GM India – Will it survive?

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Many unnamed business gurus advise start-ups to fail, and fail fast. You see, it is okay to fail. In the theoretical world of business gurus, failure is seen as a learning exercise. By failing faster, you learn faster.

Then, as another set of business gurus explain; you can change your direction, alter your strategy, find a clueless VC, and even find success.

Many successful tech stories – Snapdeal, Twitter, Apple – have learnt from failures, made serious course corrections and tasted big success.

Looking from the outside, failure does appear to be a critical part of success.

But what if you keep on failing but forget the critical part of failure? Learning.

What if your parent has loads of cash and can’t be bothered with rationing your pocket money? Even when there is evidence that you have been blowing it up on pot.

Cue GM India

Amongst the crowd of global carmakers who entered the Indian market in the early 1990s, GM was amongst the first wave. The company entered the Indian market with the Opel brand in 1996, launching the Astra and following it up soon with the Corsa and Vectra.

If there were an award for launching new models and brands, it would be difficult to beat GM India. In the 18 years of its existence, the company has launched 17 models till date. This is not counting the facelifts and mid-cycle freshening-up exercises.

The company not only launched 17 nameplates, it is also the only carmaker to have sold two brands – it started with Opel but shifted to Chevrolet in 2006 for better Feng shui.

As of today, GM India sells the Spark hatchback in the Mini segment; the Beat and Sail U-VA hatchbacks in the Compact segment; the Sail sedan in the Mid-size segment, the Cruze sedan in the Executive segment; the Tavera and Enjoy UVs in the UV2 segment; and the Captiva SUV in the UV4 segment. That is a portfolio of eight models, same as Toyota India and significantly bigger than Ford and Honda portfolios, both of which sell only five models each in India. In comparison, the much bigger Hyundai India sells ten models in the Indian market.

The combined effort of the entire portfolio has given the company a market share of 2.36% as of July 2014. Over its 18-year history, the company’s market share in the passenger vehicle market has touched a best of 3.91% in 2010.

In doing so, GM India has run up a loss bill of INR 27 billion, a bill that is likely to inflate even further. With most of the present line-up of products all experiencing double-digit declines in sales, losses are expected to inflate even further.

What does GM India do differently?

When you are in a market for 18 months and your first onslaught of products misfires, you have made a mistake, you have a small problem.

When you face the same situation after 18 years, you have a chronic ailment.

And the virus has now developed resilience to antibiotics.

GM India’s performance is a heady cocktail of wrong products, wrong strategy, wrong numbers, and even the wrong people.

Wrong products

In today’s world there are hardly any bad cars – there are either good cars or excellent cars. Wrong products, therefore, are the least of GM’s worries. Its recent products – the Beat hatchback, the Sail twins and the Cruze sedan have been fairly competent. In the hands of another manufacturer, some of these would have been bestsellers, except GM India has made a complete hash of them.

However, not all products have been competent. There is a reason why GM India has carved a reputation right at the bottom of the desirability charts –products have had quality issues. In the 2013 JD Power Asia Pacific India Initial Quality Study, no Chevrolet model, barring the Cruze sedan, featured in the top three in any category.

Scores in previous editions of JD Power IQS have hardly been confidence inspiring.

And then there are the demons of the past. A few thousand customers permanently logged out of GM in the 1990s and 2000s when they were not happy with the quality of cars and faced problems of high component prices. A few years back, GM did try to counter the problem with a free-service-for-three-years offer.

Sales numbers stayed dead, indicative of the deep abyss that brand Chevrolet now finds itself in.

Wrong Strategy

“We have learnt our lessons and have tuned our strategies accordingly,” said a senior GM executive to the media on 22nd December 2006, while unveiling the Aveo U-VA. Clearly the lessons were not learnt. The Aveo U-VA did not sell and its successor, the Sail U-VA is not selling as well.

Part of GM India’s problems is that its product portfolio and any future product pipeline is a mix of what its Korean cousins and Chinese half-cousins can produce. So it is normally very late to any party. The Beat is a competent hatchback but GM India spent a decade-and-a-half to reach that point in its evolution lifecycle. And it would take many more years for GM India to respond to emerging niches like seven-seater compact MPVs that are not call-center cabs.

The company will also take many years to respond to the emergence of the mini-sedan segment or the compact SUV segment.

