【By Observer Net, Pan Yuchen; Editor: Gao Xin】As the world's most populous country and the third-largest automotive market, India has always been highly attractive to multinational automakers. However, for many companies entering the Indian market for the first time, it is easy to get in, but difficult to get out.

According to a report by the Wall Street Journal, General Motors (GM) announced in 2017 that it would stop selling cars in India and closed its last factory in the country in 2020, but it wasn't until last year that it had largely exited India. Its experience serves as a warning to other companies doing business in India.

The Pune factory that GM tried to sell took four years, Wall Street Journal

Lost $1 billion over 20 years

As early as the late 1920s, General Motors had already set up factories in Mumbai, India, and sold Chevrolet brand cars. However, after World War II and independence, India began to protect its domestic automobile industry. By 1954, foreign automakers were forced to completely exit the Indian market.

It was not until 1993, when the Indian government adjusted its policies, that foreign automakers gradually returned to India, with General Motors returning to India in 1995. However, General Motors' product line focused on large vehicles, which did not fit well in India's market dominated by cheap mini-cars.

Analysts said that the decision to exit the Indian market was part of General Motors' strategy to reduce losses in international operations and invest in electric vehicles. According to legal documents, the company operated in India for 20 years, suffering losses exceeding $1 billion (approximately RMB 7.1 billion).

According to former executives, the sale of the factory in Gujarat, western India, was relatively smooth after GM announced the shutdown in 2017, as GM proposed transferring workers to another factory in Pune, Maharashtra. However, the sale of the Pune factory dragged on for four years.

Unions Rise Up

General Motors first tried to sell the Pune factory to a Chinese automaker, Great Wall Motor. However, the New Delhi authorities refused to grant permission.

Then, in December of the same year, General Motors announced the shutdown and applied to close the factory. The labor minister of Maharashtra quickly rejected the request and stated that the company could restart operations while bearing the losses.

The office of the state labor commissioner issued a statement saying that if workers accused General Motors of trying to circumvent labor protection laws during the factory closure, the state government would submit the dispute to an industrial court according to law.

However, General Motors' executives said that the union refused to negotiate and continuously submitted petitions to the court. According to Indian labor laws, General Motors had to pay workers about one year's salary, in addition to the severance package provided by the company, after firing the factory workers. The court also ruled that the company must continue paying half the wages to the workers until the dispute is resolved.

Prajot Gaonkar, the former head of employee relations at General Motors India, said the company initially didn't expect the situation to become so bad, and the union's hostility toward the company was shocking because the company had maintained good working relationships with employees for decades and offered generous severance packages, including 110 days of salary for each year of service.

In 2017, General Motors announced the suspension of the Chevrolet brand in India, leading local dealers to protest, Wall Street Journal

However, the local unions demanded that General Motors either reopen the factory and rehire all workers, guaranteeing them jobs, or provide severance pay, full wages, and medical benefits until retirement age.

This labor dispute even scared away several potential buyers - they didn't want to inherit these problems. To alleviate people's concerns, General Motors tried to have workers sign an agreement waiving their right to sue in exchange for compensation, but ultimately failed.

Finally, in 2023, the Pune Industrial Court ruled that General Motors had the right to close the factory. However, the union still appealed to the Bombay High Court, with some members going on a hunger strike along with politicians from the opposition party, drawing significant attention. The Bombay High Court upheld the industrial court's ruling six months later.

Executives said that the union eventually came to the negotiation table, agreeing to withdraw all lawsuits in exchange for the severance package offered from the beginning. Soon after the court ruling, Hyundai Motor of South Korea also announced the acquisition of the factory.

"Zombie Company"

Sandeep Bhegade, the former head of the union at General Motors' Pune factory, said that General Motors treated the workers quite well. However, union members were worried whether they could find another high-paying job, so they strongly opposed the factory closure.

Moreover, Indian government departments often do not want to see investors leave. For example, the Maharashtra government refused to link the case of closing the General Motors factory to regulatory obstacles, and in addition to backing it up with the Labor Law, it also attributed it to geopolitical issues.

"Exit barriers are a key reason for underdeveloped manufacturing in India," said Shoumitro Chatterjee, assistant professor of international economics at Johns Hopkins University. These barriers not only increase the cost for companies to enter the Indian market, but also hinder the development of companies.

Residual signs of General Motors in the Pune factory, Wall Street Journal

In a co-authored paper, Chatterjee cited government data showing that, on average, it takes 4.3 years to fully close a factory in India; compared to 1 year in Singapore, 15 months in Germany, and 1–2 years in the UK. Moreover, India is among the countries with the lowest factory closure rates, with only 3% of factories closing annually. In comparison, more than 17% of factories close each year in Vietnam, and 9% in the United States.

But this does not mean that India's manufacturing ecosystem is very healthy: about 20% of existing manufacturing companies in India absorb capital without producing anything - effectively similar to zombie companies.

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Original: https://www.toutiao.com/article/7553101886935171610/

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