1. Profit a foreign concept for overseas carmakers Honda, Toyota, GM, Ford

Profit a foreign concept for overseas carmakers Honda, Toyota, GM, Ford

General Motors, Honda, Toyota and Ford are reporting huge losses even after having been present in the country for more than a decade now.

By: | New Delhi | Updated: November 7, 2014 5:09 PM
General Motors (GM), Honda, Toyota and Ford are reporting huge losses even after having been present in the country for more than a decade now. (Reuters)

General Motors (GM), Honda, Toyota and Ford are reporting huge losses even after having been present in the country for more than a decade now. (Reuters)

General Motors (GM), Honda, Toyota and Ford may be rolling out snazzy models and variants onto Indian roads every now and then, but all of them are still reporting huge losses even after having been present in the country for more than a decade now.

According to the latest filings made by these companies to the Registrar of Companies, ministry of corporate affairs, the accumulated losses of the Indian units of these players have jumped by 65% to R11,350 crore in 2013-14.

GM India, which has now been present in the country for close to two decades, is the biggest loss-maker, reporting losses of R3,847 crore in FY14, widening its accumulated losses to R6,587 crore.

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While some companies took a hit due to slow sales and recall of defective cars, analysts said that the biggest reason for the losses is because most carmakers have committed heavy investments in both manufacturing capacity and marketing in order to challenge Maruti Suzuki and Hyundai, and with low volumes the break-even is proving elusive. The latter two together command over 60% market share of the country’s 25-lakh-unit passenger vehicles segment.

Gaurav Vangaal, automotive analyst for light vehicle forecasting at IHS Automotive, said, “Profits are essential to remain in business. This is a wake-up call for global manufacturers to remain competitive in India. India has a strategic importance in the global portfolio, especially looking at the long-term potential of the country. Global players need to carefully analyse their business model versus the market leaders.”

As part of its FY14 losses, GM India took an impairment of almost Rs 2,500 crore. Though the reasons for that were not quite clear, the company had been pulled up by the government for “corporate fraud” during the year, forcing it to undertake a major recall exercise for over 1 lakh of its Tavera MPVs, besides diesel variants of the Sail sedan and hatchback models. GM India, a 100% subsidiary of Hong Kong-based SAIC-GM Investment, has also seen its net worth go negative, leading the parent firm to recapitalise the company by infusing Rs 1,423 crore on conversion of a part of external commercial borrowings to equity shares.

“As per company policy, we do not disclose the financial of the company. We are also not a listed company in India,” P Balendran, GM India spokesperson, said in response to emailed queries about the losses.

Among others, the other US-based carmaker Ford saw losses at its domestic arm rise by 42% to Rs 597 crore and accumulated losses climb to Rs 2,360 crore. Incidentally, Ford is expected to start production at its second plant in Gujarat in early 2015. Japanese players Honda and Toyota also saw losses of Rs 480 and Rs 63 crore, respectively. Honda’s losses though fell by more than half over FY13, and the company has been having a strong run in India with a string of successful products like the Amaze and City sedans and the Mobilio MPV.

“This is an extremely price-sensitive market dominated by a handful of players. New carmakers thus have to develop market-specific products for which break-even remains elusive if the target volumes are not reached,” another analyst added.

Not surprisingly, carmakers who have developed India as an export hub to garner economies of scale and cross-subsidise slow local sales have done well. Hyundai, the largest domestic car exporter and the only completely foreign-owned carmaker to show consistent profits, thus fared the best with an 8% jump in FY14 profits to Rs 1,108 crore. Nissan, which shares a facility near Chennai with alliance partner Renault and follows a similar high-volume export strategy, also reported a 31% jump in profit to Rs 410 crore.

FY14 marked the second year of sluggish sales, with overall passenger vehicle (cars, utility vehicles and vans) volumes dropping 6% to 25.03 lakh units. Market leader Maruti, however, was able to buck the trend with flat growth at 10.53 lakh units. PV sales have recovered since May this year, but the growth is expected to be only gradual.

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