Tavera recall likely to cost GM India Rs 500 cr in repair work, lost sales & penalties

Written by Roudra Bhattacharya | New Delhi | Updated: Aug 8 2013, 22:47pm hrs
General Motors India may have to take a hit of around R500 crore as a result of its recent move to recall 1.14 lakh Chevrolet Tavera MPVs to align them with statutory emission norms.

Around R285 crore will go into fixing diesel engines in the recalled vehicles in order to comply with Indias statutory BS III and BS IV emission norms. The company is also likely to face a penalty of about R11 crore under the Central Motor Vehicle Rules for misrepresenting emissions data to the Automotive Research Association of India, the official testing agency.

After an internal audit prompted a production shutdown, no Taveras were sold in June and July, leading to a loss of R200 crore in potential revenues. GM India, which sold 1,700 Taveras every month during 2012-13, earns about R6 lakh per unit. (In Delhi, the ex-showroom price is R6.89-10.93 lakh.)

For GM India, a loss-making company, the financial hit comes at a time when the entire sector is suffering from weak consumer demand. The company posted a loss of R746 crore in FY12, according to data submitted to the Registrar of Companies. Accumulated losses stand at R1,596 crore. Volumes for GM India rose 2.86% to 1.10 lakh units in FY12, but fell sharply by 19.90% to 88,150 units in in FY13.

In April-June FY14, sales rose 9.09% to 23,267 units. GM which started India operations in 1995 and sells cars under the Chevrolet brand has a 3.83% market share in the 2.7-million unit domestic passenger vehicle market.

GM has to spend up to Rs 20,000-25,000 to fix every vehicle it has recalled according to information from our testing agencies. The company risks losing customers and may take 2-3 years to repair its brand image, a senior government official involved with the investigation said.

For the penalty under CMVR, we are writing to the government in Gujarat to take up the matter since that is the point of production. We are pointing out the clauses under which the violations have occurred, so that they can look at all possible options, including cheating, the official added.

When contacted, Lowell Paddock, president and managing director of GM India, said, "We are not aware of this data and therefore have no comment on it. As per company policy, we do not comment on financials.

GM had discovered fudging of emissions compliance data reported to Indian testing agencies after an internal audit, after which it reported the matter to the ministry of road transport in July and issued a recall for 1.14 lakh Taveras sold between 2005 and 2013. It has also reportedly fired over 20 officials, including five senior members like CFO Anil Mehrotra and head of global engine development, Sam Winegarden. The GM incident also led the government to form a panel headed by Nitin Gokarn, CEO of the National Automotive Testing and R&D Infrastructure Project, to probe further into the matter.

While Tavera production has been shut since June, GM had also stopped making the diesel Sail hatchback and sedan versions over a similar issue with the diesel engine at the same time. However, the company has not yet issued a recall for the Sail models yet.

According to VG Ramakrishnan, MD at Frost & Sullivan, South Asia, GM India's American parent would have taken the costs into account when it decided to issue the recall of Tavera and come clean with the malpractices within the organisation. GM US is responsible for the balance sheet of its India business; so they will have to fund the loss just as they have done for so many years. They cannot afford to run away from an issue like this; this is a question of global reputation, he said.

In April-June FY14, sales rose 9.09% to 23,267 units. GM which started India operations in 1995 and sells cars under the Chevrolet brand has a 3.83% market share in the 2.7-million unit domestic passenger vehicle market.

GM has to spend up to Rs 20,000-25,000 to fix every vehicle it has recalled according to information from our testing agencies. The company risks losing customers and may take 2-3 years to repair its brand image, a senior government official involved with the investigation said.

For the penalty under CMVR, we are writing to the government in Gujarat to take up the matter since that is the point of production. We are pointing out the clauses under which the violations have occurred, so that they can look at all possible options, including cheating, the official added.

When contacted, Lowell Paddock, president and managing director of GM India, said, "We are not aware of this data and therefore have no comment on it. As per company policy, we do not comment on financials.

GM had discovered fudging of emissions compliance data reported to Indian testing agencies after an internal audit, after which it reported the matter to the ministry of road transport in July and issued a recall for 1.14 lakh Taveras sold between 2005 and 2013. It has also reportedly fired over 20 officials, including five senior members like CFO Anil Mehrotra and head of global engine development, Sam Winegarden. The GM incident also led the government to form a panel headed by Nitin Gokarn, CEO of the National Automotive Testing and R&D Infrastructure Project, to probe further into the matter.

While Tavera production has been shut since June, GM had also stopped making the diesel Sail hatchback and sedan versions over a similar issue with the diesel engine at the same time. However, the company has not yet issued a recall for the Sail models yet.

According to VG Ramakrishnan, MD at Frost & Sullivan, South Asia, GM India's American parent would have taken the costs into account when it decided to issue the recall of Tavera and come clean with the malpractices within the organisation. GM US is responsible for the balance sheet of its India business; so they will have to fund the loss just as they have done for so many years. They cannot afford to run away from an issue like this; this is a question of global reputation, he said.