Capacity Planning at General Motors India

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Case Details:

Case Code : OPER100
Case Length : 16 Pages
Period : 2007-2011
Organization : General Motors
Pub Date : 2012
Teaching Note :Available
Countries : India
Industry : Automotive

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Capacity limitation was the main reason for lower Spark sales. It was not the best strategy a company in GM India’s position should have adopted. You need to have the product available in the showroom."

- Mohit Arora, Senior Director, JD Power Asia-Pacific1, in 2007

When General Motors India Private Ltd. (GMI) launched its small car 'Chevrolet Spark' on April 17, 2007, it intensified the price war in the small car segment. GMI, the Indian subsidiary of one of the world's largest car manufacturers General Motors Company, priced the basic model at Rs.2 309,000, nearly Rs.12,000 less than the Zen Estilo from its closest competitor, Maruti Suzuki3. However, despite a sparkling debut, a major campaign, and the media glitz that was planned to last a year, the Spark failed to ignite GMI's fortunes. Prior to this launch, the company was way down in terms of media voice, market share, product line up, and capacity constraints, and was badly affected by the phase-out of its once popular Opel brand.

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Moreover, due to capacity constraints, Spark was offered only in the northern and western parts of the country. While GMI hoped to increase its revenues with the launch of the Spark, its sales failed to live up to expectations. However, it managed to bag some prestigious awards like the J.D. Power Initial Quality Study (IQS) Award for four consecutive years from 2007 for its top quality features. The Spark also began receiving rave reviews from auto experts and consumers for its comfort and performance and GM recorded an annual growth of 68% in 2007. To overcome the existing capacity constraints, the company had built a facility at Talegaon in Maharashtra by 2009. As a result, there was a reversal of the situation and the company had excess production capacity. With excess capacity, GMI planned to extend its portfolio. However, during 2010-2011, its production facilities in Gujarat faced labor unrest and the company was left with production losses. GMI, therefore, proposed to lay off some of its employees at its plants. With such problems surfacing, industry observers feared that GMI might again face capacity constraints.

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1] Founded in October, 1990, J.D.Power Asia Pacific, Inc. is a subsidiary of J.D.Power and Associates. J.D. Power and Associates is a global marketing information services firm founded in 1968 by James David Power III. The firm conducts surveys of customer satisfaction, product quality, and buyer behavior for industries ranging from cars to marketing and advertising firms. The company is a business unit of the Information and Media Group of McGraw-Hill, who purchased it from James David Power III in April 2005. The firm is headquartered in Thousand Oaks, California. J.D.Power Asia Pacific is based in Japan.
2] US$1 = Rs. 49.50 as on 28 October, 2011.
3] Maruti Suzuki India Limited is a subsidiary company of Japanese automaker Suzuki Motor Corporation. It is India's largest passenger car company, accounting for over 45% of the domestic car market. The company offers a complete range of cars from the entry level Maruti 800 and Alto, to hatchback Ritz, A-Star, Swift, Wagon-R, Estillo, and sedans DZire, SX4, in the 'C' segment Maruti Eeco and Sports Utility vehicle Grand Vitara.

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