One could almost hear concerned shareholders say, “Finally!”
Last week, General Motors (NYSE: GM) announced it would launch a $5 billion initiative to reinvent how it makes cars for the developing markets. GM will develop a common architecture for all the markets – in effect, a “global car” that can be produced affordably.
But it will be a car that can be tailored to fit each specific market. The vehicles will be manufactured in four key emerging markets: China, Brazil, Mexico and India. The company is being aided in this effort by China’s SAIC Motor Corp.
GM is a bit late to the game, though.
Other car companies have already moved down this road of using a common blueprint. These include the likes of Ford (NYSE: F), Toyota Motor Corp. (NYSE: TM), Volkswagen AG (OTC: VLKAY) and Renault SA (OTC: RNSDF). Renault’s thrifty Romanian brand, Dacia, is even winning fans over in the developed world.
And meanwhile, a triumvirate of Silicon Valley titans is developing a technology that could change automaking forever.
The move by General Motors CEO Mary Barra is logical. GM says that about 88% of growth in passenger car sales between now and 2030 will come from the emerging world. If successful, GM will begin producing its global car in 2019. The company says it will make 2 million such cars annually. That is 20% of its current volume.
GM will double its investment in Brazil through 2019 to $3.8 billion. And it plans to invest a total of $16 billion to maintain its position in China.
India a Focus
But the one country clearly targeted by GM is India. It says it will put $1 billion into the Indian market. It will be a manufacturing hub for its vehicles, but more importantly, a key sales market.
This is an interesting move. Right now, GM is a small player in India, and not one with the best reputation for building quality cars. Despite the company sinking $1 billion into the country since 1996, it has been hounded by vehicle recalls.
Source: Financial Times
GM aims to double its market share in India by 2020. But that will only bring it back to where it was five years ago.
But it’s a market that cannot be ignored. India is predicted to become the world’s third largest vehicle market over the next decade. So if GM wants to remain a force in global automaking, it has to be in India.
Indian Auto Market Recovering
GM’s move in India at this particular moment makes sense.
You see, the Indian vehicle market has been through a tough three years. In fact, it was the worst slump ever experienced by the Indian auto sector – quite a letdown from the steady double-digit growth during the middle of the last decade.
The worst may be over, however. Data from the Society of Indian Automobile Manufacturers showed that in the last fiscal year, sales actually rose by 5% to nearly 2 million units. And IHS Automotive is forecasting a sales gain of about 8% this fiscal year.
But GM will find it tough to gain traction.
The companies that have gained the most market share in recent years – Maruti Suzuki, which is part of Suzuki Motor Corp. (OTC: SZKMY), Hyundai Motor Co. (OTC: HYMLF) and Honda Motor Co. (NYSE: HMC) – will not be idling their engines. They all plan to rev up sales even more. And earlier this year Ford opened a $1 billion factory in the western industrial state of Gujarat.
The competition will be fierce. But the future leadership of the automotive industry will be decided in emerging markets such as India.
GM is hoping that future includes it.
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