New Delhi: US car maker General Motors Co. (GM) on Wednesday said it will cease production at its Gujarat plant to consolidate its business in India—a market that it estimates will grow two-and-a-half times to eight million units a year by 2025 and in which it intends to invest $1 billion in the coming years.

The move may result in more than 1,100 people losing their jobs in Gujarat, not including the indirect employment that GM suppliers offer in the region.

“We will end production at our Halol plant in Gujarat and consolidate our Talegaon plant in Maharasthra," Arvind Saxena, managing director, GM India, said at a press conference in New Delhi. “Employees (at Halol) will have options to apply for jobs at the Talegaon plant."

In a letter written in Gujarati, GM told workers and executives at the plant that the company is also exploring options to sell the plant. Mint has reviewed a copy of the letter.

The company has made numerous efforts in the past to keep production going at the Halol unit. Under GM’s new business model, however, it wouldn’t be possible to run two plants simultaneously, the workers were told.

Nihil Mehta, general secretary of the Gujarat Kamdar Mandal that represents 900 workers at the plant, said GM plans to completely shut production at the plant by June 2016. Mehta threatened to take the matter to court.

“This is a unique case of exploitation as workers will be forced to look for another job. We will fight and take the matter to court," he said.

In the letter, GM said that the workers will be given their basic salary starting 1 August if operations run smoothly and quality standards are maintained until the closure takes effect.

Despite repeated questions, top managers at GM did not disclose details of the company’s talks with the union and how it plans to compensate workers.

“This was a difficult decision to ensure the long-term sustainability of our business here. We are working hard to find alternative solutions for our Halol plant," Saxena said.

GM’s Halol plant has a history of labour unrest, but GM denied that had anything to do with the closure of the plant.

Mary Barra, GM’s chief executive, said the company will invest $1 billion in its Indian operations as it seeks to completely revamp its India product line-up and introduce as many as 10 new models by 2020. GM claimed that these new investments will create 12,000 new jobs.

The $1 billion includes investments in product development, expansion of the Talegaon plant and new equipment and buildings.

Employees at the Halol plant say they are worried. A 47-year-old employee, who asked not to be named and who has worked at the Halol plant for the past 18 years, said he’s worried about how he will find the money to pay the school fees for his son.

“What will I tell my wife and child? Can I run my house in this new salary package that I am being offered? Who will give me employment at this age?" he said.

The firm also plans to double its market share in the country by 2020—it currently has a share of less than 2%—and export 30% of its production from India. After closing the Halol plant and scaling up production at the Talegaon plant in Maharashtra, GM’s annual production will come down to 220,000 units from 282,000 (combined capacity of Halol and Talegaon plant currently), the company said.

The decision to move out of Gujarat could be a setback to the Gujarat government that is trying to project the state as the automobile hub of the country. GM was one of the first automakers to enter the state in 1996. In 2008, the state became a major destination for automakers when Tata Motors Ltd decided to re-locate its factory to Sanand to manufacture the Nano small car after it faced protests at its original site in Singur, West Bengal.

Companies such as Ford India Pvt. Ltd, Maruti Suzuki India Ltd and Honda Motorcycle and Scooter India Pvt. Ltd and Honda Cars India Ltd followed Tata Motors, and in the last seven years the state has seen investment proposals to the tune of 20,000-25,000 crore in the auto sector.

The Indian unit still lags GM’s operations elsewhere in the region. Globally, GM stands behind Toyota Motor Corp. and Volkswagen AG in terms of sales. In India, though, despite having entered the market in 1994, GM’s sales crossed 100,000 units only in 2010 and 2011, and dropped thereafter.

The company introduced its first made-in-India model, the Beat compact car, in 2010 and became the fifth largest car maker with a 5% share of the Indian passenger vehicle market, trailing Maruti, Hyundai Motor India Ltd, Tata Motors and Mahindra and Mahindra Ltd.

And then lightning struck in 2013 with the Tavera recall.

To avoid a potential government probe, GM admitted it fudged emissions data for the Tavera. In the fallout of the incident, GM sacked around 25 people globally, Mint reported on 26 July 2013. The incident was so damaging that GM’s sales in India started shrinking rapidly. From 92,435 units in 2012, sales fell to 86,829 units in 2013 and 58,514 units in 2014. The last two years dovetailed with an industry-wide downturn in the face of slower economic growth and consumer demand, and high interest rates.

But GM claims it has learnt a lesson.

“We know we have not done a good job in the past... We’re trying to (fix) it. We believe that we have to clean up the fundamentals," Stefan Jacoby, president, GM International, said at the press conference.

But a consultant said he was unimpressed.

“They had plans in the past and they have got a new plan now. So let’s wait and watch," said Anil Sharma, principal analyst, IHS Automotive, a sector-specific consultancy.

“I am not very hopeful. It all boils down to their understanding of the local market. So far with their strategy, it’s not very clear what they want to do. It requires a different set of skills."

India’s automobile market has been sluggish for the past few years, with annual sales of less than three million cars. But by 2020, analysts expect India to become the world’s third-largest passenger vehicle market after China and the US.

Western carmakers such as GM, Volkswagen and Ford have struggled to increase sales in India, which is dominated by Japanese and Korean auto makers such as Suzuki Motor Corp. and Hyundai Motor Co. that have a strong portfolio of low-priced, compact cars.

The recent Indian economic slowdown has left Western carmakers with excess production capacity.

This has prompted some carmakers such as Ford and Volkswagen to boost exports from India to use that production capacity and benefit from low labour costs and economies of scale, while at the same time working to increase domestic sales.

Reuters contributed to this story.

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