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Tata Motors shifts track with retail as its new mantra

Murali Gopalan | Updated on October 04, 2019

Guenter Butschek, CEO & MD, believes wholesale figures do not reflect the true picture

Guenter Butschek still remembers how the system of reporting wholesale vehicle sales numbers was a bit of a novelty to him when he moved to India four years ago.

“If there is something I found strange from my international experience, when I first came to India, was the wholesale reporting as I am not used to it,” admits the CEO & Managing Director of Tata Motors.

From his point of view, wholesale has nothing to do with the market situation or even a true reflection of it. “On the contrary, it camouflages market reality and you do not realise that there could be a problem (someday),” adds Butschek.

Retail drive

His worst fears have come true now with the prolonged slowdown in the auto industry except that the Tata Motors chief will still have reasons to feel pleased. Over the last few months, the company has been focussing on retail as part of an endeavour to be transparent and supportive of its extended ecosystem of suppliers and dealers.

According to Butschek, he had been “chasing my guys to report retail” which they said could only be provided by the dealers. “My point was that I would still appreciate it since this would mark a beginning and we would become more credible in the process,” he says.

After all, publishing official retail figures is pretty much the norm overseas quite unlike India where it is about how many units can be pushed “into the courtyard of the dealer”. It is Butschek’s view that what finally counts is “what has been given to the customer and literally operated in the market”. There are just no two ways about it, he insists.

Has this been one of the contributory factors for the present slowdown where surplus stocks have choked the pipeline? After all, nearly 300 dealerships have closed down over the last couple of years and the liquidity crunch has done little to alleviate the situation.

Butschek agrees that there is problem for sure though he does not quite subscribe to any reference to ‘crisis’ since it “is an extremely powerful word which comes with a host of negative associations”. The truth, however, is that demand has fallen and the slowdown has been longer lasting than any similar situation in the past with “nobody expecting it to last this long”.

The required adjustment by the industry has come a little too late too, says the Tata Motors chief. The fact that the business is generally reported as wholesale with the accompanying market rankings as a result have only ended up skewing the script. “This works well so long as the market is very strong and the stocks will eventually be in customers’ hands quickly without too much of a gap. Now imagine if the same demand situation is declining. When do you actually start adjusting your wholesale and change your push principle to a pull principle?” asks Butschek.

The better alternative

This was precisely when Tata Motors changed tracks and opted for retail as the better alternative to wholesale reporting. Its MD recalls how the decline in Q2 (July-Sept) last year had caused stocks to pile up across industry. This was when the banking crisis and NBFC volatility happened even while companies were hopeful that demand would pick up.

“We thought the crisis would not impact the industry and were confident about the festive season,” continues Butschek. That boom did not happen and Tata Motors went in for a block closure at its Sanand plant in November even though it did not make too much noise about it. After all, there was no point being perceived as cautious and pessimistic.

December 218 saw a slight recovery and prompted automakers to replenish stock levels since Q4 (Jan-March) is traditionally strong. This, however, did not turn out to be the case even though March was better with a slight recovery and “we thought the worst was behind us”.

The beginning of the new fiscal (April-June) is traditionally not so strong but still ended up being way below industry expectations. This was also the time when Tata Motors announced in the beginning of April at its dealer conference in Dubai that the time had come to shift focus from wholesale to retail.

Butschek was absolutely categorical that it was impossible to continue with pushing and it was time to move to pulling while keeping dealers in the loop constantly on replenishing stocks. “Obviously, if the vehicle does not stay too long with dealers and keeps moving to customers, it is fine but in a decline we need to make sure that this line of command does not break,” explains the Tata Motors MD.

It is a no-brainer that demand does not start with production but with retail. Hence, pumping vehicles into the network in order “to keep the metal going” was not going to help anyone’s cause. The better option was to unleash the cash by moving to retail while talking to dealers on volume expectations.

“It is an educated discussion quite unlike the past when stocks were pushed incessantly. Now it is a huge change in mindset from our side where we talk of dealer volume expectations and so on. We understand the demand structure and plan for the future,” says Butschek.

Downturn effect

He concedes that the downturn accelerated the thought process and today the Tata Motors team is in line with the new mantra of retail being the way forward. It assures more transparency and the company believes that it makes sense to “play with an open card”.

The bigger challenge though is to have all stakeholders come onboard which means other vehicle manufacturers should also be ready to embrace this idea. Apparently, the Society of Indian Automobile Manufacturers (SIAM) has been apprised by the Federation of Automobile Dealers Association (FADA) given that there is a huge gap between the sales reports put out by each of them. “We must move to retail since this is a truthful reflection of on-ground reality. Beyond the change in statistics, this will be a huge transition in credible information,” says Butschek. For this to happen, FADA, SIAM and ACMA (Automotive Component Manufacturers Association of India) should be on the same page eventually.

“To take the bull by the horns, we at Tata Motors had to shift to retail from wholesale,” he adds. Even if the company was the first to do so, the real change will happen when others also follow suit. “We are definitely positive and the purpose of this switch will only guide us better,” says Butschek.

It is also his firm view that everyone within the ecosystem will have to help each other in order to bring sanity and credibility all around. According to him, suppliers will also gain immensely from the viewpoint of planning better instead of coping with drastic order reductions overnight.

“Wholesale is the wrong mechanism and you cannot choke the dealer with stocks,” he says while pointing out that it is important to continue with retail even when the recovery happens. “It is about mirroring the ground reality of the market and the earlier this happens the better it is for all of us,” says Butschek.

Published on October 04, 2019

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