Mahindra & Mahindra Ltd., India’s biggest SUV maker, will reveal the first jointly developed platform with Ssangyong Motor Co. by 2015, seeking to integrate its South Korean unit and boost margins from a five-year low.
Mahindra will spend 300 billion won ($253 million) to develop the platform with the automaker it acquired last year, Pawan Goenka, president of Mahindra’s automotive division, said. The two companies have also begun working on a new engine, he said.
New products catering to emerging markets may help the Mumbai-based maker of XUV500 and Xylo vehicles boost its profit margin, which narrowed in the year ended March to the lowest since 2007. SUV demand in China jumped 18 percent in the first quarter bucking a slump in the broader market. Deliveries of the vehicles in India may exceed the 12 percent growth forecast for passenger cars by March, Goenka said.
“Mahindra can save a lot of money by introducing Ssangyong models in India and utilising the Korean company’s dealership network to enter new overseas markets,” said Umesh Karne, an analyst with Brics Securities Ltd in Mumbai. “The Korean automaker hadn’t invested significantly in research and this could be a beginning.”
Chairman-designate Anand Mahindra bought 70 percent of Ssangyong for $378 million. The maker of Korando and Rexton SUVs was formerly controlled by China’s SAIC Motor Corp and had sought bankruptcy protection in February 2009.
Ssangyong helps Mahindra in creating “a very good portfolio from the very low end, like the Bolero, to the high end,” said Goenka, who is also Ssangyong’s chairman. The Bolero SUV starts from about `542,000 in Pune.
Mahindra also plans to use the Korean company’s dealerships from Australia to Uzbekistan to sell its vehicles. Ssangyong has 1,250 dealers across 96 countries, Mahindra said.
“Mahindra’s standalone cash flows are getting flushed out by Ssangyong,” said Basudeb Banerjee, an analyst with Quant Broking Pvt. “The brand equity of Ssangyong is not as strong as Jaguar Land Rover, which has global appeal.” Tata Motors acquired the luxury marques for $2.5 billion in 2008.
Slowing growth at home may reduce demand for Mahindra’s vehicles. India’s economy weakened to a nine-year low last quarter expanding 5.3 percent.
Mahindra began selling Ssangyong products alongside its own vehicles in South Africa and will soon begin offering Ssangyong products in two other countries, said Goenka.
Mahindra is also in talks with distributors in Russia to stock its models in dealerships that currently sell Ssangyong vehicles, he said
“Integration first begins at the product stage,” said Mahantesh Sabarad, an analyst at Fortune Equity Brokers India Ltd in Mumbai. Before developing a common platform they can share parts such as “steering wheels and door handles. These are the tiny bits and parts that can cut costs,” he said.
