Like other foreign automakers, General Motors responded to the opening of the Indian automobile market with high - if not to say unrealistic - expectations.
According to projections making the rounds of Western auto capitals following the 1991 economic liberalization program of then-Prime Minister Narasimha Rao, India's 'middle class' numbered in the scores of millions - some said as high as 350 million - all with rising incomes and large savings.
And all, according to the prevailing wisdom, were thirsting for the chance to buy the latest American, Japanese or European cars.
With underpinnings like that, the forecasts went, India would comprise a market of at least 1 million-plus light vehicles a year by the end of the millennium, up from fewer than 150,000 in 1990.
Foreign carmakers bit hard, forming joint ventures wholesale and announcing plans to produce more than 450,000 cars a year. GM, with 50-50 partner C.K. Birla Group, owner of India's Hindustan Motors, installed a 'modular' plant with a startup capacity of 25,000 Opel Astras a year, expandable to 100,000 a year.
Reality has fallen far short of projections.
India's new-vehicle sales last year totaled only 425,332 units. Although that was up 9.1 percent from a year earlier, the pace slowed from nearly 20 percent growth the year before.
And once again, the lion's share of the increase went to local giant Maruti-Udyog Ltd., which widened its market share to 81.4 percent from 80.2 percent.
Sales in the mid-sized or 'near-luxury' segment, where GM and other foreign carmakers are clustered, fell 4 percent and continued to fall in the first quarter of 1998.
Indeed, Astra sales in the quarter plummeted 77 percent from a year earlier to only 785 units.
The principal problem: price. The Astra and most of its foreign competitors are priced upwards of $20,000 in a country where the best-selling car, at $5,500, still requires 16 years' income on average to purchase.
Now, there is the added uncertainty of how international sanctions over India's nuclear weapons tests will affect foreign carmakers. Although the sanctions are not directly aimed at vehicle makers doing business in India, they put an additional cloud over the country's business potential.
In an interview with Staff Correspondent Sadananda Mukherjee in New Delhi, Richard Swando, the new president and managing director of General Motors India Ltd., concedes that foreign automakers miscalculated the price sensitivity of the Indian car buyer. Like other makers, GM is now scrambling to adjust to the market by introducing lower-priced, special-edition models.
Edited excerpts of the interview, which took place before sanctions were imposed, follow:
In 1995, shortly before GM began production here, your predecessor projected sales of 20,000 cars in the first full year of operation and around 60,000 by the turn of the century. Those projections are far from reality. What went wrong?
We made a lot of projections on the basis of various new players coming in every year. But the projections by all the economic experts of double-digit growth in the overall market proved to be not true. In our (mid-sized, near-luxury) segment, we have seen negative growth, and, overall, the passenger-car market has been reduced to single-digit growth. The explosion of demand simply is not happening.
What caused the slowdown?
There are several reasons. First, there was a change of government, so that introduced an element of instability. Second, there was a 7 to 10 percent devaluation of the rupee, which cuts purchasing power. And third, interest rates were increased. All these came into play at the same time and changed consumer confidence. It will take some time for confidence to return.
I imagine you're also finding Indian car buyers to be more price-conscious than you had foreseen. Daewoo Motors recently cut the price of the Cielo drastically, and the Honda City is coming to market priced below the Astra. Do you intend to cut prices?
No, we have no plans to cut prices, but we have taken steps to satisfy the market in our own way. First, we have introduced two economy versions of the Astra. Second, we are offering a special value package of options. And, third, we are launching a Special Edition model. We don't have to follow the others.
It's clear that the market's real potential here is in small cars, such as the Maruti 800. Hyundai, Daewoo and Telco (India's biggest truckmaker) will be entering the segment before the close of the year. What are your plans?
Yes, introducing the (Opel) Corsa next year is a distinct possibility. ... We hope to make some announcement during the calendar year. But we just don't want to talk about it right now. Our philosophy, as announced by (GM President) Jack Smith, is 'Do more, talk less.'
Your first-quarter sales are off 77 percent from a year ago, to only 785. What's going on?
Several things. Potential buyers know we're coming with new models, and they are holding back their purchases. Institutional buying dried up in March. And Ford came to market with the Zetec Escort and Honda with the City, and both were successful.
Yet you have a set a target of 8,000 cars for 1998. How will you achieve that?
It will be difficult but possible. We will achieve the target by increasing the number of Astra variants we can offer, including two economy versions, an automatic version, our World Cup Soccer version and a diesel version to be launched later this year.
GM President Jack Smith has said the components business in India is more attractive than the car business. What do you feel?
That is absolutely the case. We have to establish a strong component manufacturing base here in order to be successful in any of the segments, especially in low-cost small cars.
What about exporting from India. Wasn't that in your original game plan?
Component exports, yes. Delphi supplies electronic and other components from here to Europe and is looking at other opportunities in the region. We hope to export cars to Nepal, Bangladesh and Sri Lanka, but the volume may not be significant.
Your joint-venture partner, Hindustan Motors, will shortly launch the Mitsubishi Lancer, which will directly compete with the Astra. How do you feel about that?
Mitsubishi was going to enter the Indian market anyway. Hindustan Motors is an independent company; they have their own life and destiny, and we have our own.
Most of the Indian partners in the original joint ventures set up in the early 1990s have sold control back to their foreign partner. Does GM plan to raise its stake above 50 percent?
No, we have no such plan. We are quite happy with our existing arrangement and will maintain it. We can't speculate on that.