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In overhaul, GM may look to its far-flung arms

In overhaul, GM may look to its far-flung arms
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First Published: Thu, Jun 04 2009. 09 52 PM IST
Updated: Thu, Jun 04 2009. 09 52 PM IST
Gurgaon: What will New GM look like?
Part of the answer may be found at the India headquarters of General Motors, a new sandstone and tinted-glass building surrounded by dirt roads and corrugated tin shacks. On the walls are reminders of the company’s past, including photos of the 1953 Corvette. But muscle cars are the last thing that GM India is planning.
This week in New Delhi, GM India will unveil its first clean-burning liquefied natural gas car. Later this year, it will introduce a minicar built for the Indian market, with the help of 1,500 frugal-minded engineers.
As GM painfully reorganizes in the US and Canada, and spins off its European business, the company’s operations in emerging markets such as China, India and Brazil have survived virtually unscathed, so far.
Unlike GM’s US business, these operations have been growing. Sales increased 10% last year in Brazil, 9% in India and 6% in China. Recent numbers in some areas are even better—GM’s sales in the Asia Pacific region were up 44% in May compared with the year before.
In these markets, GM has often acted like an entirely different company from the one that is collapsing in Detroit. In China, GM has spent years emphasizing fuel economy and affordability. In Brazil, it created flexible engines that run on ethanol or gasoline, and compact pickup trucks. In India, the new tiny car may be priced to compete with Tata’s $2,500 (around Rs1 lakh) Nano.
Cheap labour in these markets helps to bolster profit margins, while millions of people who do not yet own a car make sales growth easy.
The so-called New GM may rely on these emerging markets for a chunk of its business. And these international businesses, which are barred from receiving funds from the government investment, will need to be self-sustaining until the company turns around.
While GM in Detroit reels from bankruptcy, and doubt lingers over what, if any, sort of car company will survive government ownership, managers in GM’s emerging markets say they are ready to get back to work. GM in India is telling customers and dealers “that’s done, and everyone knows what it looks like, so we can get on with it”, Karl Slym, president and managing director of GM India, said on Tuesday in an interview.
Slym, a Briton who worked for the company in Poland, East Germany, South Korea and the US before coming to India, said he expected to add 50 dealers in India this year, stretching into the rural market. GM Brazil’s chief executive, Jaime Ardila, told reporters that the company had a great 2008 and expects a lucrative 2009.
And it is eager to talk about new plans. “GM is working pretty aggressively on hybrids, battery technology and fuel cells,” Nick Reilly, president of GM Asia Pacific, said on Tuesday.
Emerging markets have been the only bright spots at GM for some time. The North American and European businesses have racked up enormous losses—$14.1 billion from North America’s continuing operations before taxes in 2008 and $3.3 billion in 2007. In Europe, GM lost $2.8 billion before taxes in 2008 and $524 million in 2007. But GM’s Latin American, African and West Asia operations earned $1.3 billion before taxes in 2008, down slightly from the year before.
The Chinese operations, conducted through a series of joint ventures with Chinese auto makers, reaped a bonanza as the Chinese government adjusted tax policies and fuel economy regulations to favour small cars. GM’s rivals in China, Toyota and Volkswagen have struggled to keep up.
In India, GM has been late to join a veritable car-selling frenzy, after introducing the Opel to lacklustre reception years ago. The company sold just 66,000 cars in India last year, well behind the market leader, Maruti Suzuki, with nearly 800,000.
But GM has the capacity to produce four times as many, and has just opened a plant that will help reduce its reliance on imported parts. The company is adding hundreds of engineers to its research and development operations in Bangalore, and plans to build a transmission plant if it can raise the cash in India.
Analysts say the company’s emerging market businesses may help to keep GM going while it tackles the company’s most important task: sorting out the North American business.
“Latin America is probably one of the more attractive markets globally for the next 10 years,” said Stuart Pearson, an analyst with Credit Suisse in London. “The economy is not in as much difficulty as in previous crisis.”
There is less confidence about Asia. “China is still very strong,” but most other Asian car markets have weakened because of global economic crisis, said John Bonnell, director of forecasting at consulting group JD Power and Associates in Asia.
Overall, analysts say, GM needs to make sure it does not make the same mistakes in emerging markets that it did at home. “Measured development,” Bonnell said. “Don’t be so exposed with big capacity and big ambition to take on great things.”
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First Published: Thu, Jun 04 2009. 09 52 PM IST
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