Why SAIC Motor's cars could be out in India earlier thanks to takeover of GM's Halol plant

Key highlights:

• SAIC Motor will take over General Motors' Halol plant in Gujarat
• GM had shut down operations in April this year
• SAIC Motor will now invest Rs 2,000 crore in the Halol plant

For Chinese automobile company SAIC Motor's, the timing could not have been better to enter into the Indian market. The company had announced recently that it was planning to set up a manufacturing plant in India, now will take over General Motors' (GM) India's Halol plant in Gujarat.

The Chinese automobile company has firmed up plans for starting its manufacturing plant at GM India's Halol unit, where operations had shut down in April this year, according to a Business Standard report. This as GM announced in May this year that it is exiting the India's domestic market.

The report further said that SAIC's Indian subsidiary MG Motor India on Wednesday had signed a memorandum of understanding (MoU) with the Gujarat government and GM India for the transfer of the land lease out to the company for the facility.

SAIC Motor at the end of June announced its plan to enter the Indian automobile market through a fully-owned car manufacturing facility in the country. It said that it will commence operations in the country in 2019.

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The company is in the process of finalising its manufacturing facility and is firming up its product strategy for the Indian market, details of which will be announced at a later stage.

This new development could mean that SAIC Motor could start production as early as this year and could even see its subsidiary MG Motor's cars out in the market by sometime next year.

However, SAIC Motor took the opportunity of GM's exit from the market and use it to its advantage. While for GM it is an opportunity to sell off its manufacturing facility easily and recover some of the investment it put into it, not to mention the around 1,600 workers employed at the plant.

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It bodes well for SAIC Motor as it the automobile company had to invest a lot of money if it had to it from scratch as it would have to pump in investment into leasing the land, getting permissions and setting up the manufacturing facility.

SAIC Motor will now invest Rs 2,000 crore in the Halol plant and will employ around 1,000 people, said the report. Besides this, around five global vendors of the company are likely to set up their manufacturing base at the same site and is likely to entail an investment of another Rs 1,000 crore, said the report.

The Halol plant used to produce the Tavera, Enjoy and Cruze and handled 120-130 cars per day towards the end. GM in mid-2015 had decided to shut down the Halol plant as it decided to invest Rs 6,400 crore into its Talegaon plant in Pune.

The Halol plant has a production capacity of 1,10,000 units and is spread over an area of 172 acres and was allotted in 1996. It is located about 40 km off Vadodara and was leased to GM by the Gujarat Industrial Development Corporation (GIDC). The remaining lease period is more than 65 years.

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GM had submitted a closure application to the state government in September 2015. However, the company put the closure application on hold as it was in talks with prospective buyers for the plant. It had already started talks with SAIC Motor to sell the plant.