Defenders of Pride

(column by Karan Mehrishi)

The titan which gave India its first truck, car and SUV, cannot be that insensible to forces of competition, especially when it comes to the Indian market. And despite its recent success, myopic dreams have never left its side! Talk of the Rs.1 lakh car and we all can only wonder if the corporation that ripped through the Indian market is losing all focus... and suddenly!

“What about the refinement and feasibility levels?” Auto analysts had lambasted out when Ratan Tata shrewdly decided that India needed a diesel powered compact. Not many believed he was serious, less believed he would even try it out, and almost none believed he would ever succeed. The practicality of diesel efficiency combined with the rationality of a compact almost sounded like a chimera. The critics’ belief system had its roots firmly attached to the entrails of a conglomerate engaged historically in non-competitive commercial vehicles production; a conglomerate that, sans its infotech ventures, sticked to industries that focussed more on traditional old-age models... hotels, steel, locomotives...

But Ratan Tata was unnaturally adamant and made critics chew, and regurgitate, their own words with the launch of the super successful Indica in 1998. So strong was the response that 115,000 bookings were received within a week of receiving applications, shattering all past records and not too sublime opinions of critics. The later introduction of a larger Indigo was right on target as well. Today, Tata holds an enviable number one position in the mid-segment and a number three position in the compact segment, selling 18,365 and 78,726 units respectively in April-October 2006 (SIAM data). All this was surprisingly achieved in the presence of the best that the competition had to offer, from Maruti to Hyundai. And now, to top it all, is the most flabbergasting endeavour – the ‘Rs.1 lakh car’, purported to have the potential to solve the problems of family transportation for the whole of India...

A charging herd of elephants leaves none in its wake...
That is, until the herd jumps off a cliff!

Like in their mad dash to takeover Corus Steel at all costs, and like their illogical share purchase (of Spice Jet) in the hugely loss making low-cost air carrier segment – both notable cliff jumps of December 2006 – experts are asking whether the Tata Group is too drunk and dizzy with their past successes, to not realize that various research reports have categorically shown how the ‘Rs.1 lakh car’ is a recipe for the grandmother of all disasters? Forget experts, the Tatas perhaps just have to look across the road to their largest competitor for statistic support. Out of the past 9 months, the lowest priced, once hot selling Maruti 800 has shown dramatic negative growth for 6 months. In fact, in October 2006, the model went on a disaster mode with a negative 30% growth, the largest ever fall in the period! Haven’t these sales figures of even Maruti 800 given them some hint? Not according to Tata Motors, which claims, “In the next 3-5 years, our entire product portfolio will completely change in terms of advancements, we have our complete focus on retaining market shares.” As Debasis Ray of Tata Motors belligerently affirmed, “We have a better understanding of the customer wants.” Sadly, the JD Power Survey released in August 2006 doesn’t quite support that nonchalant statement – Tata Motors ranked last (we repeat, last) in the customer satisfaction index, with Maruti topping the list by miles. In fact, Maruti beats everybody else in not only the overall sales satisfaction index, but also the delivery process, delivery timing, salesperson, dealer facility, paperwork and final deal.

Tata Motors’ intemperate bottom position was due to the fact that they were worse than all manufacturers, including Skoda, Honda, Hyundai, Toyota... Renowned Auto expert Tutu Dhawan put it to B&E flatly, “Considering 40% taxation, the actual production costs will come to Rs.60,000, without subsidies it will be very difficult for Tata Motors to manufacture the Rs.1 lakh car.” Then there are the issues of inadequate technology. Tata Motors has already tasted the ‘poor quality’ backlash during the disastrous export run of the Indica to United Kingdom under the MG Rover brand. Will the Indian consumer accept inferior technology in the name of practicality and affordability? Maruti 800 is still licking its fatal wounds. As the consumer gets access to more sophisticated technology from Eastern European and Korean manufacturers at almost similar price levels, Tata Motors will be under serious jeopardy. Dhawan says acerbically, “Tata products present a very crude package that needs more refinement.”

An ode to the king...

Established in the year 1945 as an engineering and locomotive company, Tata Motors (erstwhile TELCO) is today India’s largest automotive company with manufacturing facilities in Jamshedpur, Pune and South Korea. Selling 49,061 vehicles in November 2006 alone, the company now has strong presence in Latin America, Europe and the Far East apart from the Indian sub continent. What started as collaboration with Daimler-Benz (now DaimlerChrysler) to manufacture commercial vehicles in 1954, is now the world’s fifth largest truck-maker. With sales touching an enviable Rs.197 billion, this year Tata Motors crossed the 4 million threshold. Today, out of the total consolidated revenues, 17% comes from international business. In the commercial vehicle segment, Tata Motors holds an authoritative 65% market share, while arch rivals Ashok Leyland and Swaraj hold no more then 16% and 5%, respectively. With the advent of international reputed brands like Volvo, Tetra and Mercedes, there has been some palpitation in the Tata camp.

...And an ode to innovation...

If the latest sad performing Indica Xeta and Safari Petrol were any indicators, apart from technical tie-ups with Cummins engines and a few others, Tata Motors’ predominant technology base (even in commercial vehicles) is relatively obsolete. For example, in the Medium and High Capacity Vehicles’ (M&HCG) segment – considered the highest growth segment, where cumulative industry sales in April-June 2006 was a monstrous 60,716 units – normal features like direct injection, anti-skid braking system (ABS) and brake assist system (BAS) are features hilariously never heard of in Tata’s territory. Refuting this argument, Tata Motors claims, “We are engaged in different innovation projects, we are working closely to develop new products; together with Tata-Daewoo we have been able to create an R&D web.” South Korea’s Daewoo’s India plants, for information, were bought over by Tatas when Daewoo collapsed internationally, what to talk about innovation. Perhaps more promising could be Tata’s 21% stake in Spain’s coach builder Hispano Corrosera. It’s not just innovation, but even Tata’s exports (especially to certain African and Latin American markets) that is facing threat from low-cost destinations like China. Pricing, customer satisfaction, innovation, future plans, government lobbying, Tata Motors seems to have somehow ensured a troubled strategic assortment in almost all the areas a corporation would have hoped to defend, and with pride. But are these stalwart defenders really worried about losing their pride? Perhaps you forgot one of our statements... A charging herd of elephants leaves none in its wake... that is, until...

Fighting all odds

Tata Motors is part of a luftwaffe of affordable car-makers taking on the world. The new crop of automotive liberators are primarily originating from Asia and Eastern Europe – regions that are predominantly developing territories and have populations characterised by lower purchasing power but high aspirations. Companies like Dacia (Romania), Proton (Malaysia), Kia (South Korea) and Tata Motors (India) are the messiahs of affordable transportation for the masses. These manufacturers offer personal commute solutions in not only their respective regions, but the global market as well. Tata’s Indica, Dacia’s Logan, Proton’s Waja-Wira and Kia’s Sportege have been primary drivers of this new club. Products which may not be niche, but extremely competent in terms of pricing and practicality. But the biggest issue these manufacturers face is that markets that have the highest automobiles sales (US, China) are not necessarily looking for low-cost options, but for innovative and even environment- friendly (hybrid) alternatives; options these firms cannot offer...

(End of Karan Mehrishi column)