Horizonext Tata Motors’ new strategy

Management and workshop facili­ties need to be improved. It is an important learning for Tata Motors.

Meanwhile, for a long time, the company was selling cars to fleet customers, such as taxi operators and hotels, who have different pri­orities. A fleet customer looks for deals while individual car buyers focus on products and services. “So, we are improving the networking skills of employees, especially while selling cars to individuals, families and professionals,” says Pareek.

Pareek and his team have been striving to raise the company’s standards on all fronts including product quality, customer service and manufacturing. He appears satisfied with the outcome. In June 2015, Tata Motors’ passenger busi­ness grew at a robust 12.5 per cent. The industry actually shrunk by 0.54 per cent in the same month. “We are on a growth trajectory and will continue to grow every month,” he says. But not all num­bers are impressive.

Potholes

Tata Motors’ net profit for the fourth quarter of 2014/15 fell 56 per cent – worse than expected – and India’s largest automobile com­pany by revenue also held back dividends for the first time since 2002. While the company’s con­solidated revenue rose 13 per cent to 12.6 lakh crore in the last finan­cial year, profit remained flat at II 4,073 crore. In a body blow, the Indian unit made a standalone loss of 14,739 crore – largely a conse­quence of the bleeding PV business. ButJLR recorded an 8.5 per cent rise in profits to £2 billion (nearly 120,000 crore) despite slowing de-

Horizonext

Tata Motors’ new strategy

Intense Product Focus
The company plans a bevy of
launches for the global market
There are a slew of new products
in the pipeline

World-class

Manufacturing

The company is focusing on quality to take on competition. It claims that rigorous quality assur­ance processes, based on global best practices, have been initiated

Changing Priorities
With the launch of its compact
sedan Zest and premium hatchback
Bolt, Tata Motors took a strategic
decision that new passenger vehicle
products will only target the
personal segment. The company will
open 1,500 outlets, adding 200 this
year alone, to boost market share

Improving Service Standards All customer-related concerns need to be resolved at the dealer level within 24 hours of the complaint being filed. If any issue remains unresolved, the management will directly look into the matter

mand for luxury cars in China.

Tata Motors’ PV products have failed to create an impact in India and that is the primary reason for its financial woes, according to V.K. Vijayakumar, Investment Strategist, Geojit BNP Paribas Financial Services. “They thought they could piggy ride on Nano for growing the numbers in the first half of this decade. But all their ef­forts to revamp Nano (with models like Twist) failed to attract buyers.”

A gross debt of 173,610 crore in 2014/15 is the other major worry for the automaker, a steep rise from 160,642 crore in 2013/14. This was largely because Mistry was advised to persist with capital ex­penditure (capex) plans for turning the wheels of fortune in the com­pany’s favour. The capex and prod­uct development spend during the last financial year was 137,912 crore, including £3.1 billion (around 131,000 crore) at JLR. Cash and bank balance (including mu­tual funds) stood at 146,174 crore.

Vijay Somaiya, Vice President and Head of Treasury and Investor Relations at Tata Motors, says the company will reduce the debt by some 14,000 crore by August  Sarkari Naukri latest news. The automaker will use the proceeds of its 17,490 crore rights issue to retire debt. “The rights issue proceeds are in fixed deposits. We will redeem the deposits when debt maturity comes up,” he says. The Indian unit is also going for product development in a big way.

Vinayak S. Bapat, President and CEO, VXL Consulting believes that the bill for the JLR acquisition – the company paid $2.3 billion to Ford Motor Co in 2008 for the British brands – still hurts the Indian busi-

 

TOTAL INCOME

2005                                                 2015

 

DEBT

2005                                                 2015

 

ness financially. “JLR has enough cash on its books. The Indian unit has also paid for the acquisition. Then, why can’t we take back the free cash to reduce the debt?” JLR has a debt of £2.5 billion. However, cash reserves stood at £4.3 billion. In addition, it has undrawn credits to the tune of £1.5 billion.

