M&M to buy engines, components from Ssangyong

After completing the acquisition of a majority stake in Ssangyong Motor Co (SYMC), Mahindra & Mahindra (M&M) will now mutually decide on the import pricing of the Korean made components.

Pawan Goenka, president, automotive and farm equipment sector, who has been appointed as the chairman of SYMC, said they are looking at the “aggregate commonisation” opportunities between SYMC and M&M.

“Though M&M has a majority stake in SYMC, we are two separate legal entities and as per the corporate governance laws our dealings with SYMC will be at arms length and they have to be commercially viable for both the companies,” Goenka said.

M&M plans to assemble sports utility vehicles — Rexton and Korando C— in India, which will be bought as completely knocked down units, by the end of 2012. For this M&M is yet to decide upon the purchase price of the components which will be assembled at the Chakan plant.

Korando C will be assembled on the platform of the world SUV (codenamed W201) and Rexton will be assembled on the Genio platform. Goenka said since M&M has only one petrol engine and SYMC has a strong portfolio in petrol engines, this will be one area where M&M would make purchases from SYMC.

As far as SYMC’s diesel engines are concerned, M&M may look at purchasing them only for niche products.

“The purchase price will include the element of profit for both the seller and the buyer. It will also include the value of technology. This will benefit SYMC in improving its valuations and M&M will benefit in the form of selling premium SUVs in the Indian market,” Goenka said.

According to V G Ramakrishnan, director with Frost and Sullivan, the pricing of components will be determined by the volumes the company plans to achieve and the extent of localisation — for example the company will not be able to localise parts such as engine, transmission, steering and battery.

M&M and SYMC are yet to decide on the branding of Rexton and Korando C for the Indian market.

Ramakrishnan said in case M&M decides to sell the products under its own brand name then it would have to pay royalty to SYMC for brand usage.

“With the support of the local management, Mahindra and SYMC will emerge as a strong force in the global utility vehicle space. With the new partnership, we are looking at a win-win situation for both the companies. Volumes of Ssangyong grew 132% last year and we are expecting to sell 121,000 units of Ssangyong vehicles globally, which would mean a growth of 45% as compared to 2010. We expect Korando-C to be the major contributor to the growth,” said Goenka.

The company is also considering the possibility of Mahindra Finance setting up operations in Korea to enhance the sales of SYMC vehicles.

Goenka said SYMC did not have any captive finance arm in South Korea. “Hence, we are in the process of having a joint venture between the two. We are currently studying the potential of this and accordingly will take a decision.”

Mahindra will also bring in combined synergies for hybrid and electric vehicles. Ssangyong has prototype electric and hybrid cars. Teams of both companies are in talks as to how they can take it forward and work together.