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.
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.
India, I think, we are definitely a complex market.
The income levels are quite heterogeneous.
We are divided, actually into urban India and rural India.
The consumer requirements are actually different even the needs are
different in both these markets.
There are a few criteria a mass market automaker ought to meet.
They are fuel efficiency, resale value, proximity of service stations
and the affordability of parts and low servicing costs.
I think first thing is price.
We are a country with a very low per capita income.
Indians are very price sensitive.
But price is not the only factor.
So now the customer also needs some more value, for example, with
styling elements. And then, I think, the consumer also wants a global
brand. They want a brand which is aspirational.
The consumer wants an overall combination of all P's, you know it may
be product, it may be price, it may be positioning.
Which makes the things quite complicated for OEMs.
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.
Suzuki has enjoyed something of a first mover advantage.
It was the first major automaker to enter India, and it did so
through a joint venture with Indian manufacturer Maruti.
Suzuki also specializes in highly fuel efficient vehicles, which are
extremely important in the Indian market.
After Suzuki, Korean maker Hyundai is the second largest with 16
percent of the Indian market.
After that, Indian, Japanese and Korean makers such as Honda, Tata,
Kia and Mahindra all more or less have equal degrees of market share.
Kia in particular, is a relatively late coming brand that has been
able to succeed in India.
I think an excellent example is Kia Motors which recently entered, it
was a new brand and they gave a great proposition.
They were in an SUV segment and I think suddenly right from the month
one, we saw a great success for this OEM, in India.
Then the remaining 10 percent of the market is made up of others such
as Ford, Renault, BMW and Nissan.
Early on, GM entered the India 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.
I think later on they realized that's not a brand which is really
going to work well in India because that was not a value proposition
which they were offering to their customers.
But then GM introduced its Chevrolet brand to the country, which
brought it more success.
It was a great success.
They launched a few great products like Chevrolet Cruze Chevrolet
Beat. They had that start which they were really looking forward.
Despite these efforts, the automaker had trouble taking 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 I think
they underestimated the consumer aspiration and then, I think, 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 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 told CNBC it 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. In September, the automaker entered a long-term
partnership with Tata Consultancy Services, which will do engineering
design for GM vehicles meant for markets around the world.
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 decided that is not the proper strategy.
The automaker told CNBC if it 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.
At the time it pulled out of India GM had two factories there, one in
the Gujarati city of Halol and another in Talegaon.
The Halol plant was acquired by MG Motor, the once famed British
brand now owned by Chinese automaker SAIC Motor Corporation.
GM has a joint venture with SAIC to produce cars in China.
Reports surfaced in November 2019 that SAIC is also in talks to
acquire GM's Talegaon plant, along with fellow Chinese automaker
Great Wall. GM told CNBC it is exploring strategic options for the
plant. The move out of India was a retreat for GM and for American
auto industry. Ford is starting to do the same.
It's trimming some of its offerings.
Global economy and global auto market is slowing some.
Certainly true here in the US, it's true in China.
There's just not enough money to go around to every single market,
too every single vehicle line.
Look at Daimler and BMW, they've announced major employee cuts.
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's 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 analysts do expect the Indian automotive market to continue
growing in the foreseeable future, it did hit a slump in 2019.
Maruti Suzuki sales were growing until February 2019, but have
slipped every month, year over year, until October.
Suzuki said in November that the slowing Indian market was one of the
factors behind the company's falling overall sales and net income in
its second fiscal quarter.
So I think right now the market is going through turmoil.
Our economy is struggling and if we only talk about the automotive
market we are talking about a decline of minus 14 percent in 2019
calendar year light vehicles.
So obviously this year is the kind of degrowth happening, which has
not happened in last two decades, in India.
2020, we are just talking about a kind of a flat growth but then
going forward, in 2021, '22, '23, the assumption that our economy
should be back, you know, the GDP growth rate will start growing
above seven percent. Indian
automotive analysts note the country's auto industry has to contend
with the relatively recent rise of mobility services such as ride
hailing. The potential of these competing technologies is still
unknown, but could affect how interested in car ownership Indians
remain in the future.
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, were 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.
GM's rival Ford, which has been in India since 1995, said in October
2019 it will create a new joint venture with Indian manufacturer
Mahindra, which Ford said will help it develop new products faster
and drive profitable growth.