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No beating about the bush.
GM’s China partner can drive the fortunes of GM India. The ramifications can be huge for the auto sector—and the country—at large
General Motors, GM, is slated to give up a crucial 1% stake of its China passenger-car venture to its partner SAIC, the state-owned Chinese automaker. Simultaneously, the two companies have launched a 50-50 joint venture based in Hong Kong for Asia Pacific region. So how does the new joint venture with China’s SAIC impact the position of General Motors in India? As usual, behind the complicated manoeuvring lies a simple truth—General Motors India (GMIL) will now be—plain and simple —under Chinese control. The new venture will take over GM's India assets and be able to sell small cars and light trucks in the world’s fastest growing car market after China. It is clearly apparent to anybody who understands the dynamics of the Chinese automobile industry that SAIC have used their considerable clout to twist General Motors USA (GM) into accepting a position that leverages the tenuous and shaky position GM has in China into letting the Chinese dominate in India.
China is now the world’s largest automobile market, and the way joint ventures are structured in China, GM would be extremely reluctant to put their JV with SAIC in China at risk. Better to let SAIC have a share of the GMIL pie, and in the bargain pick up some cash to try and repay the US government. So this is how it looks to us in India:
General Motors India is no longer under General Motors Asia-Pacific (DAT), Australia. Instead, it will now be part of a 50/50 joint venture between SAIC and GM. And SAIC shall call the shots, since SAIC has a majority shareholding here. This is in no way to be compared to the IBM-Lenovo deal. This is an outright entry by a Chinese automobile manufacturer into India.
In a slightly related move, GM has bought out Suzuki from a 50/50 JV in Canada. This will have an impact on Maruti Suzuki India Ltd—which is not very clear as yet.
Indian automobiles are rapidly acquiring a reputation for quality in neighbouring countries, while Chinese vehicles are, to put it gently, much cheaper, but not quite there yet. The introduction of extremely low cost Chinese vehicles into the Indian domestic market will probably spin off dynamics which can not be predicted, and GMIL will have to protect the carefully nurtured image that it has with great difficulty managed to build over the last few years.
GMIL was just about beginning to hit the market-share numbers in India. And now comes this news of them becoming a Chinese joint-venture under Chinese control. GMIL will need to be extremely careful about how they go forward here. Otherwise the whole house of cards could collapse, given the sad reputation some Chinese goods have acquired in India.
The Indian government is also sure to have a view on this development. Chinese trucks from India facing up with Chinese trucks from China on a disputed road in Kashmir is just one part of it. Wait and watch. And anticipate a Chinese-driven price war in the automobile market very soon.
General Motors seems to be racing ahead with new vehicle launches in India under the Chevrolet brand. A few months ago it was the diesel-engined Cruze taking the Honda Civic and Toyota Corolla head on. Then it was the turn of the electric Spark. Last week the motoring media was treated to a preview of their small hatchback, the 1.2-litre petrol engine Beat. With the Tavera a runaway success in the people mover category, and a decent 4WD in the Captiva, the reasonably successful Optra, GM's portfolio now needed an ultra-luxury car and some more commercial vehicles in the small- to medium-size ranges. Unconfirmed rumours about the Cadillac coming to India usually sink without a trace. Massive changes in the structure of the Board at General Motors in the US don’t really make headlines in India either. GM’s IOU to the US government now exceeds $52 billion, and the burn rate is not slowing down. All these were the key issues about GM in India. All that pales in comparison with the latest development of the JV with China.