The Tivoli compact CUV has been a rare recent success for Ssangyong. The Korean automaker is hoping that success won’t become too costly.
While 2015 global sales initially were estimated at 38,000, Tivoli deliveries reached 20,960 through May, prompting executives to raise their full-year target 60,000 and set a 100,000-unit bogey for 2016.
Robust demand and ratcheted-up sales projections, however, may prove to be a two-edged sword for Ssangyong as the low-volume automaker heads into traditionally contentious contract negotiations with its workers union.
Union bargainers may understand the automaker needs a profit margin sufficient to grow production capacity, expand the dealer network, increase advertising in global markets and maintain its brisk engine- and vehicle-development programs. The rank and file, however, may only see the Tivoli’s strong sales and use them to justify demands for hefty wage hikes and bigger bonuses.
The CUV’s success also has masked the poor performance of the other vehicles in the Ssangyong portfolio, all of which saw sales decrease year-over-year in the first five months of 2015 after slipping in 2014.
Overall sales last year were off 3%, with 139,883 completely built-up units sold. Domestic sales outperformed the market and climbed 7.9% to 69,036 units. Exports were down 12% at 70,847 units, due mostly to the negative economic and political situation in Russia and Ukraine, and the ruble’s devaluation against the U.S. dollar.
The brightest spot was another CUV, the refreshed Korando C, which tallied 59,703 sales in 2014 after notching 56,754 in 2013. But it has fizzled this year, with sales slumping 48% to just 13,118 units through May. Deliveries fell 13% in Korea and 63% in export markets.
Ironically, the drop in demand for the Korando C frees up production capacity for 22,000 additional units of the Tivoli that are needed to meet the increased 2015 sales targets. If the Korando C decline continues at the same level throughout the year it will fully offset the Tivoli’s increased requirements.
Tivoli’s Stablemates Underperforming
Despite the Tivoli’s popularity at home and abroad, Ssangyong’s sales in 2015 have been slipping while all segments and niches in the SUV markets in Korea and Europe are robust and growing.
For the January-May period Ssangyong’s overall sales were down 8% from like-2014, to 57,602. The Tivoli accounted for 36% of the total, with 20,996 deliveries in domestic and overseas markets.
Sales in Korea were up 32% in a market that grew just 5.6% from prior-year. The Tivoli is credited with 40% of the 36,990 deliveries. Exports retreated 40% but would have been much worse without the Tivoli, which accounted for 30% of Ssangyong’s shipments of 20,216 CBU vehicles.
Excluding the Tivoli, cumulative global sales would have totaled 36,240, off 41% from the 62,161 units delivered in the first five months of 2014.
The Tivoli was the right vehicle launched at the right time for Ssangyong. Just as management did not expect its initial heady success, they probably had not anticipated the slump by Tivoli’s market-proven stablemates, including the 2014 sales leader Korando C.
The Tivoli is being counted on to build on its success with a diesel model to be released in Europe following its July launch in Korea. Management expects the diesels to account for 40% of overall sales.
But to crack the B-segment compact CUV market, the automaker must pursue a lowest-price, higher-value strategy for the Tivoli.
Launched against strong competitors such as the Fiat 500, Nissan Juke, Citroen C4 Cactus, Suzuki Vitara, Renault Captur and Jeep Renegade, it needs to outshine them in some category. Like the Korando C of 2013 and 2014, the Tivoli matches its competitors in many features and performance categories, yet surpasses them in very few – except its low price and strong dollar-for-dollar value.
In Korea, where it is a Korean-branded home-developed product, it is thought to be appealingly avant-garde by some. In their view it offers stylishness roominess and numerous features found on higher-priced vehicles.
Equipped with the 1.6L gasoline engine developed at Ssangyong’s Pyeongtaek R&D center and produced in its Changwon engine plant, the 2-wheel-drive version Tivoli in basic SE trim is available in the European/U.K. markets for the local currency equivalent of $19,800. The basic package includes air conditioning, cruise control, Bluetooth connectivity, keyless entry, 16-in. alloy wheels and seven airbags.
Prices top out at $28,250 for a diesel-powered ELX model.
A long-bodied version will be released early next year.
Union Demands Could Shred Automaker’s Paper-Thin Margins
For Ssangyong, the Tivoli’s qualities also are its Achilles’ heel. To offer the CUV with its multiple features at near-fire-sale prices, the automaker is stretching its limited resources even further.
Before stepping down in April, President and CEO Yoo Il Lee had promised to schedule at least one new vehicle in each of the next five years. The plan is to bring the Pyeongtaek plant, currently about 40% underutilized, up to full capacity within that timeframe. Yoo’s successor, President and CEO Johng-sik Choi, is pleading with the local union to help make this happen.
But if the local pushes for the full 160,000 won ($142) monthly pay increase and hefty bonus the unions are seeking at all four of South Korea’s automakers, Ssangyong’s perilous financial condition could worsen.
Ssangyong reports a 2014 net loss of 50 billion won ($45.4 million), or 371,000 won ($331) per share, compared with a net loss of 2.4 billion won (2.14 million) in the prior year. Its first-quarter 2015 operating loss was 31.3 billion won ($27.9 million), or 228,000 won ($204) per common share, versus a profit of 11 billion won ($9.6 million) in like-2014.
In addition to the 2015 sales slide and troubling financials, the Tivoli has not yet proved it isn’t a flash in the pan. Its 5-month sales history parallels that of the Korando C, easily Ssangyong’s best seller in 2014 but currently in decline.