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GM bombshell sends shockwaves across industry

Murali Gopalan | Updated on January 11, 2018

GM’s plant in Talegaon will now be an export hub for Central and South America   -  Bloomberg

The US automakers’ decision to exit Indian operations inevitable but still a big blow

At one level, General Motors’ decision to exit its Indian operations should not come as a surprise. After all, it was struggling to stay afloat in a market for years even with an early mover advantage. With a share of less than one per cent, it was perhaps only natural for the company to take this call even while it sent shock waves across auto industry circles.

GM has, of course, reiterated that it will continue to use its Talegaon plant as an export hub for cars to South America but this does not soften the blow. India is on its way to becoming the third largest automobile market in the world and when one of the world’s top carmakers decides to call it quits, there is cause for concern.

Beyond this, it is a huge blow to an entire supply system associated with a company, which includes component makers, dealers and, of course, employees.

Shut down stories

What is equally bizarre is that this decision came within three weeks of GM shutting down its older India facility at Halol, Gujarat. Workers were offered separation packages or the option to move to Talegaon. Their morale could be rock bottom even if they know that business will still go on in the form of overseas car shipments.

Rewind to 1997 when Peugeot announced its rather abrupt decision to shut down its India operations leaving a workforce of nearly 2,000 people stranded. They were shell-shocked and dismayed by this turn of events as also bankers, ancillary suppliers and dealers. There was really no compelling reason for the company to slam the brakes especially when things were looking up.

Then came the Daewoo Motors closure even though, in all fairness, the Indian arm pulled out all stops to keep the show going. Beyond a point, it could not sustain the pace considering that its parent in Korea had gone bankrupt. Ironically, it was GM, which bought out Daewoo and also tried hard to acquire its Indian plant near Delhi, though nothing materialised eventually.

Think of plant closures in India and other examples come to mind like Hindustan Motors pulling down the shutters at its Ambassador-making facility in West Bengal. Tata Motors was keen on readying its Nano plant in the same State but had to bow to political pressure and relocate to Gujarat. It was a setback for West Bengal, which today is devoid of any major investment in the automotive space.

Second blow in a month

Getting back to GM, it is still intriguing how the last few years have seen a virtual roller-coaster ride in India. In 2015, the top management announced a $1 billion investment as part of its revival plans for the country. This proposal was shelved, which meant that the plodding would continue for some more years. Then came the Halol closure, which seemed to suggest that the show would at least go on in India for a while longer. The fact that the decision to exit came in less than a month only means that it was part of an overall restructuring exercise.

It is, therefore, perfectly natural to wonder if operations in Talegaon will continue or go the Halol way. Given the recent pace of events, sceptics cannot be faulted if they believe that GM will eventually cede control of this facility. Rumors have been doing the rounds for a while that France’s PSA Group (formerly Peugeot Citroen) will step in and take charge even though it has already identified another facility near Chennai.

“As the industry continues to change, we are transforming our business, establishing GM as a more focused and disciplined company,” said GM Chairman and CEO Mary Barra in a press statement to explain the move. “We are committed to deploying capital to higher return initiatives that will enable us to lead in our core business and in the future of personal mobility.”

What Barra also made clear was that GM was no now in the right markets to drive profitability, strengthen “our business performance and capitalise on growth opportunities for the long term”. Clearly, this means China where it is a strong player, the US and Brazil will be top markets. GM had, in the recent past, shut down operations in Thailand, Russia and Australia too.

Global impact

What could be slightly comforting for India is that it was not the only region handpicked by GM for this overhaul exercise. Thursday also saw an announcement made on South Africa where Isuzu will acquire GM’s light commercial vehicle manufacturing operations. The American automaker will also stop retailing Chevrolet in the domestic market. “We determined that continued or increased investment in manufacturing in South Africa would not provide GM the expected returns of other global investment opportunities,” said Executive Vice President and President, GM International, Stefan Jacoby. It was only a couple of months ago when Isuzu agreed to purchase GM’s 57.7 percent shareholding in GM East Africa where the Chevrolet brand will be withdrawn from the market.

Jacoby said the company is running its overseas markets with an enterprise approach and making decisions that are best for the global business. “In India, our exports have tripled over the past year, and this will remain our focus going forward. We determined that the increased investment required for an extensive and flexible product portfolio would not deliver a leadership position or long-term profitability in the domestic market,” he said.

Interestingly, the Thursday shocker had yet another announcement in the form of GM International streamlining its regional headquarters in Singapore.

It will retain responsibility for “strategic oversight” of the remaining regional business and markets, including Australia and New Zealand, India, Korea and Southeast Asia. “This will deliver greater organisational efficiencies while leveraging global resources and in-market expertise,” stated GM.

Published on May 18, 2017

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