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

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SummaryGeneral 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.

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 India’s 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,

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