India-based conglomerate Mahindra & Mahindra has shifted strategy and will manufacture cars in China, putting aside plans to expand to the U.S. following the loss of South Korean automaker Ssangyong Motor Co., according to a report by Reuters.
Mahindra Executive Director Pawan Goenka told Reuters that the company is negotiating with Chinese companies for a contract manufacturing agreement or a joint venture to build Ssangyong vehicles in China. The vehicles are currently exported by South Korea and sold through a local distributor in China.
In 2011, Ssangyong was rescued by Mahindra from near insolvency when it acquired over 70 percent stakes. Although Ssangyong made a net profit in the final quarter, South Korea's fourth top carmaker still struggled to break even and incurred a net loss of 61.9 billion won ($51.6 million) in 2015.
The report said that by having the cars manufactured in China, Ssangyong could lower its prices in the country. Goenka said that it makes more sense to focus on expanding sales in an existing market before going to the U.S. and build a distribution network from scratch.
"China is easier to look at right now because Ssangyong already has a presence there," Goenka was quoted as saying. "We have some traction and need to ramp up our products for local manufacturing."
"China is here and now, the U.S. is the future. We are still deciding what it takes for us to launch in the U.S.," said the executive director.
The report said that Ssangyong is rushing to boost overseas sales as it is experiencing declining sales in Russia, once its biggest export market contributing more than 20 percent of total shipments.
In 2015, exports made up only one-third of Ssangyong's total sales of 144,764 vehicles, a decline of more than half in 2014, when it sold 141,047 vehicles, and short of its export target of 60 percent of total sales, the report added.
Goenka said that currently, the South Korean carmaker also does not have a vehicle that meets U.S. regulatory requirements.
"The U.S. is not somewhere you can go in without significant investment in product and brand development. Given the various priorities we have, the U.S. is now somewhat on the back burner, but not stopped," Goenka said.
Goenka, who is also chairman of Ssangyong, did not specify which Chinese companies it was talking to.
Under Mahindra's management, Ssangyong is investing nearly $1 billion to refresh its product line. Mahindra is expecting that the launch of its new compact sport utility vehicle (SUV) Tivoli will drive sales in China, where sales of small SUVs are booming.