GM, Fiat deal to cause ripples in Indian market

Moreover, with General Motors racing ahead of competition to buy financially beleaguered Daewoo Motors in Seoul, the US multinational will become one of India’s major automobile company after Maruti Udyog.

Under the accord signed on Monday, GM will acquire a 20 per cent stake in Fiat Auto in exchange for $ 2.4 billion in GM’s common stock. Fiat will take a stake of some 5.1 per cent in the Detroit giant, becoming its largest single shareholder.

“This accord will fuel other companies operating in India like Ford, and Hyundai to look out for partnerships,” said a Mumbai-based automobile company director. Even the market leader Maruti will have to re-think its strategy as the combined strength of GM, Daewoo and Fiat would be too much for other Indian companies to ignore, he added.

Though both Fiat and GM plan to compete at the market place in the initial stages, analysts expect both companies to eventually go for a total merger as it would result in significant savings.

Home-grown car makers like Telco and Hindustan Motors, and Mahindra and Mahindra will feel the maximum heat and will have to look for partners to create volumes which would ultimately result in margins. “Consolidation of the auto industry has already begun world-wide with major tie ups, Indian companies can ignore this at their own peril,” said a Fiat official.

In fact, investments in new models and creating infrastructure could become cheaper and companies can save money by joining hands which is causing a major drain for resources for both Telco and M&M which are spesding heavily on new models.

In the past year, GM has bought or increased stakes in Japanese automakers Isuzu Motors, Suzuki Motor and Fuji Heavy Industries, which makes Subaru cars. In India, GM sells only 11,000 cars but with eventual takeover of Daewoo, which will sell over 39,000 cars in the current fiscal in India, and Fiat’s 50,000 volumes per annum, it would pip Hyundai as number two auto company.