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India exit won't be easy for General Motors

Sohini Das/Ahmedabad 19 Jun 17 | 11:42 PM

Workers at General Motors’ Talegaon plant, 118 kilometres from Mumbai, which has 2,500 employees and a capacity to produce 160,000 cars in a year. Reuters

At General Motors’ Talegaon plant, which will now make cars only for export, tension hangs in the air. After around 250 people across sales, marketing, finance and administration were asked to leave last month, employees in the factory are a worried lot. 

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“People in manufacturing have not been asked to leave so far. However, there is a lot of uncertainty in the way things have unfolded in the recent past, and people are frantically looking for jobs," says an employee on the condition of anonymity. 

The Talegaon plant employs 2,500 people, apart from the 2,500 who work at GM’s global technical centre in Bangalore. Their anxiety stems from GM’s decision to not sell the Chevrolet brand in India from December. 

At the dealers’ end, around 8,500 people are likely to be directly or indirectly affected. Dealers, in fact, are mulling legal action against the company as they are not happy with the compensation offered to them. 

Most of the 140-odd dealers have not shown interest in becoming just service centres. Availability of spares is going to be an issue as well for the existing customers. PwC Partner Abdul Majeed reckons that to sort this issue out, GM perhaps needs to tie up with another major player.

Consolidation pains

Once the world’s largest automobile company (now in the third slot after Volkswagen and Toyota), Detroit-headquartered GM has turned its focus from volumes to profits. Thus, it is in a spree to exit not-so-profitable markets. 

In May, it not only decided to stop selling cars in India but also ended its 90-year journey in South Africa by selling its manufacturing plant to Isuzu. Earlier this year, it sold Opel brand to PSA Peugeot as it was losing roughly $1 billion annually since 1999. It exited Russia in 2015 and pulled out from car production in Australia. 

Since 2014, when Mary Barra took over as chairperson and CEO, GM has either sold or closed 13 plants across the globe. 

GM’s cumulative loss in India is estimated to be around Rs 8,000 crore, though this couldn’t be verified from the company. 

GM had reached the end of the road in India. The company spokesperson says, “We determined the increased investment originally planned for India would not deliver the returns of other significant global opportunities. It would also not help us achieve leadership position or compelling, long-term profitability in the domestic market." What went wrong with the marquee brand in India? 

Wrong strategy

GM had entered the market with the Opel Astra, the German brand, and not with the more iconic ones in its portfolio, like Vauxhall or Chevrolet, in the late 1990s. The car was priced at over Rs 7 lakh, and, understandably, was not a runaway hit. 

GM followed it with the Opel Corsa, a smaller sedan that even had a hatchback version, to grab a pie of the Indian market. But success was limited.

In the early 2000s, the government had exited Maruti Suzuki and the country’s leading carmaker was becoming more aggressive. Hyundai had tasted success with the Santro and become a worthy rival to Maruti Suzuki.

As GM realised it needed a smaller vehicle for the India market, it launched the Spark and the Beat in the late 2000s. Results followed. GM’s sales in India peaked in 2010-11, when its market share grew to over 4 per cent. This happened in spite of the fact that GM had filed for bankruptcy in the United States in June 2009. (It turned around in a few short years, with an unprecedented equity investment by the US government).

The rugged Tavera utility vehicle contributed to GM’s robust numbers.  However, the company could not hold on to this success; it did not launch more models of small cars and stayed out of the fast-growing sports utility vehicle segment. 

Majeed of PwC points out that the American car makers usually do not understand the small car market well. “The US is a large-car market. India is not. To succeed in India one needs a very India specific product strategy, which GM did not have," he says. 

In comparison, in China, which has developed into a market for sedans, GM is doing quite well. 

There were controversies that did the company’s image no good. In 2013, GM had to recall the Tavera in India as the government accused it of falsifying emission data. Its oldest plant in the country, at Halol, saw protracted labour unrest. Even after being shut down in April this year, the permanent workers at the site have been protesting the company’s voluntary retirement scheme and transfer orders. 

Chinese auto giant and GM’s partner, Shanghai Automotive Industry Corp, which was in the fray for the Halol unit, is rethinking its plan. Recently it indicated that the deal with GM is subject to settlement of labour disputes. All this took a toll on the company’s fortunes: GM’s market share shrunk to 0.85 per cent in 2016-17. 

Barra had not given up on India till 2015. She had announced an investment of $1 billion to enhance manufacturing and roll out 10 models. However, in January 2017, the company put its India investment plan on hold and went back to the drawing board to re-evaluate if pumping more money into the country made commercial sense. 

GM for now has consolidated its operations at Talegaon, where it has a capacity of 160,000 units. It makes the Beat hatchback for exports to Mexico and other Latin American markets. Soon a sedan variant of the same is expected. 

However, sources indicate the company might sell the Talegaon plant to someone who would continue to contract manufacture vehicles for GM India. Kaher Kazem, GM India president and managing director, did not wish to comment on speculations. Nonetheless, recently he said: “There might be collaboration in the future, but as of now we cannot talk on what kind of collaboration that could be."

Will the American auto giant regret the decision in the long run as India is estimated to become the world’s third largest car market by 2021?

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