This ‘orphaned’ situation becomes worrying when the company tries to half-bake products to suit Indian requirements. The Beat diesel is one such attempt – removing a cylinder from Fiat’s much-acclaimed 1.3-litre Multijet diesel engine, GM India carved out a 1.0-litre unit for the Beat hatchback. The result was quite underwhelming as everyone noted the lack of grunt in the diesel on the highways. Even the notoriously complimentary Indian automotive consumer media termed the Beat diesel hatchback as nothing more than an ‘interesting’ proposition.

In many cases, GM India has launched whatever has been handed down by senior management elsewhere. So we have had products like the Chevrolet Forester (Subaru Forester), being launched because Subaru was part of the GM group at that time.

Ditto for the Isuzu Panther as well, which found a lifecycle extension as the Chevrolet Tavera in India.

Apparently, India missed the Lada Niva by just a whisker.

What this somewhat random product strategy means for India is that GM India is forever see-sawing between developed country and developing market products. For example, the first generation Aveo was replaced in India by the Chinese market Sail as the replacement Aveo – Sonic – was designed keeping the US market in mind and had become too expensive for the Indian market.

The product strategy also goes wrong when you look at where the products are targeted.

Walk into the GM India’s Gurgaon headquarters and one sees large wall decorations celebrating Chevrolet’s rich 100-year heritage and with a good sprinkling of the Camaro and Corvette. Everything hints at performance, history, and heritage. That’s ironic for a brand, which has been targeting the taxi-segment steadfastly and now competes with Tata Motors fiercely.

That is not a compliment.

The sales strategy of targeting the bottom end of the market seems to have emerged post the success of the Tavera. The Tavera – essentially a rebadged Isuzu Panther Asian utility vehicle – was launched in 2004. In a market ruled by the Toyota Qualis and the Tata Sumo, the Tavera was a recipe for disaster.

Much to GM India’s joy, Toyota retired the Qualis and replaced it with the significantly upmarket Innova. On the other hand, the Tata Sumo was a cruder and more agrarian machine. This left the fast growing call-centre cab market open for the Tavera and GM has reaped some strong sales in the segment since then.

Wrong Numbers

GM India has often set low sales targets and consistently failed to meet them. In 2005, the company sold a little more than 30,000 cars and set an internal target of selling more than 200,000 cars in 2010. Volumes in 2010 were little more than 110,000 units and the company managed to just about preserve volumes in the next year.

Things went rapidly downhill after that with GM India losing sales volume every year after that. This year has been spectacular as the company is looking at losing a quarter of its sales volume from previous year. In the first seven months, GM India sales were down 29% over the corresponding period from 2013.

 

Spend five minutes to digest a graphic that took five hours to make. Also, don't strain your eyes - Click to enlarge.

Spend five minutes to digest a graphic that took five hours to make. Also, don’t strain your eyes – Click to enlarge.

Reporting the company’s July numbers, a GM official quipped (and we copy-paste quote from The Times of India), “The buoyancy in the market is still missing because of high interest rates and high fuel prices. An insufficient monsoon is also affecting sales of small cars in rural areas and tier II cities.”

The same official when reporting June numbers stated (duly copy-pasted from NDTV Profit), “Customer sentiment continues to remain negative even with price reduction on account of the continuation of the excise duty cuts till the end of this year. The buoyancy in the market is still missing and we don’t see any sustained market upturn till the new government presents a growth-oriented budget to boost the overall economy.”

 

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These statements are a sharp contrast from overall industry numbers – passenger vehicle sales were 11% up in June and 7% up in July. In comparison, GM India sales were down 21.3% in June and 27.3% in July, over the previous year.

It is hard to believe that the company launched two very significant, mainstream models – Sail U-VA and Sail sedan – only a few quarters back. The two, along with the Beat Compact hatchback, managed to sell all of 4073 units in June-July 2014.

Also down are the Tavera + Enjoy sales. With the Enjoy, GM has been unable to make any significant incremental gains in the MPV segment. While sales in June-July were down by only 12.5%, all of Enjoy’s sales seem to be as a result of the Tavera’s cannibalisation.

GM’s inability to sustain sales momentum even with new models is a problem that is crippling the company. Any number of new launches won’t work for the company if it is unable to sustain the sales momentum of any model. In fact, over the years, the company’s ability to increase volumes with new model launches has taken a beating. The Cruze improved volumes in the Mid-size + Executive segments for a significantly long time but the Sail sedan’s effect was short-lived.

The same happened in the Compact segment. The Beat, launched in January 2010, improved volumes for the next 30 months but it took less than six months for the Sail U-VA hatchback to fizzle out.

