China is GM’s sole bright spot in Asia

When General Motors restarted its Bekasi plant just outside of Jakarta after a gap of about eight years with the Spin MPV, it finally looked as if it was moving its Southeast Asia strategy in the right direction.

This was back in April 2013 and the automaker seemed to be adopting a two-leg plan where Indonesia would, over time, become its production base for MPVs and SUVs. Thailand, on the other hand, would remain the base for passenger cars and pickup trucks.

However in just two years, GM has given up on its commitment to Indonesia and is shutting down its Bekasi plant by end- June this year. Even though the Spin was the company’s best-selling model in Indonesia last year with sales of about 8,000 units out of a total volume of 11,000 (units), it was unable to compete against strong Japanese rivals. This was due to high production costs resulting from a low localisation level and GM just did not have the scale to justify production.

Word is out now that the company is rumored to be joining hands with its Chinese partner, SAIC Motor, to bring a rebadged Wuling vehicle to Indonesia by circa 2017. We are not certain if this would be a step in the right direction.

As in any developing emerging market, buyers in Indonesia are earning more and naturally have bigger aspirations to own global products. A rebadged Wuling gives the impression of passing on a lower-priced product but perhaps charging a premium for it.

SAIC was also part of GM’s India revival strategy at one stage but the plans for light commercial vehicles were subsequently shelved. There were big plans at one point especially when the company needed a lifeline during the 2009 financial crisis and SAIC’s support came in handy. Today, it is back to square one with a miniscule market share despite being among the earliest entrants in India.

It is just not in Indonesia where GM is shifting track. It is now revisiting its strategy in Thailand where it has decided to phase out the Sonic by midyear. The company is also pulling out of the government’s Eco Car Phase II project. In addition, its annual capacity of 180,000 units is being scaled down.

We believe the decision to pull out of the Eco Car Phase II program is the right call. GM would have found it difficult to meet the production quota of 100,000 units per annum by the fourth year for a Sonic-like vehicle.

An export strategy accounting for 70 per cent of production would have been required, and GM does not appear to have markets for such a volume.

The revised strategy in Thailand is to focus on expanding volumes of its Trailblazer SUV and Colorado pickup. In 2014, the Trailblazer was the ninth largest sold SUV in the kingdom with a segment share of three per cent. However, that was down from nearly seven per cent in the previous two years.

Competition came from new models such as the Ford EcoSport, the Mazda CX-5 and the Honda HR-V. Therefore, GM would have to take some major steps in its marketing strategy to push sales of the Trailblazer.

In Thailand’s pickup truck segment, the Colorado was at the bottom end of the table with a share of three per cent in 2014 although almost on a par with the Mazda BT-50. Excluding the other Japanese pickup trucks, the Ford Ranger was a better performer with a share of six per cent in Thailand’s pickup truck market.

Here too, GM would need to reassess its sales strategy to boost volumes.

Bluntly put, GM’s strategy in Asia sans China is just not working. And there is little to write home about its performance in the region even though it has a long presence here.

It has a mere six per cent market share across Asia to be ranked as the seventh largest group. Take out China, and this share halves to only three per cent of all light vehicles sold in the region. The group’s ranking consequently falls to No. 9.

GM’s decisions in both Indonesia and Thailand no doubt are part of the automaker’s stated aims to earn 20 per cent or more returns on cash invested in new vehicles, advanced technology and capital projects. The fear is that GM risks losing the long-term plot in Asia to meet short-term targets.

The writer is Manager, LMC Automotive

COMMENT NOW