Markus Sternberg, Vice President, Commercial Operation, Chevrolet India, talks us through General Motors' exit plans from India.
Ever since General Motors (GM) announced that the company will shut shop in India, it has sent its dealers, customers and employees in a state of despair. Thus far, there wasn't any official communication from the American auto giant on how it plans to exit the Indian market. Will they leave their customers and dealer partners behind for dead or are they planning to move out of the country in a systematic and coordinated manner? Well, to find an answer to this, we got a chance to sit down with Markus Sternberg, Vice President, Commercial Operation, Chevrolet India, who talked us through GM India’s exit plans.
Sternberg has been heading the GM aftersales business in India for close to two years now. And while his job is fun as he likes to put it, it hasn’t been a smooth sailing ever since GM made the ‘big announcement’. But, all said and done, he’s trying to streamline the process of exiting India while keeping his customers and dealers happy. Here’s how he plans to execute it…
With GM in the wind-down mode in India, how difficult has your job gotten after the announcement?
When the decision was made to exit India, we were certain that we need to keep our customers, dealers and employees happy no matter what. I’ve been in the automotive business for a long time now and have witnessed many uncoordinated exits from a lot of car makers. For instance, when Daewoo or Peugeot left India, they simply packed their bags and disappeared. GM doesn’t intend to do this. When Chevrolet left Europe, I was a part of the company and we ensured we closed in on the dealers and left the market harmoniously. So when the idea came up as to who’s going to ensure that the same happens in the India, I took up the role. Sure, it’s not a fun job, you come to the office and you see your employees are afraid of losing their jobs while, on the other hand, the customers and dealers are unhappy, too. That being said, I do enjoy the challenge and we’re trying our level best to have a coordinated exit from the market.
What do you think are the major challenges that lie ahead?
We’ve three main challenges – one internal and two external. The internal challenge is what do you do with the staff? We laid off a lot of salespeople since we are not selling cars here anymore. Marketing guys are also gone. The only ones that are left are aftersales people. And even they know that somewhere down the line, there’s an end to this and they’ll lose their jobs as well. However, we’re transparent with our employees and everyone knows well in advance exactly when they’ll be relieved of their duties over the next ten years. At the same time, if an employee finds another job and leaves before, another employee gets promoted to his position and his deadline gets increased. This also gives young and inexperienced guys a great opportunity since they get promoted to bigger roles.
And what about the two external factors?
The two external factors are the dealers and spare parts. The big challenge for me is the service network at the moment. At present, around 700,000 GM cars are plying on the Indian roads. What I need to do is maintain a service network of 180 outlets so that my customers don’t suffer. We have 190 customer touch points across the country right now, but since the agreement with most of the dealers will end in December 2017, some of them will leave and some will stay. Out of these, 47 dealer partners have committed that will stay with us, but we’re still in talks with the rest. There’s a lot of effort going on at the moment, and we don’t have much time left.
So what happens if a dealer doesn’t renew their contract? Where do customers take their cars for service from January 2018 in that case?
If a current authorized service operation (ASO) doesn’t renew the contract with us, we’ll try and put another guy in his place well before the deadline. These will mostly be independent, multi-brand service centres and we’re already in talks with many of these guys in different cities. Once appointed they’ll get Chevrolet ASO tag and we’ll supply all the spare parts. Not to mention, these guys will get more business and a better brand image, meaning they also want to cash in on this opportunity. The only challenge for us right now is to provide them with the right tools and training, and the latter takes anywhere between 3-4 months. So we need to get them on board at the earliest. Also, some of the dealers will be moving to other brands, but will still maintain a Chevrolet service centre. In fact, some of them have done it already. And if you think about it, that helps bring more business to them in the long run - the current Chevy customers will want to buy a new car, so if you build a good relationship with these customers, chances are that they might as well buy a new car from your new outlet.
If a dealer renews the contract, does he have to commit for the next 10 years?
No, it’s not like that. You need to put yourself in the dealer’s position to understand this. If my dealer wants to tie up with another brand in the future, he may not want to continue with me for that long, which is all fair. And with new brands like Kia and MG Motors stepping into the country in the next two years, most of our dealers are in ‘hibernation mode’ and would want to partner with the newcomers. Keeping that in mind, the contract with us will be of three years with a three month termination period. This means, if a dealer wants to quit in the middle of his contract, he can do that as well. In return, this also buys us more time to strengthen our service network with other independent service stations in case a dealer leaves our business midway.
How do you plan to ensure the availability of spare parts in the coming years?
Again, that’s a big challenge but we’re working on it. It’s a two-part process – in-house and suppliers. In-house parts are mainly all the body parts. For example, the Halol plant used to produce the Tavera and we still have a large number of spare parts for the car, so it won’t be a problem in the distant future. Then there are fast moving items likes brake pads or filters, which the suppliers will continue to produce for our cars. But then, there are some parts that are critical but don’t have high volumes. In this case, a supplier may not want to produce these parts since the demand is low and they also don’t get OE business from us anymore. What we do in this case is we do an “all-time buy”. We estimate the demand for the next 10 years and buy them from the supplier in one go and then store it. That’s a gigantic task if you ask me because storing these parts is not all that easy. But we have made all the necessary arrangements in our warehouses. In addition to that, some parts will have to be imported from China.
But the prices of the parts shouldn’t go up for the customers, right?
It shouldn’t, but then there’s a catch. With such low volumes, a supplier may increase the spare part prices and we can’t do anything about it. However, we’ll cut our as well as the dealer’s margin here or there so that the customer doesn’t suffer and prices remain more or less the same. That’s the aim.
In 2013, Chevrolet recalled over 1.14 lakh Tavera models over an emissions issue, are all of those cars fixed?
Almost half of them have been fixed and some are no longer on the road since they were being heavily used for commercial purposes and have been retired now, especially the 2005-2008 BS-III variants. Now the problem I am facing is that I do not have the data for the customers of the unfixed vehicles for one or the other reason. We asked the Ministry of Road & Transport Industry and they said they’ll happily provide us with the customer records of around 54,000 vehicles. We've obtained the data from the ministry and are committed to fixing these cars. Will we able to fix them all? We're trying our best, and, hopefully, we'll be able to do that.
Any compensation or scrappage policy for your customers?
There’s no scrappage policy or compensation programme that’s planned at the moment.
What exactly forced GM to exit India – the country that’s touted to become the third largest car market in the world over the next decade or so?
Let me tell you that General Motors thought long and hard about this and it wasn’t a last minute decision. What GM has done is that they have looked at their global business to see where do we actually make money? And then we listed down the markets where we have incurred losses for a considerable period of time and decided to move out from these locations. India is not the first market that we're leaving - GM left Europe, South Africa and Kenya for the same reason as well.
At end of the day, it boiled down to just one thing - do we have a business model that works or not? If you look into GM’s India operations, our current business plan hasn’t worked here and we’ve been incurring huge losses for the past two decades. You’ve got three options when you find yourself in such a predicament - either you turn your business around, or continue losing money, or exit the market altogether. We felt getting out of India was the best option for us.
Was it not worth the effort then to change your strategy for the Indian market and stay here for longer?
You see, if you’re a company like GM that has got limited funds, you need to see where you want to place your bets. So, we had two options – should we develop a new product line-up for the Indian market, or invest the same money in developing autonomous cars? Since GM has limited resources, we chose to go ahead with autonomous driving and electric cars development - which is definitely the next big thing - instead of revamping our business model in India. And if you looked at our current model line-up, it’d require a huge investment to turn it around – all of our products were outdated and we had to start from the scratch. For GM, it wasn't a feasible idea.