path.“Quarterly reviews are fine, but Mahindra needed to handhold a struggling player, rather than only infuse funds and hope for the best,” said a person familiar with the development.“Most importantly, it could not bring on synergies with the Indian operations and was not even supported by large R&D expenses,” said Sabarad of SBI Securities.It took Mahindra almost eight years to use SsangYong’s architecture and come out with its own product. Based on Tivoli, Mahindra introduced the XUV300 in 2019.However, even while announcing there would be no further investment in SsangYong, the strain between the old and new management was clearly visible. That was a telling sign that the horse had bolted, never to be reined in again.