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GM's damage control strategy

By Bhupesh Bhandari and Amit Ranjan Rai in New Delhi
June 16, 2009 11:42 IST
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On June 1, news broke out the world over that General Motors had filed for bankruptcy in a court in the United States.

That day, General Motors India President & Managing Director Karl Slym gave almost a dozen television interviews. Phone calls from the media, dealers and vendors kept pouring in right through the day.

By the end of the day, Slym was tired but unruffled. For several weeks he had prepared himself and his team for such an eventuality. The crisis plan was set in motion right away.

Apart from telling one and all that it will be business as usual for the company, General Motors India launched an advertisement campaign with the tagline, There for you, there for India, along with a picture of Slym.

Trying to explain the nitty-gritty of the bankruptcy to customers will not click, Slym felt. What was needed was an assurance that the Indian company won't down its shutters. The company did have a brand ambassador, film star Saif Ali Khan, but this was a serious situation and it was decided that Slym alone will be able to drive the message home.

General Motors is not a big player in India, though it has six products in the market: Cars Spark, U-VA, Aveo and Optra and utility vehicles Tavera and Captiva. At the end of 2008-09, its share of the 1.55 million market for cars and utility vehicles was less than 4 per cent -- sales were down 7.54 per cent during the year. Sales for April and May have fallen 12.87 per cent. But it thinks it can grow in India.

In China, a market not very dissimilar to India, it is the largest car company. It does have strengths in small cars which account for three-fourths of the Indian market. The stakes are too high to let the business drift.

General Motors had been in pain in the US for a while. And Slym was no stranger to the company. Born in Derby, he began his General Motors career (he was earlier with Toyota) in 1995 in Germany from where he moved to Poland and then to Canada and South Korea. In October 2007, he took over the reins in India.

Anticipating the worst, Slym began to take corrective action almost a year back. "What exercises a customer in such a scenario is what will happen to spare parts and service, will the car still have re-sale value," says he. These were the issues he knew he had to address.

Strengthening operations

In the last one year, Slym has raised dealerships in India by almost 100 per cent to 203. Another 50 are likely to open this year.

Several of the new dealerships are low-cost ones which require less investment in towns like Abohar, Muktsar and Sangrur in Punjab, Rohtak, Hissar and Jind in Haryana and Nanded, Sholapur and Baramati in Maharashtra. Some of these are owned by large General Motors dealers. This has helped the company reach its cars to a larger population and address the spare parts and service issues. (In addition, it has joined hands with state-owned Bharat Petroleum to set up service stations at some of its large outlets.)

Since these low-cost dealerships have smaller showrooms (sales here are driven by Chevrolet Spark and Tavera) and do not stock extreme specialty tools, they can break even once they sell 15 to 20 cars per month.

"Almost 80 per cent are already profitable. It takes six months to get these volumes," says General Motors India Vice-president (sales, marketing and after-sale) Ankush Arora. (General Motors has also initiated a rural push for its dealers in Gujarat, Maharashtra, Punjab, Tamil Nadu and Madhya Pradesh.)

Slym had also devised a scheme where the company gave three years of free service on the Spark. Buyers of other cars could purchase this service. It also guarantees a maximum expenditure on service for three years on any car (Spark: Rs 12,999; Aveo: Rs 15,999, Optra (petrol): Rs 17,999, for instance) -- anything in excess the company promises to reimburse.

To address the issue of resale, General Motors India has run a pilot called Chevy OK at 11 dealerships where customers can sell and exchange cars. These outlets, says Slym, are visited frequently by people who want to exchange their Opel (Corsa and Astra) cars. Slym reckons that 50 per cent of his dealers could join the bandwagon. "It requires a different staff. And for the small dealers, this might not be the right thing."

Building confidence

In the days after the bankruptcy announcement, General Motors India sales team called up prospective customers who had come to the dealerships but had not made any purchase. Ten per cent said that they had decided against it because of the news from the US.

Immediately, the company stationed 35 key people at critical dealerships that fetch the company 70 per cent of its volumes. These people were asked to address any query that the prospective customer may have. "There has been no drop in walk-ins," says Slym. "Sales between June 3 and June 8 were at the same level as between May 3 and May 8," adds Arora. Sales of June 1 and 2, of course, were hit badly.