The Cruze, perhaps the best GM vehicle in terms of reputation is an Executive sedan with severe lifecycle issues. Post its launch in October 2009, the market response was good and Cruze sales peaked in the second year of sales. Post that sales dipped sharply, falling 42% year-on-year within the third year of sales and falling a further 63.2% year-on-year in the fourth year of sales.

Cruze Lifecycle curve

That’s even less time to spend the sales bonuses from Year 2, so steep has been the fall.

In the current (fifth) year of sales, the Cruze has sold 1404 units in 10 months (Oct-July; ref Oct launch month). Life would not be pleasant for the managers, as the Indian Cruze needs to limp around for more than one more year before a replacement model reignites sales.

Wrong People?

However, the managers may not be too worried. GM India has a reputation of treating its employees rather nicely – most senior managers spend a long time at GM India, irrespective of the failures of the company or products. Clearly, the jobs are satisfying and enriching.

To its credit, GM India has always been very complimentary to its senior executives. Many years back, an outgoing CEO was complimented for the successful launch of the Chevrolet Forester in India.

To put it in the right perspective, the Forester sold so badly in India that “Where to source Chevrolet Forester spare parts?” are high-ranking threads on automotive forums.

Hot Balloon Strategy

Over the years, GM India has used the ‘hot-balloon strategy’ quite well. Under the strategy, when one product (hot balloon) fizzles out, the local management cooks up some reasons and starts preparing for the next hot balloon, promising that it would be the one to take the company higher.

So when the Corsa Sail flopped, the Aveo U-VA was around the corner. The Sail twins later replaced the Aveo twins and now we have the Amber platform waiting in the wings to spin out a hatchback, compact sedan and compact SUV.

What does the future hold?

The problem is that the Amber is a few years away. Does GM have enough firepower to stay relevant till the Amber arrives?

Deepesh Rathore, lead analyst at EMMAAA is quite blunt about GM’s chances. He feels that as the Indian market matures, a few multi-national brands are likely to bow out. Unfortunately, GM India’s chances don’t augur well.

“The only thing they have is deep pockets. But money and patience are not limitless commodities,” argues Rathore.

To its credit, GM has taken some positive steps, including exporting out of India, starting with the Beat hatchback to Chile. More exports may follow while the product side would be bolstered with facelifts. The Cruze replacement is a few quarters away and so is the next generation Beat.

Would the two keep GM India relevant?

 

 

 

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25 Responses

Leave a Reply
  1. David Jones
    Aug 28, 2014 - 12:24 PM

    Well researched and brlliantly reported. Deserves to be widly published.
    Wrong People? Certainly the root cause. Afterall who makes the calls.
    As they say, shit always floats on the top – these Wrong People moved on to destroy other brands that hitherto were doing fine.
    A bunch of them moved to Skoda Auto India around 2007-08, and another group later moved to Tata Motors around 2012-13.
    Both these batches – that occupied top slots across sales, marketing, distributio, purchase and human resources – destroyed the culture and the performance of the brands they took shelter in.

    Reply
    • DR
      Aug 28, 2014 - 01:13 PM

      Thanks David for the comment and for reading IAR. We look forward to more interactions with you.

      Reply
  2. Avik Chattopadhyay
    Aug 28, 2014 - 12:57 PM

    GM India will surely survive as they have all these years, but a survival that no one else will envy.
    Reminds me of a dialogue from an Amitabh Bachchan movie, “Yeh jeena bhi koi jeena hai lallu?!”
    For those who do not understand Hindi, request Deepesh to please do the honours.

    PS – my email address can surely be published / shared.

    Reply
    • DR
      Aug 28, 2014 - 01:12 PM

      Thanks Avik for the comment and for reading IAR. Regarding the Amitabh Bachchan quote, I think the correct meaning is “Is a life of irrelevance, life at all?”

      Reply
      • Avik Chattopadhyay
        Aug 28, 2014 - 01:13 PM

        Bingo Deepesh!

        Reply
  3. Tanmay Mathur
    Aug 29, 2014 - 06:14 PM

    Brilliant Analysis done like always ! I am a fan of your articles!
    Requesting you to write an article on the pre-owned market in India, especially the luxury pre-owned. Since most of it is unorganized, there is not much credible information about it. Hope you can provide us with something! 🙂

    Reply
    • DR
      Aug 30, 2014 - 02:09 AM

      Thanks Tanmay for leaving a comment and for reading IAR

      Reply
  4. Ganesan
    Aug 30, 2014 - 07:02 AM

    Good insight and nicely written.