But JLR has ambitious invest­ment plans lined up. It plans an in-

PROFIT AFTERTAX

 

INTEREST PAID

2005                                                 2015

Figures in ? crore; Source: CMIE Prowess S company

 

vestment of £3.6 billion to £3.8 billion in this financial year to grow its footprint in China, Brazil and Russia, in addition to the European markets. JLR chief Ralf Speth says the company will spend £400 mil­lion for manufacturing Jaguar XF and aims to make it a landmark product. “We are ramping up the sales of the new Jaguar XE now. After the XF, 16MY Evoque and

F-PACE will be launched in early 2016,” he says. “We are using our entire capacity. There is shortage in supply compared to the demand of JLR vehicles. For that we are looking at expansion.”

Reinventing Tata Motors

After the sudden demise of Karl Slym, former chief executive of Tata Motors in January 2014, Mistry has been spending a substantial chunk of his time and bandwidth in reviv­ing the company and ensuring in­novation in technology, design, marketing and after-sales service. The company launched two new products – Zest and Bolt – last year as part of its new strategy. In 2015, it has unveiled a refurbished ver­sion of Nano, GenX Nano.

The car maker has taken sev­eral steps to improve the quality of vehicles as part of its ‘HorizonNext’ strategy. The manufacturing and engineering processes have changed, asserts a Tata Motors spokesperson. “At Tata Motors, we are in the process of developing multiple new platforms in line with market requirements and con­stantly working towards improving the performance and reliability of our existing ones. Besides products, we have also developed a host of innovative service offerings, along with various technological up­grades,” adds the spokesperson.

The ‘HorizonNext’ strategy, in­troduced in June 2013, has focused on new launches. Tata Motors has unveiled eight improved and en­hanced vehicles across five key brands including Nano Twist, Zest. Bolt, GenX Nano and the Safari Storme Refresh. The launch of Zest and Bolt – designed with inputs from Tata Motors’ design centres in the UK, Italy and India (Pune) – has revived the demand for Tata cars and there is consistent rise in month-on-month sales of PVs. In the first five months of this year (January-May), the overall sales of Tata Motors’ PVs rose 20 per cent to

 

©——————————–

I Interview with Ravindra Pisharodyat

~[ businesstoday.in/tata-pisharody

 

64,261 units over the same period last year. Moreover, Mistry wants to continue with at least two pas­senger vehicle launches every year until 2020. Typically, new models usher growth, says a Maruti Suzuki spokesperson. “In fact, all original equipment manufacturers (OEMs) that brought new models in the last financial year benefited and grew in the market,” says the spokesperson.

Meanwhile, the Indian unit of Tata Motors has also learnt from JLR. “We learnt processes from ILR but not shared any technology,” says Pareek. Speth of JLR points out that the synergy can’t go beyond processes because the business and science of luxury cars is completely different from that of mass vehicles.

Tata Motors has also introduced Forward Model Quality (FMQ) and Launch Quality Operating System (LQOS) programmes to boost sales. The FMQ team works closely with design and development teams, right from the early stages of the product evolution. The idea is to design a product keeping in mind the changing needs and demands of

the end customer.

The LQOS process ensures that teams involved in product develop­ment, manufacturing, material planning and logistics, partner for steady new products launches. The company claims that the quality and finish of the vehicles improved as a result of these initiatives.

Another hurdle along the way is the poor brand perception of the Tata vehicles and needs to be changed. It will be possible only by launching blockbuster products. Historically, Tata Motors has been a late entrant in many categories and missed developing trend-set­ting products like Scorpio, Innova, Honda City and Renault Duster. Such products will dramatically alter the perception about Tata products, say sev­eral brand specialists.

Kaushik Madhavan, head of automotive and transportation practice.

