General Motors may not be the only one to drive out of India
The decision to pull out of the Indian market last week by General Motors (GM), once the largest car manufacturer in the world, does not come at an appropriate time.
Close on the heels of the Modi government's completion of three years in office, it flies in the face of this government's Make in India pitch.
If a company as large as GM decides it has had enough after burning more than its fingers in the Indian market for two decades, it will not fill any prospective investor in the world's fourth-largest car market with any kind of optimism.
Yet, this would be a simplistic conclusion, almost a tad misplaced, from an event that has more far-reaching consequences. GM's withdrawal is largely due to its own inefficiencies and inadequacies.
The company's stint in India can be broadly broken up into three parts. The initial phase when it came into the country with the Opel brand. The next when it phased Opel out and launched the Chevrolet brand. And the third when it temporarily sold part of its Indian operations to its Chinese partner – SAIC - only to buy it back from them a few years later.
There are lessons to be learnt for any manufacturer from each of these phases. With the Opel, the company launched a sum total of three cars in a little less than 10 years - Astra, Vectra and Corsa. All of them were half-hearted attempts.
Neither did they address the need of the Indian consumers, which was and still is, small cars, nor did they do enough to establish the brand as a technology powerhouse. Not surprisingly, the brand had to be scrapped and all investment that went into brand building and marketing in these years, came to a nought.
The second phase was clearly the best where GM showed a bit of promise. After buying Daewoo in Korea, which also became GM's global laboratory for small cars, the once popular Matiz hatchback was refreshed as the Spark. It was followed by other cars like the U-VA hatchback, Aveo mid size sedan, utility vehicle Tavera and Optra premium saloon.
During the same time, it also started building its second factory in Talegaon in Maharashtra. None of these cars were outright successes but India has always been a tough market for new players. Unlike a Hyundai, nobody has cracked the small car market at the first attempt.
The global recession of 2008 impacted the parent company badly. GM lost its numero uno position to Toyota after a 77-year reign and it does not look like it will ever regain that title.
The financial squeeze, bankruptcy proceedings in US and eventual bail-out by the Obama administration meant GM India was starved for investment. Still, in the Beat in 2010, GM had a potential success story.
The car initially lived up to its potential. As the first decade of the new millennium was turning around, GM India's sales crossed 1,00,000 units in a single year. It was however, short-lived as the effects of the sell out to GM's joint venture partner in China - SAIC - in 2010 started manifesting itself from 2012 onwards.
It has been a story of decline ever since. Instead of making smart-looking, tech-filled, affordable and fuel-efficient small cars, GM India resorted to dumping cheap Chinese products that felt dated and dumb.
The likes of the Sail hatchback, Sail U-VA sedan and Enjoy utility vehicle could have never held their ground in a market that was becoming even more competitive. As if that was not enough, the Tavera emission scandal in 2013, where the company was found to have committed a corporate fraud by fudging emission regulations for years, distracted the firm no end.
Perhaps that was the time when GM quite literally gave up on India. The pipeline ran dry, the management had little power or authority and the dealers were listless. Announcements of pumping in $1 billion investment, doubling market share and launching 10 new cars by 2020 were duly made in 2015 but nobody believed them. Rightly so, as the plans themselves were shelved soon after.
The end in this context should not come as a surprise. But it would be incorrect to assume GM was the worst and will be the only one to do so. In its two decade journey in India, the company never made a single penny.
Many of the other companies - Fiat, Ford, Skoda, Volkswagen, Renault-Nissan - are also in the same boat. Fiat is slightly better off as its engine supply business - the diesel powertrain that Maruti uses in its cars - are licensed from Fiat - churns cash that helps its Indian operations.
It is not uncommon to find businesses ready to burn cash to gain market share - all startups are built on this premise. But it is a strategy that has never paid off in India in the automobile market. Yet, companies stick to this policy like the holy grail.
Sooner than later, the pressure to make money and become sustainable will tell. Global offices cannot subsidise Indian arms forever, especially when the parent themselves are making less money than before.
Manufacturers have also been late to understand the other sure shot way of making money in India - exports. Right from the start, Hyundai used India as much for the lure of its domestic market as the attractiveness of a robust low-cost manufacturing base. It has held them in good stead. Others have simply missed the trick.
Ford and Volkswagen have only recently started exporting in bulk numbers from India. It will have a positive impact on its consolidated balance sheet but the crores of rupees that they have already lost here, means it would take time.
Ford's accumulated losses are estimated at more than Rs 2,000 crore. It continues to lose money every year. Even GM had begun exports in right earnest in the last few years, but it wasn't enough to keep it from going belly up.
At the last count, GM India's accumulated losses are over Rs 3,000 crore. Only last year, Ford shelved plans to build a family of compact cars for India and China, citing disappointing sales of its mainstream models. The similarities with GM India's story are uncanny.
Nissan today exports more cars from India than it sells in the domestic market and that has kept its CFO happy, but partner Renault drags the alliance down as it does not export much from here. Ironically, Renault with its Kwid has much higher acceptance in the Indian market than Nissan's Datsun but that doesn't make the French firm any profitable.
Similarly, the Volkswagen group has pumped in billions of dollars in India over the years but has not received much by way of return on investment. Skoda, which is part of the group, languishes at the bottom of the peking order, VW has given up hopes of competing against Maruti and Hyundai and even Audi has lost its mojo in the luxury car segment. Unless an overhaul is effected in these companies, it would not be surprising if they too end up like GM.
The bottomline though is perhaps more ominous. Barring Hyundai, India is not really a focus market for any of the foreign automakers. All companies have made similar mistakes, either dumping products from outside without changing them for Indian conditions, or not getting it right when making a car from scratch.
Some dubious decisions like Nissan initially roping in a contract marketing firm, Hover, have also been made. Up against a dominant leader like Maruti Suzuki, these chinks in the armour have been embarrassingly found out. And exploited.
Worryingly, all this while, most companies have not made money. The trajectory betrays confusion and highlights the lack of importance being given to a market and its consumers that is tipped to become the third largest in the world by the turn of this decade.
GM may be the only one to throw in the towel now, but there is a high chance it may be joined by a few others.
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