General Motors (GM) has outlined an aggressive investment plan for India as well as its intention to consolidate its production facilities in the country. In a statement, the automaker said it planned to invest USD1 billion in India by 2020. The investment will go towards launching several new models and boosting the production capacity of its Talegaon manufacturing plant in Maharashtra. The plant currently has a production capacity of 130,000 units per annum (upa) and GM plans to boost this to 220,000 upa by 2025. The investment plan was announced by GM CEO Mary Barra, who said the move would create 12,000 new jobs at the automaker and its suppliers. The investment will "enable the facility to localize, industrialize and optimize its footprint to accommodate additional products for the domestic and export markets," according to the company. However, there are no plans to export vehicles from India to mature markets such as the United States. Funds will also be used to expand the automaker's dealership network.
The investment is part of the automaker's USD5-billion push in emerging markets announced earlier this week. Under its investment plan, the automaker aims to roll out 10 new locally produced Chevrolet models in India over the next five years. These include the Trailblazer sport utility vehicle (SUV) and the Spin multi-purpose vehicle (MPV), which will be introduced in 2015 and 2017, respectively. Several spy images of the Chevrolet Trailblazer have emerged online, alluding to the imminent launch of the vehicles. "The vehicles will be manufactured and sold in India and will feature striking styling that has never been seen here before. They will also be exported worldwide. With this investment, our aim is to double our market share in India by 2020," the company said in its statement.
The automaker also said it would shutter the Halol plant in Gujarat that currently produces the Tavera and Enjoy MPVs. The plant, employing 1,100 people, is expected to be closed by the second half of 2016, according to the automaker. "Consolidating our manufacturing in a single location in India will support the long-term sustainability of our business in a challenging emerging market," said Arvind Saxena, president and managing director of GM India. GM claims to have discussed the matter with affected workers, although a report in the Mint business daily indicates that this could become a difficult issue for the company. "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," the report quotes Nihil Mehta, general secretary of the Gujarat Kamdar Mandal, as saying. The union represents 900 workers at the plant.
Outlook and implications
This is a big investment push by GM, which claims to have already invested USD1 billion in its Indian operations since 1996. Consolidation of production capacity is central to GM's plan, even though the move comes at a time when its big competitors are expanding their manufacturing presence in the country. In recent years, Maruti Suzuki, Honda, and Ford have set up, or are in the process of establishing, new factories. Another competitor, Hyundai, is also considering opening a new manufacturing plant in the country. The closure of the Halol plant will effectively halve GM's production capacity in the intermediate term.
A mixture of sluggish market conditions and regulatory changes has made GM a marginal player in India over the past couple of years. The government's decision to gradually remove subsidies on diesel fuel in early 2013 was a big setback for GM, which relied excessively on diesel vehicles to drive sales in India. Meanwhile, accusations of corporate fraud relating to non-compliant engines dented the automaker's reputation in the country.
In the first six months of 2015, the automaker sold 21,792 units in India, a massive decline of 34.2% y/y. In the same period, India's passenger vehicle market grew 5% y/y. Although its local sales are dwindling, GM hopes to capitalise on its export strategy, which makes financial sense since a weak rupee makes exports advantageous. GM India is planning to export almost 30% of its total production until 2017, even though it is a latecomer in this regard. Starting from a low base, the automaker aims to increase its overseas shipments to 20,000 units in 2015 and 40,000 units in 2016 and 2017.
With its plant utilisation rates declining, it was important for GM to stop production at one of its two Indian facilities. The decision to close the Halol plant is a bitter pill that GM hopes will be able to cure its ailments in India. However, much will depend on its product plans. GM has had some success with the Beat that was launched in 2010, but this has eventually been overshadowed by newer competitors. In subsequent years, its rebadged Chinese offerings have also failed to attract customers. The same is true of the Enjoy MPV. Looking ahead, it aims to enter new and growing segments such as compact SUVs, but GM will essentially be a latecomer here and IHS Automotive expects Maruti Suzuki, Hyundai, and Mahindra & Mahindra (M&M) to emerge as the biggest winners in this segment by 2018.
