GM's Asia strategy is key growth driver
Strategic investments in China, India and Thailand reflect the carmaker's aggressive posture and eagerness to fight it out, says Ammar Master.
The capacity expansion in India comes on the heels of GM’s increasing investments in China. GM is investing $3 billion in China on top of $2 billion it had earlier announced. Its production capacity in China is now close to 5 lakh vehicles a year, after GM and its China partner Shanghai Automotive Industry Corp opened a new plant in March 2005. More capacity expansions will follow since GM aims to make 1.3 million vehicles in China by 2007. GM also outsold Volkswagen in the first half of the year when its sales rose 47 percent compared to VW’s 32 percent.
China and India will be the key to the company’s growth in the region, but Southeast Asia is not lagging far behind. A major success has been GM’s ‘one segment, one product’ strategy in Thailand. It started its second innings in the country around the time of the 1997 financial crisis. The initial plan was to launch the Opel Astra since the Corsa had been a success in the past. Then came the crisis and Thailand’s local sales during 1997-98 stood at only 20 percent of its peak levels. GM acted fast and turned around its entire gameplan.
The company dropped the Astra and decided on the Opel Zafira which was already established globally. The emphasis shifted from selling locally to only exports. GM also delayed the commissioning of its $750 million Rayong plant to the year 2000. The Zafira badged as a Chevrolet model hit Thai showrooms in May 2000. The minivan created a new multipurpose vehicle segment in the market, quickly grabbing 65 percent of the MPV segment. GM sold the Zafira as the only product in the Thai market for more than three years during which time it slowly established the Chevrolet brand and developed its dealer network. The Opel brand was totally dropped.
The next GM model in Thailand came from its acquired Daewoo stable. In July 2003, GM started producing the Daewoo Nubira rebadged as the Chevrolet Optra sedan to compete with the Honda City and Toyota Soluna. The Zafira was already being shipped to 19 countries at the time. Likewise, Optra exports began to neighboring Malaysia, Indonesia and the Philippines. The Lumina (Holden Commodore) was brought in from Australia to compete with the likes of BMW 5 Series and Volvo S80. It later gained benefits under the Thailand-Australia free trade agreement in exchange for Optra exports to Australia. GM was also now producing close to 50,000 pickup trucks for Isuzu’s exports.
##### PRODUCTION PRESSURES
The Cheverolet Colorado pickup was launched in March 2004, the third joint product development between GM and Isuzu after the Isuzu D-Max and US version of Colorado. William Botwick, president and managing director of GM Thailand, told reporters at the launch that the company had invested 2 billion baht (Rs 230 crore) to develop production lines for the Colorado which has been specially designed and built for the Thai market. Critics though were quick to point out the Colorado looked too similar to Isuzu's D-Max. “Remove the bar which provides split-level headlights and you have a D-Max,” quipped an industry observer. Luckily for GM, consumers did not care much about the resemblance and quickly tuned in to the “Colorado…Like A Rock” campaign.
The rising demand for Chevrolet vehicles in the kingdom and across the region has put pressure on production. GM therefore is investing $66 million (Rs 300 crore) on a new 10,800-square-metre paint shop facility in Rayong. The new facility raises GM’s output from 110,000 vehicles a year to more than 160,000 units. The expansion also comes at a time when the carmaker is eyeing new models for Thailand and the region. Several candidates have been listed in the past.
GM has stopped production of the Zafira MPV after the second generation model went on sale as an Opel model in Europe this year. In complete GM style, the company is mum about how it would attract buyers left by the Zafira. GM then opted for the Aveo (Daewoo Kalos) sub-compact which it displayed at the 2006 Bangkok International Motor Show. Sources say the model will be made at Rayong and could hit the market during the third quarter. It would be in the same segment as the Honda City and Toyota Soluna Vios. In addition to Thailand, GM also sees major growth to come from Malaysia, the region’s largest passenger car market. Malaysia has reduced its import duties on Asean-made vehicles to between 0-5 percent, bringing forward its initial target to bring duties down in January 2008. The move signals Malaysia's desire to now fully be part of the Asean free trade area.
GM offers the Optra hatchback, Aveo, Lumina (Opel Omega in Europe) and Nabira (Opel Zafira) in Malaysia. The Spark was launched in December 2004 to preempt the entry of the Chinese made Cherry QQ model launched later. There is however no plan to assemble the models locally even though GM’s Malaysian partner DRB-HICOM has its manufacturing facility in Pekan. GM and Hicomobil aim to make Chevrolet one of the top three brands in the country over the next eight years.
##### GM SIGNALS INDIA INTENTION
The fact that General Motors India was zeroing in on a second plant was not news simply because this became inevitable after the Daewoo deal did not come through. What was a pleasant surprise was the decision to opt for Maharashtra because reports were doing the rounds that Tamil Nadu was the preferred choice.
One really does not know if it was the change in guard with the new DMK government that tilted the scales against TN. Equally, there have been stories of the Gujarat government being quite livid because GM opted to move out of the State for its second plant. All these become irrelevant in the bigger scheme of things. The fact that GM has earmarked production of 1.4 lakh cars at an impressive investment of Rs 1,350 crore clearly shows that the automaker is dead serious about its goal to achieve ten percent market share by 2010.
The biggest growth driver in this effort will be the Chevrolet Spark that is expected to notch up considerable volumes in the compact car segment that continues to account for a major part of sales in India. Apart from this, GM will also source the Fiat 1.3 diesel engine from Maruti’s plant in Manesar where production is scheduled to begin towards the last quarter of this fiscal.
Readers will recall that some years ago, GM was tipped to be the most likely ally for Suzuki in India after the Government divested its stake in Maruti Udyog. However, after the selective global acquisition of Daewoo, the American automaker decided to redraft its product strategy and Suzuki similarly pursued Maruti’s agenda on its own. However, the two will have synergies with a basic objective of cutting down costs through common sourcing and the like. Here is where the diesel plan becomes relevant and it is logical to assume that as the engine production at Manesar reaches three lakh units, a significant portion could be set aside for GM India.
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