GM Will Take on Suzuki in India With SAIC’s China Cars

Bloomberg Business Week, November 10, 2010

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Nov. 10 (Bloomberg) -- General Motors Co., the largest overseas carmaker in China, has failed to replicate that success in India. To crack the market, the Detroit-based carmaker is enlisting its partner in China, SAIC Motor Corp.

The alliance produces the best-selling vehicle in the world’s biggest car market, where it has a 13 percent market share. GM has struggled in India since entering in 1994, with its Chevrolet models accounting for only about 5 percent of car sales in Asia’s second-fastest growing major economy.

GM and Shanghai-based SAIC will start selling models in India next year that are similar to those now sold in China, Kevin Wale, GM’s China president, said in an interview. The alliance will challenge Maruti Suzuki India Ltd., the nation’s largest carmaker with a 41 percent market share, and Tata Motors Ltd., maker of the world’s cheapest car, the Nano.

“The Indian market is very similar to the Chinese market,” Wale, who is based in Shanghai, said last month. “They also have a need for a lot of products that have already or are being developed for the Chinese market.”

The partners may introduce as many as three light commercial vehicles and two passenger cars in India by 2012. The alliance also is targeting other developing markets. Last month, it started exporting Chevrolet Sail compacts made in Shandong, China, to Chile and Peru. The carmakers may ship elsewhere in Latin America, Egypt and the Middle East, Wale said.

China Expertise

GM and SAIC said in December they would spend $650 million forming a new venture to build and sell passenger cars and small trucks in India. The automakers have not identified the first vehicles to go on sale next year.

The two companies plan to use their expertise in China to gain a competitive advantage in India, said Judy Zhu, a Shanghai-based spokeswoman for SAIC. They’re confident the partnership will be successful, she said.

Domestic passenger-vehicle sales in India rose 38 percent in October from a year earlier to 231,957 units, the Society of Indian Automobile Manufacturers said today in New Delhi. Deliveries in China rose 27 percent to about 1.2 million units in the same period.

India’s passenger-car sales were 1.95 million in the year ended March 31. The government estimates sales may pass 3 million by 2015. During the past five years, India’s economy grew by an average 8.5 percent annually, and per capita incomes gained 70 percent.

Focus on India

“Our focus is on India,” said Wale, 56. “The ability to take the product portfolios and the understanding of the growth- market business model gives us the opportunity to grow much faster than if we did it by ourselves.”

GM-SAIC will make cars and trucks weighing less than 1 ton at GM’s Halol and Talegaon plants, which have a combined annual capacity of 225,000 units, said Hua Foley, GM’s Shanghai-based spokesman.

GM and its partners have 13 percent market share in China this year, chief financial officer Chris Liddell said Nov. 4. This is up from 3 percent in 2000, he said in a presentation for investors.

Winning market share from Maruti and Tata will not be easy, according to Deepesh Rathore, India managing director at consulting company IHS Automotive in Gurgaon.

“These companies have very good brand names and widespread service networks,” Rathore said. “I don’t think the Chevrolet network is wide enough.”

Poor Perception

The joint venture also needs to change consumer perceptions that Chinese products are of inferior quality, said Bill Russo, a Beijing-based senior adviser at Booz & Co.

M.S. Thapa, 72, owns a security guard service in suburban New Delhi that uses three Maruti minivans to transport workers. He said he would choose an Indian vehicle over a Chinese one in the same price bracket.

“General Motors is fine, but public opinion of Chinese companies is very poor,” Thapa said. “People will think twice to buy a product with a Chinese stamp.”

Manoj Sharma, 37, a senior executive with a New Delhi-based consultant, said he won’t consider a GM-SAIC model when buying a six- or seven-seat passenger vehicle. He said GM cheapened its image by offering sales incentives such as a free 100,000- kilometer warranty.

Target Audience

“Indians are an intelligent target audience that not only looks at price, but also the quality and the technology,” Sharma said.

The closer ties come as GM aims to raise as much as $10.6 billion in an initial public offering, two people familiar with the plan said Nov. 1. SAIC chairman Hu Maoyuan said his company may participate in the offering.

GM entered China in 1997 with a $1.57 billion contract to manufacture Buick Regal and Century sedans with SAIC.

It now owns 49 percent of passenger-car venture Shanghai GM Motor Co. and 34 percent of minivan-maker SAIC-GM-Wuling Automotive Co.

GM is increasing its stake in the Wuling venture to 44 percent, pending regulatory approval in China, the U.S. automaker said in a filing related to its IPO. GM said it is buying the stake from the Wuling Group for technical services and $51 million in cash.

SAIC owns 51 percent of Shanghai GM and 50.1 percent of SAIC-GM-Wuling.

SAIC-GM-Wuling’s Sunshine minivan, which starts at about 30,000 yuan ($4,504), is China’s best-selling vehicle, with the company delivering more than 702,600 units this year through October.

Leadership Cemented

SAIC and GM cemented their market-leading position in China this year, selling 1.97 million vehicles through October, a 36 percent increase from a year earlier. That compares with second-ranked Volkswagen AG, which delivered 1.48 million cars through September.

“The main challenge is to build up a supplier network and produce the model at a similar cost level as China,” said Ashvin Chotai, London-based managing director of Intelligence Automotive Asia, an industry consultant.

GM and SAIC need each other in order to succeed in India, said Zhang Xin, a Shanghai-based auto analyst at Guotai Junan Securities. GM has a good brand image and dealer network, and SAIC has experience in emerging markets.

Failed Partnerships

The success of their alliance contrasts with GM’s failed tie-ups with Japanese automakers and SAIC’s acquisition of South Korea’s Ssangyong Motor Co., which entered receivership in February after the global recession squeezed auto sales. SAIC paid $500 million in October 2004 for 49 percent of the Pyeongtaek-based automaker.

GM sold a 20 percent stake in Suzuki back to the Japanese company in two stages in 2007 and 2008. It also ended a joint production arrangement with Toyota Motor Corp. in Fremont, California, in June 2009 as part of its bankruptcy reorganization.

“In China, we wouldn’t be in this market if we didn’t have the partnership,” Wale said. “Where you don’t have a presence, sometimes the best solution is to partner.”

--Liza Lin and Subramaniam Sharma with assistance from Tushar Dhara in New Delhi. Editors: Ian Rowley, Michael Tighe, Jamie Butters.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net; Subramaniam Sharma in New Delhi at ssharma@bloomberg.net

To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net

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