G.M. Turns to the Chinese to Help Sales in India

The New York Times

TALEGAON, INDIA -- General Motors began initial production of its first Chinese-designed car for the Indian market this week, a major step for the U.S. automaker as it tries to grow in a market where foreign companies have struggled.

Indians' love for small cars and the highly competitive, price-sensitive market has confounded many of the world's major automakers, who wrestle with lackluster shares in a market where many models made specifically for India.

The compact Sail, which is already sold elsewhere as a sedan and a hatchback, will go on sale next month in India. The car was the first model designed by SAIC Motor, G.M.'s Chinese partner, the president of G.M. India said in an interview at a factory in western India.

What SAIC ''brings to us is more of a regional focus and more of an emerging market focus,'' said Lowell Paddock, G.M. India's president. ''Sail is in some ways perhaps the first vehicle designed with primarily Asian customer requirements.''

SAIC holds a 50 percent stake in the Indian unit. A larger passenger van from SAIC's stable will begin production in India by the end of 2012.

Unlike the situation in China, where G.M. and Volkswagen top the passenger vehicle market with a combined 30 percent share, all foreign automakers combined -- excluding Hyundai -- account for less than 25 percent of the Indian market, despite billions of dollars in investment and decades of toil.

Cars designed for customers and segments in other countries have failed to capture the hearts of India's demanding car buyers, leaving companies like G.M., Volkswagen and Ford with lots filled with ill-suited models and falling use of capacity at their plants.

G.M. needs a shot in the arm. Its India sales fell an annual 11 percent in the first six months of 2012, against a 10 percent rise in overall car sales, according to data from the Society of Indian Automobile Manufacturers.

Mr. Paddock acknowledged the company had ''underperformed.''

''We've had an under-representation in the growing segments. As the market moved, we were left with a void.''

In 1992, India's roads were dominated by small, low-powered Maruti Suzuki hatchbacks for the simple reason that there was little else on offer.

Twenty years later, the same models still account for nearly half of India's new car purchases, with the local titan Tata Motors and Hyundai Motor together accounting for almost 30 percent. The utility vehicle maker Mahindra & Mahindra sells 10 percent of all the country's passenger vehicles.

Other foreign automakers have failed to match the approach of Hyundai, which entered the country after General Motors but with an aggressive small-car focus and models specifically for India.

''The Indian market has been incredibly difficult for us and for everybody else,'' said Tim Lee, head of international operations at G.M. ''We underperformed both from a share standpoint, as well as a total volume standpoint.''

Almost all of G.M.'s nine Indian models are based on vehicles designed by Daewoo of South Korea and cost more than their main competitors. The Spark, G.M.'s entry-level car, is more than 30 percent more expensive than the Maruti Alto, the best-selling Indian car.

G.M.'s Aveo sedan and Aveo U-VA hatchback, based on Korean designs and first introduced without diesel models, mustered a combined 3,328 sales in 2011. Toyota Motor's India-specific Etios and Liva -- direct competitors to the Aveos in both segments -- sold a total of 63,500 in the same period.

''It's no good having a vast array of products that no one is going to buy,'' said Michael Boneham, president of Ford India. Ford's sales in the first six months of 2012 also fell an annual 11 percent, with Volkswagen's sales down 8 percent.

Ford, which has operated in India since 1996, underperformed in its first decade selling European models like the Escort and Mondeo. It has recently seen sales jump with the Figo, its first small car manufactured only in India.

''As a business, what we were doing was shipping vehicles from Europe and trying to shoehorn them into the consumer here,'' Mr. Boneham told Reuters. ''Figo was a game-changer for us.''

That is G.M.'s hope for the Sail, China's biggest selling car in June, and offered with both gasoline and diesel engines.

G.M. sold 111,510 cars in India in 2011, less than a third of its total installed capacity. Ford's sales accounted for little more than half of its total capacity in India last year, even as it was spending $1 billion on a new factory to produce 240,000 vehicles a year.

Where G.M. and Ford have adapted to the Indian car market is in diesel production, investing in plants to meet a surge in popularity for the fuel because of government subsidies that make it about 50 percent less costly than gasoline.

G.M.'s powertrain facility in Talegaon, about 100 kilometers, or about 60 miles, outside Mumbai, is its first in the world to produce both gasoline and diesel engines simultaneously, the company said.

''In the past we did not have as broad a portfolio here, we did not have, for example, a small vehicle with diesel, and we underperformed because of that,'' Mr. Paddock said. ''But I think if we look at the opportunity that we have now, with the right vehicles, the right powertrains, the right level of tailoring, we think we have the right recipe.''

Source Citation:

"G.M. Turns to the Chinese to Help Sales in India."New York Times6 Sept. 2012: NA(L).Business Insights: Essentials. Web. 30 Aug. 2021.

Discussion:

• How would you characterize the alliance between GM and SAIC, Shanghai?
• What has driven the GM alliance in Shanghai?
• How was the V Rio framework established within the GM alliance in Shanghai?
• How can GM combat opportunism that may occur from being in the China market?
• What will determine successful performance from the alliance?