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Tue, Jun 19, 2018 | Last Updated 6:00 am IST

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Automotive sector is currently least-loved in the S&P 500

Automotive sector is currently least-loved in the S&P 500
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Sources have stated that in a world where major automakers are losing their minds about the potential of the fast-growing Indian market, it's a refreshing change when a big player puts on its green eye-shades to take the contrarian view and that's the approach of General Motors Co., whose Chief Executive Officer Mary Barra is scrapping a $1 billion investment in India and halting sales of Chevrolet models there altogether.

It was stated that thin profit margins in the market overwhelmingly dominated by Maruti Suzuki India Ltd., with a 47 percent share could weigh on GM globally for years to come, she told Bloomberg Business Week's, David Welch and it takes guts to quit a market that's expected to be the world's biggest in about four years, but the automotive sector is currently the least-loved in the S&P 500. Barra's focus on profitability is the sort of bold move that might inject a bit of spine into those limp valuations. Nonetheless, she's making a mistake.

Automotive sector is currently least-loved in the S&P 500

Without the doubt, Maruti Suzuki's size presents a fearsome obstacle to new entrants. It's close to impossible to take on such a dominant player without undercutting it on margin, and Maruti's operating profits have averaged 9.3 percent of sales over the past 10 years pretty much in the middle of the 9 percent-to-10 percent range that Barra wants to achieve company-wide by 2020. Almost by definition, GM could only grow in India by giving up profitability on a global scale.

Currently Volkswagen AG now counts China as its biggest region, with more than a third of deliveries. It's looking to repeat the trick in India, announcing a partnership with Tata Motors in March. The other two 10 million-cars-a-year automakers are heading in the same direction, with Toyota Motor Corp. last year partnering with Suzuki Motor Corp. to give it an entree with Maruti, and the Renault-Nissan Alliance building on its tie-up with Mitsubishi Motors Corp.

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