Back to basics for GM
Small cars and MPVs shelved as focus shifts to pickups and SUVs.
Despite the bright prospects for the automotive industry in Asia, the decision by General Motor (GM) to stop production in Indonesia and withdraw from the Eco Car programme in Thailand came as a shock to many in the industry.
Industry observers are asking how the US auto giant can afford to miss out on two of the most lucrative markets in the world.
GM maintains that transforming its Indonesian operation from a manufacturing to a purely sales company will create an appropriate structure for the company’s growth in Indonesia.
But the company hasn’t fully backed away from Indonesia. Its China-based joint venture SGMW, with SAIC and Wuling Motors, will establish a US$700-million plant to make Wuling vehicles in Jakarta.
SGMW since 2006 has gained become a market leader in mini-commercial vehicles, with three plants in China and a record 1.79 million units sold across the mainland last year.
George Svigos, director of corporate affairs for GM International, said the seven-seat Chevrolet Spin multi-purpose vehicle (MPV), which was also imported to Thailand, never really got rolling in Indonesia.
“High material costs reduced the potential to utilise the local supplier base as limited scale has made it unsustainable to continue to manufacture the Spin MPV at the Bekasi plant,” he said.
Due to high operating costs, sluggish sales and low competitiveness for Spin, GM lost about $200 million in 2013 and 2014 after spending $150 million to reopen an old plant it had established a decade earlier.
“One of the key issues is that GM could not fully localise parts and components where some parts were imported, resulting in uncompetitive prices,” said Jessada Thongpak, a senior analyst at IHS Automotive.
According to the Thailand-based consultancy LMC Automotive, GM restarted its Indonesian plant in 2013 with annual capacity of 40,000 units but sales were below 10,000 units. “The sales didn’t grow as expected while the operating cost was very high, making the company unable to compete with Japanese rivals,” said director May Arthapan.
“The Asean market has been strongly connected to Japanese brands and companies such as Toyota have established production plants and built cars in Thailand or Indonesia over half a century,” said Mr Jessada.
“Japanese automakers have dominated the market with nearly an 85% share in all segments. Asean consumers rely heavily on Japanese product quality and technology, not only cars but also electronic devices and home appliances.”
The number of dealerships and quality of after-sale services also help Japanese automakers in the region.
Despite the Japanese dominance, Mr Svigos said GM expected to continue to grow in the MPV and low-cost green car (LCGC) segments.
“Any brand looking to get a significant share of the market and capture the growth opportunity must be prepared to invest in a fully integrated operation with high levels of localisation,” he said.
GM also sees the continued growth in the Asean auto market over the medium to long term, he added.
Jeeranut Sangdee, director of communications for GM and Chevrolet Sales Thailand, said that stopping Chevrolet Sonic production at the Rayong plant and withdrawing from the government-promoted Eco Car programme would help the company in the long run.
“Our decision to withdraw from the Thai Eco Car programme is part of regional positioning strategy to adjust the portfolio, narrow the product line and focus more on our core strength, which are pickup trucks and SUVs, not Eco Cars,” she said.
She said pickup trucks represented 40% of the total auto market in Asean and by utilising the full potential of GM, the company would benefit fully from continuing market growth.