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.
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.
“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.
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.
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.”
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.
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.
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?