GM may script India comeback with SAIC

It was towards the end of July when General Motors announced that it would invest $5 billion to develop a new range of Chevrolet vehicles for emerging markets. This initiative, expected to kick off by 2020, would be in tandem with SAIC Motor Corporation (formerly Shanghai Automotive Industry Corp), its trusted Chinese ally of many years.

The markets on the duo’s radar include India, China, Brazil and Mexico and the product kitty will comprise compact cars and SUVs. Less than a week later, GM’s CEO Mary Barra made known during a visit to the subcontinent that the company was planning investments of $1 billion in India as part of an effort to get back on the track.

What is significant, though, is that SAIC will accompany GM in this revival script. It is also not for the first time that the American carmaker has reached out to its partner to throw a lifeline for India.

The first occasion was in 2009 when the global slowdown had crippled Detroit’s automotive landscape and GM was one of the badly hit companies, along with Chrysler, affected in the bloodbath that ensued. This was threatening to impact key operations, like those in India, and it was at this point that SAIC entered the picture. The two got into an equal joint venture and the idea was to launch a slew of products ranging from cars to the Wuling series of pickups.

From SAIC’s point of view, there could not have been a better opportunity to spread its wings and explore markets beyond China. It also made sense to team up with GM and extend

this successful partnership to new shores in the Asia-Pacific region. While GM is struggling in India even after two decades, the company is the second largest player in China (after Volkswagen) with annual production of over three million vehicles. A substantial part of this success story is thanks largely to the SAIC alliance.

To that extent, everything seemed to fall in place six years ago when GM began to work out a business plan for India with its Chinese partner. SAIC too was upbeat and some of its senior leadership team told journalists during a visit to Shanghai that the company would use India as a launch pad to enter other markets in the ASEAN region like Malaysia, Indonesia, Thailand and the Philippines. None of these grandiose plans materialised as GM began consolidating its global standing soon after and increased its stake in the India joint venture with SAIC from 50 to 93 per cent.

The plan to launch small commercial vehicles was also put on hold and this put SAIC in the backseat.

Things did not improve dramatically for GM even after the changed equity structure as Maruti and Hyundai continued to dominate the landscape with Honda and Toyota also keen to prove a point. However, GM was also busy cutting back production in other parts of Asia, including Indonesia and Thailand, even while it was growing from strength to strength in China.

More importantly, it was getting amply clear that Korea as a key manufacturing base was already posing its own set of challenges as a cost centre. It was after the acquisition of Daewoo at the turn of this century that GM began its new growth phase using Korea as the pivot. It was the best thing that happened then but clearly things are different now with labour costs on the rise which means other viable manufacturing locations were drawn up.

This is why India is back on the company’s radar and explains the substantial investments planned during the course of this decade. What is particularly interesting is that SAIC will be part of the comeback script going by what the GM leadership had first articulated in July.

It remains to be seen how the new revival plan will be formulated. The American automaker has already made known that it will have little need for its decades-old Gujarat facility and would much rather focus on the new plant in Pune instead. Will SAIC then take over the reins in Gujarat and begin building its India presence? From GM’s point of view, this is definitely a better option than closing a plant which could spark worker unrest.

If things go according to plan, SAIC will be doubly keen to build its India presence as part of a bigger story for emerging markets. Perhaps this is also GM’s best opportunity to put its house in order all over again. There was hope with the Daewoo acquisition 15 years ago and the beginning of the Chevrolet chapter but things just did not work out.

Going forward, it is more than likely that other Chinese automakers will be as keen to enter emerging markets which assure growth potential.

Dongfeng Motor Corporation, for instance, plans to grow its ASEAN presence with new French ally, PSA Peugeot Citroen. Whether this will include India is a million dollar question but there is no telling what the future could hold.

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