Manufacturing News

India's Mahindra seeks partner to make cars in China

Indian conglomerate Mahindra & Mahindra is re-thinking its strategy for its unprofitable 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 told Reuters the company is holding talks with Chinese firms to enter into a contract manufacturing agreement or form a joint venture to build Ssangyong vehicles in China.

Ssangyong currently exports vehicles to China from South Korea and sells them 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 automaker has struggled to break even, reporting a net loss of $51.6 million (339 million yuan) last year, 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," Goenka told Reuters. "We have some traction and need to ramp up our products for local manufacturing. China is here and now, while the U.S. is the future. We are still deciding what it takes for us to launch in the United States."

Boosting overseas sales has taken on a greater urgency for Ssangyong due to slumping sales in Russia -- once its biggest export market, which generated 20 percent of total shipments.

Exports made up only a third of Ssangyong's total sales of 144,764 vehicles in 2015, down from more than half in the previous year.

China challenge
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 $1 billion to refresh its product lineup.

Mahindra hopes the launch of its new compact SUV Tivoli, which has seen strong demand in South Korea, will help drive up sales in China, where small SUVs are booming.

While the China market might appear a good fit for Ssangyong's budget-focused models, sales growth has slowed significantly and Ssangyong's 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.

In 2014, Ssangyong held talks with Geely Automobile Holdings about the possibility of contracting the Chinese firm to manufacture its cars in China, according to three individuals involved in the discussions.

The talks foundered on Geely's condition that any Ssangyong cars it built would carry the Geely brand name and be marketed through its distribution channel, the sources said.

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.

Because imported cars are subject to high tariffs, Ssangyong's share of the Chinese car market is minuscule compared with market leaders such as Volkswagen AG and General Motors.

Last year, Ssangyong sold 2,460 cars in China, down from 11,976 units in 2014.

"Yes, right now China is down, but if we can get the right pricing then I think we should be able to benefit there," Goenka said.

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