Visits to two showrooms in New Delhi find the staff well-informed about the bankruptcy proceedings in the US. They are willing to spend time with prospective customers to answer any query.

Most customers, on their part, are found making comparisons with Daewoo -- the company collapsed once its parent in South Korea went bankrupt. Its bestseller was the Matiz which incidentally is now sold by General Motors as the Spark. "We are here to stay. We even make our own engines," says a salesman in one of the showrooms.

The weekend before General Motors filed for bankruptcy in the US, Slym and his team launched mega service camps from Bangalore. Next weekend it was Pune. This on-ground activation will happen all across the country every weekend till August.

"It is more like a carnival with music and food. People come with their cars and family. There is music and fun," says Slym. According to Arora, 650 car owners came for the Bangalore camp and 400 for Pune. The idea here seems to improve the connect with the company's existing customers. Word of mouth, after all, plays a crucial role in the automobile market.

This was also the time that Slym started to talk about the new launches planned by the company. In the first week of June, the company launched the LPG version of the Spark. Full-page advertisements in top national dailies, in fact, showed two cars under blankets ready to hit the tarmac!

The first in September will be the Cruze, a sedan based on the Optra platform, followed by a small car priced around Rs 400,000 and based on the Beat platform some time in December. There could be another one in 2010. "We want to tell that we are not a fly-by-night operator," says Slym. "We have invested $1 billion (Rs 4,800 crore) in India in two plants which can produce up to 225,000 cars and the power-train."

Sector experts say there could be some pitfalls. "If the bankruptcy process doesn't clear up in 60 to 90 days, there is going to be a drop in consumer confidence," says an automobile analyst off the record.

"GM has a strategy for India -- it has a small car and brands in the mid-segment. The key thing it needs to remember is that with the Nano in the market, the current small car segment will get redefined," adds PricewaterhouseCoopers analyst Abdul Majeed.

Component makers aren't perturbed. "India is a growth story and we need not worry about the rest of the world," says Sona Koyo Chairman Surinder Kapur.

Assuring stakeholders

Before his customers, Slym had to calm the nerves of his key stakeholders. Two months before the crisis broke, Slym began to meet all dealers and employees to brief them on the emerging situation. By June 1, he had spoken to about half his dealers and all his 4,000 employees.

Fortunately for him, his brand in India, Chevrolet, stays with the reformed General Motors and (along with Buick, GMC and Cadillac) is not on the block.

General Motors had started out in India with Opel but switched to Chevrolet some six years back -- a wise decision, at hindsight. As a result, there has been no extraordinary attrition in the last couple of months, claims Slym. "Our attrition is the same as the rest of the industry: 12 per cent."

Questions were also raised on General Motors India's access to funds. Its investments were bankrolled by the US parent. That tap has now turned itself off. Slym says he has been working with Indian banks for the last six weeks to meet any need that may arise for funds.

"We will depend on internal accruals, loans from financial institutions and intra-company support from Asia-Pacific," he says. General Motors' Chinese operations are known to be fairly profitable.

Is General Motors India profitable too? Slym says that the company makes operational profits. Depreciation and interest costs, thanks to the $1 billion investment, have impacted the profit after tax. It means the company is not burning cash and can take care of its operations. This is important in the current scenario.

Some sector analysts expect General Motors to relocate some production to India in the near future as costs here are lower. Moreover, there is spare capacity in India. While General Motors India sold around 62,000 cars in 2008-09, it has the capacity to produce 225,000 cars between its two plants at Halol in Gujarat and Talegaon in Maharashtra. And this will go up to 385,000 cars soon.

There could be some truth in it. The new small car, Slym discloses, will also be produced for overseas markets.

At the moment, Slym is sticking to his old target of 10 per cent market share by 2010. As projections are the market will expand to 1.8 million by then, this will mean annual sales of around 180,000 or monthly sales of 15,000 for General Motors India -- almost thrice the current volumes.

Some experts even expect General Motors India to drop prices if volumes dip in the next one or two months. Much will depend on Slym's ability to convince customers.

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Bhupesh Bhandari and Amit Ranjan Rai in New Delhi
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