Tata Motors — Rescued to the rescue

The year 2008 saw two important events unfold in Tata Motors’ passenger car business. The first was the unforgettable sight of Ratan Tata unveiling the Nano at the Delhi Auto Expo in January. Less than six months later, the company acquired British brands Jaguar and Land Rover (JLR) for $2.5 billion, which was a huge leap from producing a Rs 1-lakh car for the masses.

Even Nostradamus may have had problems predicting the road ahead for Tata Motors five years ago. At that point in time, the Nano had caught the fancy of the global automobile market with top guns like Carlos Ghosn, the CEO of Renault-Nissan, convinced that here was a revolution in the making. On the other hand, the JLR acquisitions had the pundits in a state of despair. How would a company like Tata Motors, with less than a decade’s experience in making cars, cope with the challenge of turning around a global luxury brand?

Well, the answers are there for all to see. Today, it is JLR that is keeping Tata Motors’ passenger vehicle business afloat, while the Nano has completely lost its way in the market. In fact, the company has its work cut out in turning around its domestic operations with sales of its cars and SUVs little to write home about.

Losing out to M&M This is what prompted Ratan Tata to call a spade a spade in his last AGM as Chairman of Tata Motors. “I have a great respect for what Mahindra & Mahindra has been able to do. I also have a certain degree of sadness and shame that we have let that happen,” he told shareholders last year.

Tata was referring to the passenger vehicle business losing out to M&M after being comfortably ahead for many years. In a way, it was waiting to happen, especially with M&M focused on its core business of SUVs, and Tata Motors had lost sight of its Sumo while devoting all its energies to the more exciting Nano.

Little wonder that the failure of the car hit Ratan Tata hard considering that he was so passionately involved with its creation. Its Rs 1-lakh price tag, when the project was first made public, made headlines across the world, but this USP eventually ended up being the albatross around its neck. As Tata admitted recently in a TV interview, the Nano’s ‘cheap car’ tag deterred potential buyers.

Now, compare this to JLR where almost everyone thought that Tata Motors was paying through its nose to acquire these British brands, which had clearly seen better days. The cynics were only vindicated when the global slowdown of 2009 made things worse and JLR had loads of debt on its books and was up against labour issues in its UK plants. The only person who insisted that things would eventually look up was Ratan Tata.

Today, JLR is working out an aggressive roadmap, which includes setting up a new plant in Brazil and building volumes in China that accounts for nearly 25 per cent of its numbers. Business is back on track across North America and Europe, while Brazil is expected to give a huge fillip to volumes in Latin America. The secret of the JLR revival story is constant investment in product development, coupled with a keen business sense in tracking new markets.

Yet, the contrast with its owner’s domestic passenger vehicle business cannot be starker. Most young buyers in India are opting for products made by Japanese, Korean and American companies. The Nano, Indica, Indigo and Sumo are in dire need of an overhaul and this is precisely what Karl Slym, the MD of Tata Motors, and his team are striving with Horizon Next, the new generation of cars intended for global markets.

The cash cow The only challenge here is time and patience because the transition exercise will not take place overnight. The good thing, according to top industry sources, is that Tata Motors is “not running away from the problem” and is keen on getting it fixed. Till that time, it will rely more on JLR to keep the bottomline intact.

The other big worry relates to the commercial vehicle business, which has been in the midst of a slowdown for nearly 18 months now. As the market leader, the going is a lot harder for Tata Motors even as it gears up for a slew of launches over the next few months.

The revival of the CV segment is critical because it is the real cash cow and is the pillar for the company’s weaker passenger car business. It is for the first time in many years that both are doing badly and CVs, in particular, are bearing the brunt of a weak economy and rising diesel prices.

Unlike the past when Tata Motors was virtually the monarch of all it surveyed in CVs, with Leyland being the sole rival, there are a host of rivals zeroing in for a larger share of the pie.

The one which is especially aggressive is Bharat Benz, while the likes of Volvo-Eicher, Scania and MAN are slowly consolidating their base. Cyrus Mistry and his team at Tata Motors will have a lot on their plate during the course of this decade.

murali.gopalan@thehindu.co.in

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