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Yoo II Lee shakes his head when the topic veers around to frugal engineering. The President & CEO of SsangYong Motor Company clearly does not subscribe to this concept which has become some sort of a style statement in the automobile industry.
“Frugal engineering is something I do not agree with because you cannot compete globally with this concept. Low cost from the point of savings is fine but this should not mean a low quality car,” Lee told Business Line at the Delhi Auto Expo earlier this month.
As he puts it, frugal engineering “may be accepted” by very low-income groups. The SsangYong chief then brings up the example of China where one can only find top-end brands. Likewise, people in India are also looking for big cars like BMW and Audi. They want “good performance, not cheap” cars.
Origins Frugal engineering became a fashionable term thanks to Carlos Ghosn, the charismatic CEO of Renault-Nissan. The roots perhaps go back to the time of the Tata Nano which hit the headlines nearly eight years ago with its unbelievable price tag of Rs 1-lakh. Ghosn made no bones about his admiration for this initiative and believes frugal engineering holds the key for automakers’ success quotient in emerging markets where price plays a big role in the buying decision.
Clearly, Lee is not on the same page and wants SsangYong to remain in a premium space with its SUVs. Its owner, Mahindra & Mahindra which acquired the company three years ago, focuses on a more realistic price spectrum since its home base, India, is one of the cost-competitive auto markets in the world.
Yet, the two have been working towards a successful partnership which saw 2013 register one of the best years for SsangYong with sales of nearly 1.5 lakh units. The target is to double this by the end of 2016 – a remarkable turnaround for this Korean automaker which was literally in the dumps not-so-long ago.
Yet, there are critical gaps which need to be filled quickly if SsangYong has to emerge a lot stronger in the coming years. “The one thing we do not have is auto transmission which we are buying from outside. This remains our weakest point. Mahindras should consider having its own auto transmission plant in Korea which will help SsangYong become a complete automaker,” he adds.
Number talk The company is only too aware that global dynamics have changed rapidly for automakers in the last few years. For instance, as Lee points out, Europe has “hit the bottom and cannot go any further”. There is now a pressing need to develop new markets like China for SsangYong. Last year, the company sold 7,000 units in China and expects to do over 15,000 units in 2014.
“This means our products are well accepted in the Chinese market,” Lee adds. The next step is to rope in a local partner for operations in China which will keep costs in check and also ensure higher volumes.
“China, Russia and South America are the key to our future growth. The other important market is the US which we are considering and studying carefully,” Lee says.
Africa, likewise, is another potentially big market but SsangYong’s product range is not likely to be accepted there because of low disposable incomes. Lee admits that the era of large cars is gradually becoming passé and this is a reality that companies like SsangYong must face.
Things have changed dramatically since M&M stepped into the picture. “All our employees are working very hard and we are happy, but not fully satisfied. We have to turn around a lot faster and this is not easy due to the current global slowdown and a host of labour-related issues (wage negotiations) ahead of us,” Lee says.
And even while these are challenging times, the silver lining in the cloud is the growing demand for SUVs. “Our people do not want any more uncertainty in the future. The key is to survive going forward,” he adds.
Lee’s concern is understandable considering that there is still a long way to go especially when SsangYong is in the fourth spot of the five manufacturing entities in Korea. Yet, if the good showing in 2013 is any indication, the road ahead could just mark a new chapter for this Korean automaker in tandem with its Indian owner.
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