Necessary Action
Ssangyong Motors revived with great success last year, when it set a new export record to become the only Korean automaker with a double-digit annual growth rate. All of the employees worked hard and the Mahindra Group, the largest shareholder, provided full support as well.
Still, controversy is ongoing that the Mahindra Group is just taking Ssangyong’s technology without investment. The group is currently looking to manufacture a new vehicle in India by using the platform of the next small SUV of Ssangyong, which was developed by its own investment of hundreds of billions of won. Also, the local press is reporting that Mahindra and Ssangyong are working with each other for engine development.
Some experts point out that Ssangyong’s advanced technology could be leaked to India. Although Mahindra pays technology licensing fees to Ssangyong, the controversy can be calmed only if the former makes a direct investment with a long-term perspective.
At present, Mahindra is planning to release the S102 in India. It shares the platform of the X100 of the Korean automaker, which is slated to make its debut in early 2015. In short, the S102 and the X100 are identical vehicles with only some superficial differences in appearance. Mahindra’s plan for the new model is based on its long-term R&D and platform sharing strategy announced in 2012.
At that time, the Indian group said that it will grow Ssangyong into a global SUV powerhouse by supplying three to four new cars. The thing is, it has invested nothing in the X100 project. It is going to manufacture the S102 just by adding a few changes to the X100.
The Mahindra group has made no investment in Ssangyong, excepting the 800 billion won (US$750 million) in the paid-in capital increase last year and a payment of 522.5 billion won (US$490 million) for the acquisition in 2011. Ssangyong has executed all of its investments since the takeover with its own financial resources. Mahindra has just given approval as the major shareholder.
“Mahindra is attempting to get a free ride under the disguise of platform and engine sharing,” said a labor union member of the carmaker in his in-house brochure. The brochure added, “This situation reminds me of the painful experience associated with Shanghai Motors.” Even though the two companies responded by mentioning the payment of technology transfer fees, the concerns have never been alleviated.
Under the circumstances, keen attention is being paid to the role of Mahindra during Ssangyong’s penetration of the US car market. The latter is mulling over changing its corporate name and brand logo before its debut in the US, which means that the company is about to go through innovation of a seismic scale.
What is most needed during the preparation is a huge amount of capital. The new funds that are required to this end cannot be borne by Ssangyong alone. It has no new model to be released this year, either. “If the Mahindra Group is to become a global leader in the industry, it will have to make a direct investment in Ssangyong,” said a Korean automotive engineering professor.