General Motors on Wednesday said it had offered to buy the closed Daewoo Motors India Limited (DMIL) car assembly plant to boost its share of a booming car market.
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According to Reuters, GM said it would use the plant to make a minicar for India, helping it take on competitors in the key small car segment, mainly the local units of Suzuki, Hyundai and local firm Tata Motors.
The report noted that low-priced mini and compact cars make up two-thirds of Indian passenger vehicle sales, which are expected to touch nearly a million this fiscal year, yet GM barely has a presence.
In fact, Suzuki and Hyundai both now use their Indian car plants as world production sources for their competing Alto and Santro (Atos/Atoz) minivehicle model lines.
“This [former DMIL] facility will allow us to produce a new generation of cost-competitive vehicles that can be marketed through our Chevrolet distribution channels,” GM Asia Pacific president Frederick Henderson said in a statement cited by Reuters.
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By GlobalDataThe news apparently was well received in India. The report said shares of Daewoo Motors India in Bombay leaped the maximum permissible 20% to 9.52 rupees on news of the undisclosed offer, valuing its equity at more than $US100 million.
GM reportedly said Daewoo India’s creditor banks accepted the offer for the car assembly arm, subject to regulatory and board approvals. The deal does not however include a separate engine and transmission facility that is also a part of Daewoo India’s car complex.
A GM India spokesman told Reuters the price it would be prepared to pay would be known after it completes due diligence over the next two to three months. Production was expected to begin next year after the facility is refurbished.
Reuters said Daewoo India, which its South Korean parent owned over 90%, has capacity to make 85,000 cars a year at the plant on the outskirts of New Delhi. It was India’s third-biggest car firm before its parent went bankrupt in November 2000.
Reuters noted that a court receiver was trying to sell the DMIL assets in parts to repay creditors after its sale as a stand-alone business attracted no bids. About 18 banks, led by ICICI Bank Ltd and Industrial Development Bank of India, reportedly had lent over 15 billion rupees ($331 million) to the carmaker.
Before it shut nearly two years ago, Daewoo India made the popular Matiz compact car and the Cielo and Nexia sedans, the report noted.
Daewoo India had been struggling to sell its locally-built baby 800c Matiz model, due to consumer apathy, after its parent firm folded in 2000. That led the firm’s then managing director to postpone the introduction of larger and more expensive model lines. The debt-laden Indian operation had also considered spinning off the engine and transmission-making operations from the car-making arm.
Reuters noted that multinational car firms are already major buyers of Indian car parts, one of the country’s most successful industries, and that GM’s offer to buy a part of the debt-laden Daewoo Indian unit comes nearly two years after the US-owned giant, along with partners, bought most of the passenger car operations of bankrupt Daewoo South Korea.
The report said a wholly owned GM unit has been operating in India since the mid-1990s and produces several variants of the Opel-designed and engineered Astra, Corsa, Swing, and Sail models and the [GM-Daewoo designed, Lacetti-based] Chevrolet Optra sedan at its plant in the western state of Gujarat.
But Reuters noted that GM-Daewoo’s bigger, expensive models struggle to compete in the Indian market, where small, low-price hatchbacks rule. In the first 10 months of this fiscal year to March, GM had less than 2% share of Indian car industry sales, the report added.
Reuters said that some 13 firms, mostly local units of foreign groups, compete in the Indian market for cars, small vans and utility vehicles.
Analysts expect the Indian market to grow nearly 10% a year this decade, helped by rising incomes and falling taxes, the report said, noting that industry sales have surged 31.5% in the first 10 months of this fiscal year as robust economic growth, and interest rates near three-decade lows, have spurred a consumer boom in Asia’s third-largest economy.
Daewoo India reported a 1.16 billion rupee loss on revenue of 13.08 billion in 1999/00, its last normal year before its parent’s bankruptcy, Reuters added.
