Why General Motors is unable to shut its Gujarat plant as per schedule

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New Delhi: High exit costs, a bunch of litigation and hurdles in a potential sale to its Chinese partner have forced General Motors India to defer the proposed shuttering of Halol plant that makes the Beat hatchback, Cruze sedans and Tavera compact sport utility vehicles (SUVs), three people familiar with the matter said.

The state government, which gave GM India 172 acres of farm land in 1996 under the condition that it employ the displaced farmers, is willing to take back the land, provided the company pays the market price for it, these people said. Not an exciting prospect for a company with accumulated losses of around $1 billion.

SAIC Motor Corp. of China, which kept GM India afloat while its parent, General Motors Inc., filed for bankruptcy protection in 2009, has agreed to step in again, but it wants a clean slate and tax incentives, and there is little progress of either front, the people cited above said.

Making matters worse, the Indian unit of the US auto maker is fighting three cases in the Board for Industrial and Financial Reconstruction (BIFR), one in the Gujarat Industrial Tribunal and another in the Gandhinagar high court.

“They were not given permission to shut down the plant. The state government has made it amply clear,” said Nihil Mehta, general secretary of the Gujarat Kamdar Mandal that represents 900 workers at GM’s plant. “Those who have gone to the Talegaon plant will have to come back,” Mehta said over the phone on Friday, referring to employees GM India had relocated to its plant near Pune.

While GM had said it has identified around 200 workers who will move to the Talegaon plant, where it is expanding operations with $1 billion investment, only 30 supervisors have shifted base, Mehta said.

At least 1,200 workers at Halol were offered voluntary retirement; but even though the package is generous, and in line with a new labour ministry proposal to pay 45 days of salary for every completed year, there are few who agreed to the proposal, according to Mehta.

A GM spokeswoman declined to respond to specific questions emailed by Mint on Monday. “We don’t respond to speculation,” she said.

Under a plan announced on 29 July 2015 during a high-profile visit by GM global chief executive Mary Barra when she first met Prime Minister Narendra Modi and intimated him about her plans, the Halol plant was scheduled to close by 30 June 2016. However, in a press statement on Thursday, the Indian unit said that it will extend production at its Halol assembly plant until March 2017, while “it continues to review future options for the site”, which include “an orderly transition for employees, suppliers and other stakeholders…”

The sale of the plant continues to be on the company’s agenda, but it now also includes an option of contract manufacturing, GM India president and managing director Kaher Kazem said in the statement.

Mehta of the workers’ union claimed that farmers who gave their land to the government, too, are against closing the plant.

“Farmers also protested against the move,” Mehta said.

SAIC, GM’s long-time joint venture partner in China, picked up a 9% stake in GM’s Indian unit and prevented the local subsidiary’s closure when GM filed for bankruptcy. GM India bought back the stake in 2013, but the Chinese company is keen on full-fledged operation in India, said the second of the three people quoted above who is directly aware of the matter. The Chinese company is willing to buy the plant, but without the liabilities, and with tax incentives.

“Even as GM continues to sort out issues at the plant, SAIC has started to look for other options, which include setting up a greenfield facility,” this person said requesting anonymity. SAIC is also talking with the governments of Tamil Nadu, Andhra Pradesh and Maharashtra to set up a manufacturing unit, but it has not ruled out the possibility of having a contract manufacturing agreement with GM, this person added.

The third of the three people quoted above, who is also familiar with the matter, said that the Chinese company has already started to do product clinics in the country.

According to Mehta of Gujarat Kamdar Mandal, SAIC’s interest in the Halol plant started to decline after the state government refused to offer 50% tax holiday on the plant for the next 15 years.

“You have already availed of benefits as a joint venture partner and even your partner has availed of benefits for 20 years. How do you expect the government to extend those benefits yet again?” Mehta said.

To be sure, this also comes as a setback for Barra, who is on a personal mission to cut losses at GM. In making Barra the company’s first female chairman, the board of GM provided an endorsement of her two years in the leadership and revival of the car maker. Barra, who rose through the ranks in GM to succeed Tim Solso, was at the helm of affairs since January 2014.

In the last few years, the company has announced the closure of at least four manufacturing facilities globally, including India.

It closed its St. Petersburg plant in Russia, which employs 1,000 people, last year.

Oshawa plant in Canada is also expected to shut by 2017, which may cost about 1,000 employees their jobs in November.

Its Elizabeth plant in South Australia is also expected to close by 2017, while Opelwerk Bochum plant in Germany was shut in 2014. To be sure, the discussions about the Australian and German plants began way before Barra took over.