Frost & Sullivan, a glo­
bal consulting firm, says there will be opportunities in compact SUV, crossover and sedan categories. The margins are better in these prod­ucts. Competition will rise in the hatchback segment since new transmission technologies (which control the speed of the vehicle) will play a major role in luring custom­ers. Global carmakers such as Volkswagen and Ford have intro­duced sporty but expensive dual­clutch transmission (DCT) but Japanese companies Honda and Nissan have opted for the fuel-effi­cient continuously variable transmission (CVT). “For fighting them, Tatas have cho­sen the cost-effective and fuel-efficient mass market technology, automated manual transmission (AMT). Zest is an AMT ma­chine, while Maruti uses it in Celerio and Alto K-10,” says Madhavan. AMT is an auto gear shift technology.

August 2 2015 BUSINESS TODAY 53

Downhill Ride

Tata Motors’s passenger vehicle
market share has shrunk in the
past decade

MARUTI SUZUKI

r3 1.78 %]
2004/05 r

 

HYUNDAI

 

 

17.53% 16.17%

MAHINDRA & MAHINDRA

8.61%

HONDA

6.36%                         7.27%

TATA MOTORS

6.22%

TOYOTA

6.48%                         5.43%

FORD

3.45%                         2.86%

Source: SIAM

 

nology and is designed for heavy traffic conditions.

Batra of EY says modularisation in the architecture of the car is go­ing to be the next phase in engi­neering. “The areas inside the car are being developed as modules in the developed world. Modularised architecture will save costs as the car maker doesn’t need to design it for each product.” Tata Motors will benefit from modularisation if the company opts for it, given its large portfolio, say analysts.

A customer requires four things from any automobile manufacturer – a sound product, robust build quality, goods sales experience and reliable service support, points out Pareek. “Any player can capture market share in the country if they deliver on these four pillars of cus­tomer requirements. After all, mar­ket share is but a result of the value proposition of an OEM’s products,” says Pareek. So, Tata Motors is hopeful of a comeback.

Tata Motors plans to build glo­bal standard products, as a part of the Horizonext initiative. Zest, Bolt and GenX Nano are part of this strategy. There are several new products in the pipeline including Kite (Hatchback and Sedan), Nano Diesel, Hexa (premium crossover SUV) and Nexon (compact SUV). The company has built a process for improving the quality of its prod­ucts, says Pareek. “Our processes have changed, materials have changed and the engineering itself has changed.” The automaker has decided that the new products will only be available for individual cus­tomers and not for fleet operations.

Competition in CV Market

Meanwhile, in the CV segment, Tata Motors has had to contend with growing competition from global giants. Daimler and Volvo, the world’s top two players in CVs, are trying to find a toehold in the Indian market. Daimler started production in June 2012 and
launched its first heavy-duty truck in three months. Volvo rolled out its first truck way back in 1998 in India but has, so far, preferred to compete in the premium category without touching the mass market, dominated by Tata Motors and Ashok Leyland.

Tata Motors has managed to prevent a big erosion in its market share. “We are keen to protect our dominance in market share. Today, there are at least eight players in the truck business, while it was two or three about seven years ago. Competition has been coming in. However, our market share has not fallen more than one or two per cent. We are geared up for competi­tion,” says Ravindra Pisharody. Executive Director, Commercial Vehicles at Tata Motors. To deal with the competition, Tata Motors is looking to brand commercial ve­hicles despite a dip in sales of Prima top-end trucks.

The economic slowdown im­pacted demand for trucks in the country. “When the economy slides, the capacity utilisation of trucks will slip drastically. As a re­sult, fleet owners postpone new purchases,” says Pisharody. “In CV purchases, everybody takes a loan of 80 to 90 per cent. Since paying instalments is directly related to their monthly income, many cus­tomers delayed new purchases to replace the old trucks.”

The incipient economic recov­ery, though, is leading to a gradual turnaround in the business environ­ment for CV makers. After more than two years, demand for medium and heavy commercial vehicles (M&HCVs) has started picking up. Light commercial vehicles (LCVs) too are expected to see a revival soon, says Pisharody. In the first two months of this financial year (April and May), the cumulative volume sales of Tata CVs clocked at 55,683 units, compared to 56,215 and 78,610 in the same period in FY 2014 and FY 2013, respectively.

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