In today’s buzz, we explore why did GM, the world’s largest carmaker, abandon India, the world’s fourth-largest auto market where 3.49 million passenger and commercial vehicles sold?
Over the last 20 years, the Indian automotive market has grown from about 500,000 new passenger cars, hatchbacks, sedans, and utilities to about 3.5 million in 2018. Passenger car sales are dominated by small and mid-sized cars. Passenger vehicle (PV) sales stood at 279,745 units in March 2021, compared with 2,17,879 units in March 2020, registering a growth of 28.39%. The market has an expected compound annual growth rate of about 5 to 6 percent over the next 10 years.
But, some automakers have struggled to make it work. Among them is General Motors, the largest U.S. car company. GM stopped selling cars in India in 2017 after years of declining market share. It’s a striking move for GM, which in recent years has also closed shop in other regions around the world, as leadership focuses on maximizing profits and making investments in new technologies such as electric power trains and mobility services. With a population of more than 1 billion people, India is becoming one of the world’s largest automotive markets. The country is poised to surpass Japan as the world’s third-biggest new car market in 2021.
So while there is ample opportunity for automakers, the Indian landscape has been particularly difficult to navigate, especially for American firms. GM watched its share of the Indian market erode steadily over several years, bottoming out at about one percent in 2016 just before the automaker pulled out.
So if the Indian market is growing, why did GM struggle, especially when GM has been so successful in China?
To be fair, quite a few automakers tend to have difficulty in the Indian market. First of all, India is a massive country with a diverse population of roughly 1.3 billion people. The income levels are quite heterogeneous. India is divided into urban India and rural India. The consumer requirements are different even the needs are different in both these markets. A mass-market automaker must meet a few criteria, including fuel efficiency, resale value, and convenience to service stations, parts affordability, and cheap servicing expenses. The most important criterion is price. India is a country with a very low per capita income. Indians are very price sensitive.
But the price is not the only factor. So now the customer also needs some more value, for example, with styling elements. And then, the consumer also wants a global brand. They want an aspirational brand. The consumer wants an overall combination of all. Which makes things quite complicated for OEMs (Original Equipment Manufacturer). These might seem pretty attainable, but many automakers have struggled to meet these in the country.
There are a couple of companies who have managed to crack that code and there are several more with shares of the market ranging in size from small to smaller. By far, the most successful automaker in India is the Japanese firm Suzuki, which alone owns half the Indian market. After Suzuki, Korean maker Hyundai is the second largest with 16 percent of the Indian market. After that, Honda, Tata, Kia, and Mahindra all more or less have equal degrees of market share. Then the remaining 10 percent of the market is made up of others such as Ford, Renault, BMW, and Nissan.
GM first entered the Indian market with its Opel brand, a mass-market brand GM had owned in Europe. While Opel cars tended to be affordable, they failed to resonate with Indian buyers. Later on, they understood that was not a brand that would function well in India because they were not providing a value proposition to their customers.
But then GM introduced its Chevrolet brand to the country, which brought it more successful. It was a great success. They launched a few great products like Chevrolet Cruze, Chevrolet Beat. They had that start which they were looking forward to. Despite these efforts, the automaker had trouble taking a share in the Indian market. It was the first automaker to introduce a diesel fuel-powered car of its size. At the time, the Chevrolet beat was the smallest diesel-powered car customers could buy in India. It was a strong proposition and benefited from a government subsidy on diesel engines. But in the end, the diesel Beat had few takers. The company may also have made a misstep by trying to introduce a low-cost vehicle GM manufactured with its Chinese partner SAIC called the Chevrolet Sail. Their plan got derailed with the introduction of Sail because they underestimated the consumer aspiration and then, the decline started. GM also fell victim to a kind of self-reinforcing cycle. One challenge it struggled with was the lack of an adequate dealer and servicing network. More premium brands such as Mercedes and BMW often attract customers with the means to travel further for service and sales. But, mass-market brands such as GM’s Chevrolet are targeting middle-class buyers who value convenience. Dealerships in India often sell a single brand so GM’s low sales volumes meant a single dealer might sell only a handful of cars in a month and risk-taking losses on the costs of running the business.
In the end, such a low market share made it difficult for GM to justify maintaining a presence in the country. The automaker officially stopped selling cars in India on December 31, 2017.
GM explored many options for its India business but ultimately withdrew after it determined the increased investment originally planned for the country would not deliver the returns of other global opportunities. It continues to operate services for existing Chevrolet customers in the country.
The move out of India was part of a larger pullback GM has been making around the world as it restructures its business. We’re seeing other automakers follow suit as they’re pruning. They’re pruning the dead branches and focusing on where they can be strong. For GM, this is a huge shift because GM of old used to be all things to everyone everywhere. And, it has now been decided that is not the proper strategy. The automaker doesn’t see a clear path to leadership and long-term sustained profits in a particular market, it will look at opportunities to focus its resources on areas that will lead to the greatest results. It added that this is the same approach it has taken elsewhere. The automaker also sold its European operations to French carmaker PSA in 2017.
There’s just not enough money to go around to every single market, too every single vehicle line. But in some ways, it might have been a shrewd move. The other thing that is happening in the market that has never happened before is we are on the verge of massive disruption of the industry. You know, we’re going to have a future of electric vehicles, autonomous vehicles, and new ways to acquire personal transportation and now mobility service. There are all kinds of things. Nobody knows when that’s going to happen or how it’s going to happen, but it’s requiring a lot of investment. Companies like GM just can’t keep putting a ton of money into the future as well as a ton of money in today’s stuff.
While researchers predict that the Indian automobile market will continue to develop in the near future, it did experience a slowdown in 2019. In the end, GM did make some of the right choices when trying to go into India. GM was right in terms of localizing their products typically for the Indian market, making it, in line with the taxation because they were able to save tax.
But, at the end of their day, we’re really not able to match with what the competitors were offering. If the Indian economy picks back up, GM may find itself trying to profitably re-enter the country.
– General Motors named Mary Barra as CEO in January 2014. This made Barra the first woman to be appointed in charge of a major car maker
– GM was responsible for creating the Lunar Roving Vehicle, aka the Moon Buggy, which was successfully used during the Apollo 15 mission.
– General Motors is going to be 113 years old this year, as it was founded on September 16, 1908.