GM Looking For Diesel Growth

| About: General Motors (GM)

By Stuart Burns

It is logical, I suppose, that General Motors (NYSE:GM) should invest its R&D dollars in India when developing a range of small, more efficient diesel engines. (Diesels have never caught on in the U.S. in the same way they have in much of the rest of the world.)

A Business Standard article quotes P. Balendran, GM’s VP of corporate affairs in India, saying diesel vehicles in India constitute around 42-45 percent of overall passenger vehicle sales today. But wherever petrol and diesel variants are both available, 80 percent of sales come from the diesel option. In some markets, like France, diesels account for more like 60 percent of all car sales; but in the U.S., they are, like hybrids, a minute fraction of total car sales.

GM is playing catch-up — it is late on the scene and, just looking at the current offerings for developing countries, it has some catching up to do in terms of fuel efficiency and performance. GM's only current Indian diesel is a 1-liter, 3-cylinder model used to power the compact Beat, which achieves about 56 mpg; compare that with VW’s 1.2-liter, 3-cylinder diesel used to power the BlueMotion Polo said to deliver well in excess of 70 mpg (actually 80, according to the manufacturer’s literature, but we would take that with a pinch of salt).

GM believes, probably with good justification, that diesel engines are the way to go for developing markets. Fuel efficiency is a driving consumer dynamic in developing-market car sales, at least at the volume end of the market, and cars are usually half the size of the average U.S. sedan. Small, more efficient and less-polluting diesels can be rugged and surprisingly civilized while also delivering fuel efficiency better than hybrids.

Nor is GM alone. Apart from Maruti Suzuki and Hyundai (OTC:HYMLF), Honda (NYSE:HMC) is said to be looking to introduce diesels to India in 2013, and possibly develop a new manufacturing operation there that would become a hub for exports to the region.

Honda’s R&D is well-advanced, though — the company is about to release a highly efficient 1.6-liter diesel for the European market made at the company’s Swindon plant in England, to power the 2012 Civic due later this year. The new diesel Civic will replace the current 2.2-liter model and is said to offer even better fuel efficiency than the near 70 mpg achievable by the current model, aided in part by the new engine. The new version is said to be the world’s lightest aluminum open-deck 1.6-liter diesel engine and a major threat to VW’s range.

Much of GM’s success since its restructuring has come from sales overseas. The U.S. has been a good market, but sales have still not returned to pre-crisis levels, whereas sales overseas have achieved double-digit growth. If GM is to continue to match the likes of VW, Honda and even Ford (NYSE:F) in developing markets, much may be pinned on the success of new diesel engine variants to be developed in India and elsewhere.