SAIC entry signals Chinese intent in Indian car arena

SAIC Motor Corp of China finally made official its plans to enter the Indian market earlier this week. Strangely, however, the press release did not indicate the location of its proposed operations even though it is almost certain that this will be the recently emptied out facility of General Motors at Halol, Gujarat.

It will, of course, be interesting to see if SAIC opts for an alternative location, which does not make too much sense from the cost outlay point of view.

Halol is a ready-to-use unit except that the process of transferring its workforce to the other GM facility at Talegaon near Pune is still underway. Once this is done, SAIC will be ready to start its all-new innings in India, which will mark the first big ticket entry of a Chinese carmaker.

The leadership team also has two GM India veterans who have a good idea of the automotive landscape here even while their former company did not manage too much in terms of building market share.

Yet, their knowledge will come in handy when it comes to building a dealer network particularly in smaller cities and towns where the MG range of cars from SAIC will reach out to a potentially robust customer base.

Come to think of it, the Chinese automaker had already firmed up its India plans way back in 2009 when GM had its back to the wall following the global slowdown. This was the time Detroit was in serious trouble and big American brands such as GM and Chrysler needed a lifeline from the Government. Naturally, GM’s Indian operations were impacted and this is when it turned to SAIC for help.

The two entered into a 50:50 partnership and big plans were drawn up both in the passenger car and commercial vehicle segments. From SAIC’s point of view, entering India was critical since it was among the fastest growing automobile markets even while China was (and continues to be) miles ahead in terms of numbers.

SAIC was keen on growing its global presence and the perfect launchpad was India. Its partnership with GM in China was enormously successful and had catapulted the American automaker to a strong position in the market where it only had to contend with Volkswagen. On the face of it, there was no reason why things would go wrong in India and the stage was set for a new innings with GM.

SAIC was doubtless keen to see if the Indian entry would eventually lead to a bigger presence in ASEAN especially countries such as Malaysia, Thailand and the Philippines. If free trade agreements also became a reality between India and these countries, the sky would be the limit in terms of exports from here.

In the meantime, news continued to come in on the kind of products being planned by the GM-SAIC combine. Given the proven cost efficiencies of the Chinese in other fields, there was every reason to believe that the market here would see a range of aggressively priced cars and pickups.

However, the script eventually did not quite go according to plan when a rejuvenated GM bought out 43 per cent of its Chinese partner’s stake in the India joint venture. With 93 per cent now under its belt, there was really no compelling reason to go hand in hand with SAIC in this part of the world. It was not as if GM had cracked the market here even while its leadership team constantly reiterated that India would play a pivotal role in its overall strategy.

It clearly looked as if SAIC had been relegated to the sidelines, at least from the viewpoint of partnering GM in the subcontinent. This was reinforced a couple of years ago when a leadership team from Detroit announced a $1 billion investment plan for India. Eventually, nothing materialised and things began looking very grim when GM announced that it would be shutting down its Halol plant in April this year.

It was at this time that reports began doing the rounds of SAIC taking over this plant’s operations with a host of fiscal sops coming in from the Gujarat government. GM stuck to its word and shut the plant even while offering workers the option of choosing a separation package or relocating to its other facility. Then came the bombshell of the company exiting its Indian retail operations though it would continue to produce and export cars from its Talegaon plant.

SAIC has now taken over from where its partner left though that is not quite an accurate inference of events. GM dealers are furious and feeling short-changed while its Chinese ally is preparing to lay the base for a growth script in India. SAIC would much rather be spared of any GM association since this is not going to help its cause in building a connect with customers and dealers.

The bigger question, of course, is how the market will react to cars sold by a Chinese company. At one level, there is no reason why buyers would not be open to the idea. China is the world’s most powerful manufacturing powerhouse and the ‘cheap’ association of yesteryear is no longer appropriate with mobile phone brands like Xiaomi getting the fancy of buyers.

SAIC will also be aware that market penetration of cars in India is barely 20 per thousand people coupled with the fact that this is the world’s largest two-wheeler arena. It will be interesting to see whether other Chinese brands such as Changan and Great Wall debut here and spur an interesting phase for the Indian auto industry.