India - China

Ammar Master, Senior Manager, Asia Pacific Vehicle Forecasts

16 February 2021

Between a rock and a hard place

Captain Hector Barbossa: “The world used to be a bigger place”.

Captain Jack Sparrow: “The world’s still the same. There’s just … less in it”.

 

In a world with limited capital and resources, along with intensifying competitive pressures, the above sentiment is perhaps what is defining automakers’ strategies and driving business decisions, particularly when it comes to new product design and development plans, as well as the markets in which to operate and the best segments to target.

The decision by General Motors (GM) to quit operations in unprofitable markets, including India, is a case in point. The writing was on the wall since 2015, when GM stated that it was consolidating its Halol and Talegaon manufacturing facilities into a single location. This, ultimately, led to the successful closure of the Halol plant in 2017 and its sale to SAIC Group (which began production at the refurbished facility in July 2019 with the MG Hector).

Conversely, the sale of GM’s Talegaon plant to fellow Chinese automaker Great Wall could not have come at a worse time.

Political tensions between India and China have been high since a violent clash between Indian and Chinese troops in the Galwan Valley – a disputed border region near the Line of Actual Control (LAC) – in eastern Ladakh cost the lives of 20 Indian Army personnel in June 2020.

In the aftermath of the skirmish, the Maharashtra state government put on hold the memorandum of understanding with Great Wall to invest ₹37.7 billion (about US$500 million) – equivalent to half of the US$1 billion phased investment earmarked for its India project – including the purchase of GM’s Talegaon plant.

Meanwhile, the Indian government’s implementation of stricter controls on FDI approvals means that Great Wall’s binding term-sheet (signed in January 2020) to purchase the 160,000-unit/year Talegaon plant from GM is still awaiting FDI approval. Matters deteriorated even further last month when the Maharashtra state government rejected GM’s closure application after it pulled down the shutters at Talegaon on 24 December 2020.

The automaker is also facing multiple legal proceedings from unionised employees who have rejected the proposed severance package and are instead demanding guarantees of employment from prospective buyer Great Wall.

“Changan Automobile has already cancelled a planned investment of US$500 million to enter the market”

As these delays are also likely to be of serious concern to Great Wall, it may, in the end, decide to abandon its plans to enter the Indian market. Compatriot Changan Automobile has already cancelled a planned investment of US$500 million to enter the market, due to the deteriorating relations between the two Asian giants.

With almost all of the world’s automakers present in India, any new investment in the sector can only come from China. And until relations improve between the two countries, India stands to potentially lose billions of dollars in new investment and thousands of new jobs.