Financial Daily from THE HINDU group of publications
Saturday, May 21, 2005
Financial Daily from THE HINDU group of publications Saturday, May 21, 2005 |
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Corporate
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Outlook `Tata Motors not racing to bag MG Rover' Shyam G. Menon
The Rover factory in Longbridge, Birmingham.
Mumbai , May 20 FIVE years since BMW sold MG Rover for £10 to Phoenix Venture Holdings, the sole surviving British marquee in mass produced cars is back at the crossroads. MG Rover's current administrators have reportedly said there are expressions of interest for the troubled company, with a trio of Iranian car firms meriting speculation as candidates. Albeit unclear, it was the first time companies such as Khodro, Saipa and Dastaan featured in the media on an international acquisition opportunity. Last month, BBC, in an article on its Web site, mentioned Tata Motors and China Brilliance as potential partners for MG Rover in the past before the firm caved in when talks with Shanghai Automotive Industry Corp (SAIC) came a cropper. The Tatas had an arrangement with MG Rover to supply a modified version of the Indica, badged for UK-sale as the City Rover. While the Indian company has said that its dues for cars shipped to the UK were met, it has not followed up the erstwhile supply contract with any expression of interest for MG Rover or its parts. A senior company official confirmed on Tuesday that Tata Motors was not part of any of the interested parties cited by MG Rover's current administrators. SAIC's name has appeared frequently of late in inter-company dalliances and acquisition opportunities, and Iran's auto companies are doing similar service to their image by turning up in efforts to salvage MG Rover. In South-East Asia, Malaysia's Proton had pieced together a high-profile motoring mosaic, acquiring Lotus in 1996 and a controlling stake in motorcycle manufacturer MV Augusta last year. Away from Asia, but in a similar vein, British sports car marquee, TVR, was bought by the 23-year-old Russian millionaire, Mr Nikolay Smolensky. Where does this aggression and brand-building leave Tata Motors? Is the company, which once showcased a sports car concept on the Indica platform, letting opportunities go by? "The products we make fall in the category of value-oriented, mass-market cars," the official said. At Tata Motors, talk of its future appeared driven by that core competence and the allocation of limited resources. MG Rover, despite ownership of select models lost to SAIC, would still have the MG sports car range and the Powertrain business. But, as the official pointed out, even if it added value, it is one thing to acquire a brand, another to invest and sustain it without disturbing the brand's unique DNA. As for engine manufacturing capacities, scale would be a pre-requisite for a player like Tata Motors. "Undoubtedly, Rover has a strong legacy and long tradition of excellence in engineering in the British auto industry. However, at this point we are not considering the acquisition of any Rover-owned division or facility," the company said in an official response to Business Line's query. In casual conversation with Tata officials, names that slip out as industry leaders to emulate are Toyota and Honda. Both have played a focused business game, kept their sights on targets, invested in technological abilities and grown steadily. A taste of Tata Motors' own approach can be had from its projected capital expenditure of Rs 1,400-1,500 crore for 2005-2006, which includes further investment at its Engineering Research Centre (ERC). Roughly 85 per cent of that capital expenditure has been allocated to the passenger car and commercial vehicles business unit with 40 per cent therein earmarked for product development. The balance 15 per cent (Rs 210-225 crore) would be ploughed into ERC. According to the company official, the ERC is bustling with activity, handling as it does a complete re-haul of the company's product range from trucks to cars, utility vehicles and the Rs 1-lakh car. "Among centres of its kind, the ERC would qualify to be one of the busiest in the automobile industry worldwide," he said. Its future growth is hinged towards handling a bigger scale of R&D, building critical competence and enhancing the ERC team's ability to innovate. There have been overtures from industry names abroad to co-operate on product development. Industry experts Graeme P. Maxton and John Wormald noted in their book, Time for a Model Change, "Tata Engineering boasts engine testing expertise with the capability to meet the latest European emission standards, crash testing facilities, a high-speed track and an NVH laboratory. Pulling on India's already world-class software industry, the company had set up an extensive CAD/CAM design house. There were also in-house tool-making facilities and a depth of engineering skills that would be the envy of many more established carmakers." In the authors' assessment, the Pune-based company along with two or more from China should make it to the big league in the decades ahead, even as many of the established industry majors struggle and a few bite the dust. Which explains in part the subdued interest at Bombay House for opportunities floating up in the auto industry's global churn, like MG Rover. Ingesting the effort of growth into one's brand is possibly more important than acquiring one. "Today, the industry is changing so much that there are seductive opportunities at every turn to divert your attention," the company official said. He did not, however, rule out the hidden merit in some of them.
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