GM turns to China to crack India's tough car market

Reuters (Talegaon, India) - General Motors Co began initial production of its first ever Chinese-designed car for the Indian market this week, a major step for the U.S. automaker as it tries to scale up in a market where foreign companies have struggled.

India's love for the small car and its highly-competitive, price-sensitive market has confounded many of the world's major automakers, who wrestle with lackluster market shares against small car focused brands selling India-specific models.

The compact Sail, sold as a sedan and hatchback, will go on sale next month as the first model designed by GM's Chinese partner SAIC Motor Corp <600104.SS>, the president of GM India told Reuters in an interview at a factory in western India.

"What (SAIC) bring to us is more of a regional focus and more of an emerging market focus," GM India's Lowell Paddock said. "Sail is in some ways perhaps the first vehicle designed with primarily Asian customer requirements."

SAIC holds a 50 percent stake in the Indian unit. A larger passenger van from SAIC's stable will begin production in India by the end of 2012.

Unlike in China, where GM and Volkswagen AG top the passenger vehicle market with a combined 30 percent share, all foreign automakers combined -- excluding Hyundai -- account for less than 25 percent of the Indian market, despite billions of dollars in investment and decades of toil.

Cars designed for customers and segments in other countries have failed to capture the hearts of India's demanding car buyers, leaving companies such as GM, Volkswagen and Ford with forecourts filled with ill-suited models and falling capacity utilization at their plants.

GM needs a shot in the arm. Its India sales fell an annual 11 percent in the first six months of 2012, against a 10 percent rise in overall car sales, according to data from the Society of Indian Automobile Manufacturers.

The factory producing GM's Sail had previously been forced into production shutdowns and downsized shifts as sales slump.

Paddock acknowledges the company has "underperformed".

"We've had an under-representation in the growing segments," he said. "As the market moved, we were left with a void."

SEEKING A GAME-CHANGER

When Paddock joined GM in 1992, India's roads were dominated by small, low-powered Maruti Suzuki hatchbacks for the simple reason that there was little else on offer.

Twenty years later, the same models still account for close to half of India's new car purchases, with local titan Tata Motors and Hyundai Motor <005380.KS> together accounting for almost 30 percent. Utility vehicle maker Mahindra & Mahindra sells 10 percent of all the country's passenger vehicles.

Other foreign automakers have failed to match the approach of Hyundai, which entered the country after GM but with an aggressive small car focus and India-specific models.

"The Indian market has been incredibly difficult for us and for everybody else," said Tim Lee, head of international operations at GM. "We underperformed both from a share stand point as well as a total volume standpoint."