Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday

Small car sparks big hopes for GM; Wagoner to review road map

Small car sparks big hopes for GM; Wagoner to review road map
Comment E-mail Print Share
First Published: Mon, Apr 16 2007. 12 10 AM IST
Updated: Mon, Apr 16 2007. 12 10 AM IST
G. Richard Wagoner Jr, chief executive officer of General Motors Corp. (GM), the world’s largest auto maker, is on a mission.
His visit to India this week to introduce a small car, the Chevrolet Spark, will be one step in a series of efforts to pump up sales and profit at a company that is recovering from $12 billion (Rs51,600 crore) in losses in two years, coupled with flagging market share in its home market, North America.
At stake for Wagoner and GM is Asia’s fourth-largest car market, where after 11 years of work, it is a poor No. 8 in terms of market share, behind international rivals such as Toyota Motor Co., and local ones such as Tata Motors Ltd.
In the seven years Wagoner has been at the helm of the auto giant, he’s focussed on shoring up the company’s fortunes by boosting sales in emerging markets such as India, China and Russia. At home, however, he battles soaring health care costs, shuttered factories and embittered unions—a predicament he shares with rivals such as Ford Motor Co.
In India, by contrast, few car makers are complaining too much. The nation’s economy is galloping at 9% and demand for automobiles is set to leapfrog by most measures, despite short-term hiccups such as rising interest rates on car loans. Sales of passenger vehicles will grow to 2.2 million in 2010 from 1.3 million a year now, according to one automotive industry group’s forecast.
And so the 54-year old Harvard University-educated Wagoner is not alone in pinning his hopes on the Indian market. Ford chairman William Ford has invested in India even as he oversees the worst loss in the company’s history, while a more successful Carlos Ghosn, the chief executive of Renault SA, who turned around Nissan Motor Co., is also making big bets on India’s car market.
It is with this pie in mind that General Motors is spending about Rs1,400 crore to build a factory in Talegaon, on the outskirts of Pune in Maharashtra.
The unit will make around 1.4 lakh small cars in addition to its Halol unit which will make 85,000 units a year starting 2008.
At its swank headquarters in Gurgaon, a Delhi suburb, Rajeev Chaba, GM’s India chief, leads the charge for the iconic car maker.
A plaque inside his office announces the company’s mission statement loud and clear: “To achieve a 10% market share by 2010 and have profitable growth”.
Wagoner “is coming to review the Indian operations and see for himself the potential and the challenges we face”, Chaba said. He, however, declined to talk about the specific challenges the company is facing.
Reaching its ambitious target is clearly going to be one such challenge. The company’s entry to India in 1996 was kicked off with a mid-sized sedan—the Opel Astra. It has been a bumpy ride ever since. In a country obsessed with cheap rides, GM didn’t have enough takers for cars that promised dependable quality but not the levels of fuel-efficiency rivals such as Maruti Udyog Ltd’s Esteem or Honda Motor Co.’s City offered.
Sales didn’t gather speed until it launched the Chevrolet Tavera multi-utility vehicle in 2003. While it has improved GM’s market share to 2.8% in 2006-07 from 1.3% 11 years ago, rivals have fared much better. Honda, for instance, has 4.4% of the market, while Toyota has 3.7%. Maruti dominates the industry with half the market—it has also been around for much longer though.
Meanwhile, competition is only getting more intense. In the last 12 years, 10 car makers have started operations in India and the number of models being offered has grown to more than 70.
Other American rivals have also made their share of mistakes in India. Ford India Pvt. Ltd, which entered at around the same time as GM, has failed to dent the market with models such as Ikon.
Its market share took off only last year with the introduction of Fiesta, which comes with a fuel-efficient diesel engine that has made Indian buyers take notice.
Foreign car makers haven’t monopolized such mistakes. The failure to recognize what customers value, coupled with heated competition, has also pushed one of India’s oldest car makers—the Hindustan Motors Ltd—to the bottom of the pile.
Wagoner’s task may be daunting because the same promise—of big growth in cars small and large—has made other players, including Volkswagen AG and Nissan, invest as much as Rs30,000 crore in expansion in India.
The entire board of Volkswagen recently motored across parts of India to try and understand, first-hand, the nature of the market.
Worse, a host of GM’s toughest rivals, including Honda and Toyota, are introducing new cars in the small-car segment to capture road share in a nation where six of every 10 cars bought is a small car.
GM “will need to get the packaging right in terms of features such as engine power and fuel efficiency—all this at the right pricing”, said Manish Mathur, a principal with consultancy AT Kearney. “Such a car in this segment will need a high level of localization, at least 70%. Otherwise, they’ll be taking a hit.”
For a while at least, there is little comfort in that area. While a high level of local content enables the manufacturer to price the car lower, because of relatively cheaper components, GM, which is facing a capacity constraint at Halol, is going to import completely knocked-down (CKD) kits to assemble the vehicles until the Talegaon facilities are in place by 2009.
Cost cutting and efficiencies are the favourite buzzwords of Wagoner, who led the company to fourth-quarter profit of $2.2 billion, only the second gain in two years.
Wagoner, who has promised to cut costs by $9 billion by 2009, is closing plants in North America and Europe, while building new ones in emerging markets to lower costs. To this effect, GM has targeted to source $1 billion of auto parts from low-cost Indian component makers from $100 million a few years ago.
In the Capital, Wagoner will not just launch the car that may help give traction to his company’s fortunes but will also meet industry associations such as the Confederation of Indian Industry, Society of Indian Automobile Manufacturers and, perhaps, Prime Minister Manmohan Singh.
He will round off the trip by visiting GM’s research and development centre in Bangalore, before leaving for China, a market where the company is improving its market share.
Comment E-mail Print Share
First Published: Mon, Apr 16 2007. 12 10 AM IST
More Topics: Corporate News | Sector Spotlight |