Following the recent media reports about Mahindra planning to invest $423 million in its South Korean unit Ssangyong Motor Co, the home-grown automaker has issued an official statement on the matter. Stating that some of these reports could be misinterpreted, the company, in its statement said, "The Board of SsangYong has approved a 3 years business plan which leads to the profitability of the company in the year 2022. This plan requires outside funding of 450-500 billion KRW ($380 - 425 million) over a period of three years. About half of this amount is to repay the existing loan and the remaining is to augment the capex required for new product development."
Clarifying how the company will source these funds, the statement added, "Funds required are expected to be generated by a combination of fresh bank loans, new investment and further equity investment by Mahindra. No equity proposal has been put up to the Mahindra Board of Directors as on date. A proposal will be presented to the Board and a decision will be made only after Mahindra management has vetted the plan and evaluated its feasibility."
The report mentioned, Pawan Goenka, CEO and Managing Director, Mahindra & Mahindra saying that Ssangyong was expected to break even in 2019 but things started reversing last year due to a slowing global economy and a shift in its domestic market to petrol-fuelled cars from diesel. The previous media report had also mentioned that the company is aware it is not realistically possible to turn SsangYong profitable in 2020, and this is where the 3-year turnaround plan comes in.
Mahindra, which acquired the South Korean carmaker in 2010, says that Ssangyong will focus on reducing its material costs to save $68-$76 million per year over 2 years, and that will help improve the operating profit margin by around 3 per cent. Also, the company, which was forced to halt production at its Korea plant on February 4 following a supply disruption caused by the coronavirus outbreak in China, will reopen on February 13.
Mahindra has already stopped selling SsangYong models in India and had earlier stated that it has no plans to do so. However, the company continues to use the technology to make the India-spec version of the SsangYong SUV and sell them as Mahindra products. Two existing examples are the Mahindra XUV300, which is the India-spec version of the Tivoli, and the Alturas G4, which is a Mahindra badged version of the new-gen Rexton.