Turnaround: By shutting local sales, GM's India unit shrinks to grow

Exports rose 19% to 76,644 units in the 11 months ended February 2018

American auto major General Motors’ (GM) India unit is now leaner and fitter after more than two decades of loss-making operations.

Having shut down the local sales business in India last year in May, the carmaker is now inching closer to a profitable operation, driven exclusively by exports. The company is already said to have made some profit in the current financial year.

The amount earned as profit is not known. But a person familiar with the developments said the India arm of the Detroit-headquartered company is in the process of making provisions for expenditure on corporate social responsibility in 2018-19.

GM India employees are also learnt to have received a 100 per cent bonus in the current financial year, a decision linked to improved performance.  

GM entered India in 1996 but struggled to mark a significant presence in a market dominated by companies, including Maruti Suzuki and Hyundai. In the last full year (2016-17) of sales in the Indian market, it had a market share below 1 per cent. Needless to say, the company’s Indian operation remained saddled with losses.

At the last count, the carmaker’s accumulated loss in India is estimated at over Rs 80 billion. Losses were a function of the small sales volume, which also meant a low-capacity utilisation.

Take the case of 2015-16, for example. The company sold less than 70,000 vehicles from the two plants with a combined capacity of 287,000 units. Overheads and cost of operations remained high and products could hardly generate any money.

Things appear to be better now after the company stopped local sales and decided to focus solely on exports from the Talegaon plant in Maharashtra while selling off the Halol unit in Gujarat to Chinese automaker SAIC last year. The consolidation of operations brought down the headcount by 1,500 and reduced costs.

“The business transformation decision taken in 2017 was the best pathway towards improved financial performance and profitability. GM is already towards the journey of being profitable and we hope to build on this momentum as we progress further in 2018,” a company spokesperson said.

Exports rose 19 per cent to 76,644 units in the 11 months ended February 2018, making GM the fifth-largest passenger vehicle exporter from India. The company exports Beat hatchback and sedan to Latin American markets.

There was a one-time gain that came from the sale of the Halol plant, though the amount at which the transaction took place was not disclosed. The company spent heavily in the retrenchment of employees associated with the plant and in making its dealer partners exit dealerships. However, it is understood that the profitability is operational in nature and not linked to the one-time gain.

“It made sense for GM to focus primarily on exports from India as it struggled to sell products in a crowded car market. We need to wait and see if the company can sustain the improvement in performance. If it is sustained, it should set a good precedent for some other global automakers who are struggling in the domestic market,” said an executive with a leading carmaker.