After tasting success in the Chinese auto market, General Motors (NYSE:GM) and its Chinese partner SAIC Motor Corp now plan to turn around the fortunes of its Indian unit, General Motors India, in which the Chinese auto maker has a 50% stake. The companies plan to roll out Sail and a compact SUV named Enjoy before the end of the year. Sail was the highest selling vehicle in China in June and was offered in diesel as well as petrol. Furthermore, GM is also expected to bring a mini SUV called Trax and a low cost version of its entry level car Spark, although launch time-frame for these cars is not confirmed yet.
The cheapest car offered by GM in India is the Chevrolet Spark, which has done well but is still 30% more expensive than the highest selling car, Maruti Alto. Small cars and mini-SUVs are a hit with Indian consumers as they are seen as offering good value i.e. fulfilling the purpose of transportation with basic comfort. GM plans to discontinue its out-of-favor cars UV-A, Aveo and Optra after the introduction of its Sail range.
A Tough Market to Crack
India is the sixth largest auto market in the world with production expected to reach 4.3 million units in 2012. India’s highly price sensitive car market has often left European and American automakers struggling with only the local and Japanese car makers being able to crack this highly competitive market. GM’s market share in the country stands at a meager 4%. While auto sales in India are up 10% in the first half of the year, GM’s sales are down 11% in the same period.
Cars have to be designed specifically for India. Exporting the successful models from international markets generally won’t work in this market. Certain standards regarding physical safety or emissions are likely to be more stringent in the West and those imported designs from the U.S. or Europe will be priced higher. On the other hand, auto companies which have been successful in Indian markets have built cars keeping Indian consumers in mind i.e. a competitive price, a good mileage and a low after-sales cost. Car companies often resort to cost-cutting measures such as toning down the exterior or doing away with a swanky dashboard with high-end features for a simple, no frills interior.
Another aspect to consider is the Indian consumer’s predilection for diesel cars. Gasoline (or petrol as it is called in India) is partially deregulated so the price is a function of international market rates whereas diesel is heavily subsidized in the country. In fact, GM’s plant in the outskirts of Mumbai is the world’s first to produce petrol as well as diesel engines simultaneously.  So, in that regard, GM is doing well to not only widen its product range but also offer customers the option of petrol or diesel variant.
We currently have a Trefis price estimate of $24.90 for General Motors’s stock, which is about 10% more than the current market price.Notes:
- General Motors turns to China to crack India’s tough car market, September 5, 2012, timesofindia.com [↩]