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GM will cut operations in India, South Africa

22 May 2017 - Autoblog

GM will cut operations in India, South Africa

General Motors plans to quit selling vehicles in India by the end of this year and will sell operations in South Africa, the latest steps in a strategy of focusing cash and engineering effort on fewer, more profitable markets.

The Detroit automaker said on Thursday it will take a $500 million charge in the second quarter to restructure operations in India, Africa and Singapore. It will cancel most of a planned $1 billion investment to build a new line of low-cost vehicles in India.

About $200 million of the charge will be a cash expense, GM said. The moves are expected to save $100 million a year in a sector of GM's global business that last year lost about $800 million, the company said.

GM President Dan Ammann told Reuters in an interview that the latest restructuring moves - and a series of earlier decisions to quit unprofitable markets - allow GM to focus more money, engineering effort and senior management time on expanding where the company is strong, including China and the North American pickup and SUV business, where GM has a "product onslaught coming."

GM also has said it is investing about $600 million a year in efforts to develop autonomous vehicles and transportation services.

"What are we spending our time doing?" Ammann said. "Are we spending time pursuing opportunities ... or all of our time fixing problems?"

GM, like its Detroit rival Ford Motor Co, has found it increasingly expensive to compete in emerging markets outside of China. GM sold just 49,000 vehicles in India and South Africa combined last year.

Chief Executive Mary Barra traveled to New Delhi in 2015 to announce a plan to invest $1 billion there to build a new line of Chevrolet models developed as part of a Global Emerging Market vehicle program - GEM for short. Since then, auto sales overall in India have slumped, and GM has failed to gain traction against incumbents such as Maruti Suzuki India Ltd.

Now, GM plans to stop selling Chevrolet brand vehicles by the end of the year and will produce vehicles only for export at its remaining factory in Talegaon. The company currently employs about 2,500 workers there.

GM said it would continue work at its design and engineering center near Bangalore.

PULLING BACK IN SOUTH AFRICA

The $5 billion GEM program, which GM is developing with its Chinese partner Shanghai Automotive Industries Corp, remains on track to account for about 2 million vehicles a year in global sales volume, mainly in Latin America, Mexico and China, Ammann said.

"The market opportunity for GEM has continued to grow," he said.

In a separate move, GM plans to stop building Chevrolet vehicles in South Africa and sell its South African factory to Japan's Isuzu Motors Ltd, along with the 30 percent stake the U.S. automaker owns in a truck venture with Isuzu Motors. Isuzu agreed in February to buy out GM's 57.7 percent stake in a joint venture in Kenya.

GM also will cut an undisclosed number of staff at its GM International Operations headquarters in Singapore. About 200 people work in that operation, the company said.

Since Barra took over GM in 2014, the one-time largest automaker in the world has taken aggressive steps to narrow its focus to China, the highly-profitable North American light truck and sport utility market, Latin America, vehicle financing and transportation services that ultimately could use autonomous vehicles.

Despite the restructuring moves, including Barra's decision in March to sell loss-making European operations to French rival Peugeot SA, GM's share price has been stuck in a range close around $33 where it went public in 2010 following a government-funded bankruptcy. GM shares closed on Wednesday at $32.42.

Barra and GM's directors are under pressure from David Einhorn's Greenlight Capital, which wants GM to split its common stock into two classes, one that pays dividends and a second that would be valued to reflect the company's potential growth. Greenlight also has put forward a slate of three new directors. GM's management and incumbent board have rejected Greenlight's proposals. The hedge fund holds 54.8 million GM shares, or about 3.5 percent of the total.

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