Why GM Is Pulling Its Chevrolet Brand Out of India

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General Motors (NYSE:GM) has announced that it plans to stop selling Chevrolet brand cars in India at the end of 2017. The company currently runs two production facilities in the country. It will keep the Talegaon facility operational and use it to export vehicles to Mexico and South America, while selling the Halol facility to Chinese joint venture partner SAIC group. The move comes after GM’s efforts at expanding its market share in the country failed to bring any rewards.

India is expected to cross Japan as the third biggest auto market in the next decade. Currently, India has an extremely low vehicle penetration rate with only 32 vehicles per 1,000 inhabitants. This means that there is considerable room for the auto market to grow and according to Goldman Sachs, vehicle sales could double from 3 million last year by 2025. However, there are costs to capturing this growth that General Motors isn’t prepared to take on.

The U.S. auto maker has developed a $5 billion investment plan along with SAIC Motor. Under this plan, the company planned to manufacture around 2 million vehicles a year and sell them in Mexico, South America, China, and India. In 2015, GM set itself a target of increasing its market share in India to 3% by 2020. Instead, its market share declined below 1% in the year ended March 31, while the market grew by 9% to cross the 3 million units mark. This caused a rethink in the GM camp and the company realized that it had two options in the country.

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The first of these involved, taking on significantly higher costs in order to grow its market share. As part of GM’s plan with SAIC, it planned a common vehicle architecture that would allow it to come up with low cost but competitive models for emerging markets. Indian consumers haven’t taken to these vehicles and in order to meet the demands of these consumers, GM would have had to abandon this architecture for a different set of manufacturing and engineering standards. This would be a costly affair, and given that GM’s focus has shifted towards growing its margins instead of units sold recently, this would go against the overall company policy.

The second option involved partnering with a local company to run full operations in the region. This would risk losing control over manufacturing, design, and marketing decisions, and could potentially ruin the company’s brand image in case of failure. Rejecting both these options, GM will instead use its 130,000 unit manufacturing facility in Talegaon as an export hub.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for General Motors

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