    Reply
  5. arun
    Aug 31, 2014 - 03:14 AM

    Don’t know where the problem is GM cars are best in class value for money…should compete in indian market , have to bring some new models specially designed for Indian market. Longer you stay in , you succeed….

    Reply
  6. Julian Buckley
    Sep 01, 2014 - 02:22 PM

    Most OEMs have recently lost sales in India, although the malaise at GM appears to extend further back than the current downturn. I think what has benefited GM to date has that the company’s national vehicle production has been equivalent to that of national sales. This is expected to change over the next year or two as output of the Sail and and Beat is forecast to increase, but most of this output will be for export markets. Exports will be the saving grace of GM in India, plus the OEM cannot afford to lose its foothold in a market that still represents considerable future sales potential.

    From a personal perspective, I think the OEM needs to have a major overhaul of its product range in India. As the country’s buyers become more experienced, all things being equal, poor vehicles will sell poorly. Having a well-designed model that is designed from the ground up to meet the needs of customers in India (so not an oversized body on a smaller platform that rides on absurdly small wheels) could change local perception of the brand and could also sell well around the region. This though, would take investment and that can only be secured based on potential sales, so it’s unlikely to happen. Which is a shame, as GM India would be better served by having a smaller range of two or three well built, well targeted models instead of eight or nine that directly address few of the criteria that are important to local customers.

    Reply
  7. Mahender Singh
    Sep 19, 2014 - 07:22 AM

    Wonderfull insights. I believe a similar research should be initiatiated for Skoda, VW as well.

    Reply
  8. Alagar
    Oct 17, 2014 - 09:32 AM

    can i get GMI plant sales details. from your side with model wise.

    Reply
    • DR
      Oct 17, 2014 - 11:06 AM

      Kindly mail EMMAAA at sales (at) emmaaa (dot) com

      Reply
  9. molty
    Nov 15, 2014 - 10:52 AM

    Very well written article deserves 5 stars.

    The hot balloon strategy seems to be working well with GM India or so it appears. GM India is not a victim of circumstances or inertia as stated in the article, it is rather a victim of a more complex disorder for which there is no cure from China to Alaska, this disorder is called STUPIDITY (no offense).

    They seem to be putting up their show in a hurry with a lot of after thought & retrospective thinking but doing & learning nothing from it in the process

    Well
    As regards to their survival, they seem to be pretty resilient & seem to possess ungodly amounts of perseverance for wrong strategies, so yes they will be around for some more time till they actually run out of lottery tickets & food coupons. lol

    Reply
  10. puchoo
    Nov 17, 2014 - 11:06 AM

    A good read , fears and projections which have been discussed elsewhere as well but a really nice summary of all that is wrong with GM. They, really for some absurd reason though that relaunching the Sail twins with some minor cosmetic changes would set them on the path to grab big bites out to the market share , these changes take place literally every festive seasons with the coming of the so call (non) limited editions….. and there appears to be nothing new coming out til 2018.

    Arvind Saxena’s arrival in GM might be very beneficial to his retirement plans but i have failed to see any improvement , still early days for him , i will give him that but for me there is a lack of talent in GM’s top tier which we cannot deny.

    Reply
  11. Aneesh
    Nov 17, 2014 - 01:52 PM

    What an article!!! This should be sent to the GM head quartets in USA! Either they are rank idiots or not bothered about Indian operations.

    Reply
  12. subhash
    Nov 28, 2014 - 08:03 AM

    Excellent analysis. What is missing in GMs and many other manufacturers is their service network. Rather than investing in product development, these companies should invest in developing service centres. Or atleast tie up with other 3rd party branded (Bosch etc) or popular non-branded garages.

    But wait, 18 years and only 3% share – is GM really interested in the first place? or are they using India to show losses and reduce tax burden? We never know what the suit wearing million dollar executives think behind those closed doors.

    Reply
  13. Anoop
    Nov 29, 2014 - 07:58 AM

    I am no sales analyst,Let us say ,I am a common man who wants to buy a car. Checked out GM sales in Bangalore.
    The sales executives are real nincompoops. No idea about the product.
    The vehicles are overly priced.
    Service center responses are bad. Finished .This is why GM is at a loss.
    Time to close it up and start something new.! Don’t blame only the seniors , there are some analysts sitting in some safe places who don’t want to change.

    Reply
  14. PRAKASH G RAIKER
    Jan 14, 2015 - 11:27 AM

    GM should tie up with local auto consultants given a chain link type of sales will boost the market let them try chain marketing and start authorized service station
    they have to think like an indian common man rather than thinking like an american.

    Reply
  15. vinay malhotra
    Jun 19, 2015 - 08:27 PM

    Dear Friend

    I worked with Gm dealer ship more than 9 year in Ncr region I really disspoint from chevrolet offical and I resign from the dealership reason beacuse of my coustmer new enjoy vehicle engine heated oil and coolant mixied and engine got seized on 40000/ Km and I requested to GM India pls replaced the head unit under warranty but chevlot refuse give warranty and standard warranty of vehicle is 1lac km or 3 year I send many emaail to zonal, Rm, vp, director , but all of refuse to support and they have compliant to my dealer principal for this matter why I am esclating the matter as Genaral manager it my duty to resolve the issue or i have to satisfy the coustmer but I did;t or I loose my job that day this my loyalty to the brand but GM top managment is enjoying .

    Reply
  16. Prakash Raikar
    Oct 14, 2015 - 11:55 PM

    Gm management seems funny in 2014 they gave the atatement cheverlot spark will be discontinued from december 2014 later they told from past 6 months no selrs just 150 units fools or intelligent fools management now they are searching replacement for beat named project ambet your products are good yours is china toys marketing it wont work in developing countries better change your strategies or qhit india

    Reply
  17. Sushant ahlawat
    Nov 13, 2015 - 11:28 PM

    This msg is from a chevy customer nd a chevy fan. One thing is damm correct is about targeting the wrong audience. Chevy is all about american muscle. We know chevy from hot camaro, to turbocharged sonic, corvette to monster Impala we have seen in supernatural. We know chevy for there v8 engines. What we get is something like made in china. Sail, spark, aveo, optra etc nothing american. 3 cylinder engine from chevy. Seriously, were u guys high. Does chevy listen to customers.
    If you do please consider following points. As iam a dedicated chevy customer and i feel i have the right to point when i have not owned a single car xcpt chevy
    2005 optra royale
    2008 optra magnum Lt
    2010 beat Lt
    1. Get your act straight. Bring american muscle
    2. Get your service centre some ears, they are deaf. Don’t listen to customers
    3. Your service centres act like butchers. They start sharpening there knifes when they see a car entering service centre. A simple service that should be like ₹3-4k suddenly becomes 8-9k.
    4. Give your service centre guidelines to have spares handy. Its easier to source from outside, as even after a repeated written application part didn’t arrive in 4MONTHS. iam talking about my optra steering pump
    5. Have you your self owned chevy and tried to buy spares. Your spare parts cost an arm & limb. I only pray to god that everything works when i sit in the car. Its like keeping separate budget to live with chevy. If i just buy spares nd make a car optra a 8lakh car would be more costly than a merc or audi.

    Ok even if i agree that your spares deserve that price, then i wish to know whats so special about them.
    Your cars are not best in handling, thums up to Skoda for that
    Your cars are not best in built structure, thums up to Skoda, VW nd ford
    Your cars don’t have the best engines, thums up to toyota
    Your cars don’t have max features, thums up to any other car maker
    You guys don’t even spend on ads, you launched trailblazer no one knew about it.
    You guys your self kill your other products. You launch one forget the other.

    You guys really need to change your image.
    You have failed in passenger market. I hope you have seen that people love your supercars nd suvs like GMC. Thanks to hollywood that they show your cars. Nd it reminds me who makes your ads. Fire that team. Most horrible. They make me feel ashamed.

    Chevy we love you, nd i reallt do. It hurts me to see my favrte brand go down. take care chevy

    Reply
  18. Sushant ahlawat
    Nov 13, 2015 - 11:29 PM

    ?love you chevy

    Reply
  19. Jawahar Thadhani
    Nov 27, 2015 - 07:10 PM

    GM like VW and ford is liikely to fail in india due to poor products poor service and poor strategies executed by incompetent people!

    Reply
  20. Raj Chatterjee
    Aug 09, 2016 - 09:16 AM

    But the story do not end here. Again we are getting the same beat with new head lamps and bumpers as new 2017 beat. Why can’t we have new spark (Beat), sonic and trax ???? Clearly there is no relation in product portfolio. I am having a Chevrolet Beat since 2011 and I don’t understand which model to choose next. Vehicle segment and price points are so scattered it’s really difficult to live with this brand. They have no plan how to retain existing customers. Over 2 lakh beat were sold till date, what should we buy next ??? Keep wooing new folks. GM have no intention of fulfilling the needs of the customer for lifetime. God bless GM.

    Reply

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