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Tata Is Not Bye Bye

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It is not often that the fortunes of a company can be linked to the script of an Akira Kurosawa movie. In Seven Samurai, desperate villagers assemble seven heroes to revive their belief in life and instill in them courage to take on marauding bandits. Similar was the situation at Tata Motors after the failure of the Nano in 2011-12.

At the Geneva Motor Show in 2012, when the Nano Megapixel was unveiled, it was well received by the global audience. It was then that engineers Girish Wagh and Timothy Leverton, along with their design wingman Pratap Bose, sat down with then Tata Group chairman Ratan Tata, now chairman emeritus, to chart out a road map for the future of Tata Motors. In that meeting, the need for a paradigm shift in Tata Motors’ passenger car business was discussed.

But Leverton — president and head, Product Engineering — and Wagh’s biggest concern was to convince the Tata Motors board and get it to approve investments on new powertrains, designs, telematics and mobility solutions, which together could convince dealers and consumers to reinvest in the Tata brand. The total outlay for this grand scheme to launch a new set of products until 2020 was estimated to be around $3 billion.

The duo’s plans came to fruition when Ranjit Yadav and Karl Slym came on board in 2012. Slym brought with him a unique mix — a global and Indian understanding of the automotive business — having headed both the Chinese and Indian operations of General Motors. Yadav’s stint with Samsung had given him expertise on consumer buying habits for products with short lifecycles. Every member of the new team complmented one another, leading to a fusion of ideas on sleek design, reliability in manufacturing, functionality in product and impeccable customer service.“The board stood by our proposed plan because it understood the situation that the company was in and that we needed a new direction,” says Wagh, vice-president and head, Small Car Project, Tata Motors.

The team created a portfolio of 10 new products aimed at breaking the consumer mindset and correcting the prevalent image that Tata Motors was a commercial vehicles manufacturer which sold unreliable passenger cars with only diesel powertrains.

Such was the extent of brainstorming that the team had put in that Slym’s untimely death in early 2014 did not derail the plan. Wagh, Leverton, Pratap Bose, Ravi Pisharody and Yadav are now on course to bring Tata Motors back from the brink.

Small Car, Big Trouble
It’s been a little over five years since Tata Motors drove in the Nano. There’s been nothing but criticism since. At the time, most of the company’s product portfolio was already a decade old and a lot was riding on the Nano. Unfortunately, it added to the woes. Its initial ‘mechanical’ failures set off a spiral that saw the company quickly lose market share (see A Poor Third).

Although the company did try to bounce back with better product iterations of the Nano, it failed to attract buyers. Tata Motors’ business was held together by its commercial vehicles arm and its international brands Jaguar and Land Rover. Sales of the Nano, meant to notch up large volumes, have not crossed the 1,00,000 units-a-fiscal mark once since its launch in 2009. The car has burnt a $1 billion in cash so far and sold only 21,129 cars in the last financial year.

Over the last three financial years, the passenger cars division has sold 1,98,812 (2013-14), 3,14,464 units (2012-13) and 3,70,834 units (2011-12) in the domestic market, representing a 46 per cent fall in sales over a two-year period. To add salt to Tata Motors’  wounds, its global MPV Tata Aria, showcased in 2010 with an array of electronics in terms of telematics, evoked little or no interest.

New Horizons
After spending Rs 10,000 crore between 2010 and 2013, the core team at Tata Motors came up with HorizonNext. At its core, the plan envisages there will be zero defects in  manufacturing and that customers will be engaged through revamped dealerships equipped with tablets and apps that assure a consistent quality of service. In all, the plan expects to roll out 10 cars between 2014 and 2020, with $3 billion as expenditure on the passenger car product line alone (see Revival Strategy). “We explained to our vendors how the new products would bring in volumes for them to stay invested with us,” says Wagh.

Techtonic Shift
Experts from Harman Electronics, Honeywell and Bosch were called in. The brief was simple: build a powerful lower displacement petrol engine which provides fuel economy and creates a world-class driving experience along with a telematics unit that can sync with any smartphone and integrate its apps. “We came into the project very early with Tata Motors. We wanted to prove to the world that a telematics platform can be built locally and yet have superb quality, capable of going into global cars,” says M. Lakshminarayan, MD, Harman International.

So much so that Tata Motors has now set standards that other automakers will have to follow. Renault Nissan, Volkswagen, Toyota and Honda are yet to bring vehicles that offer voice-based telematics and advanced mechatronics at sub-Rs 9 lakh prices. Perhaps the only car to have such extensive telematics unit is the Mahindra Reva E2O. Future iterations of Harman’s telematics system can leverage cloud computing, managed by Tata Motors, to store data in the form of songs and other video files which can be retrieved in the car. 

Tata Motors achieved another fillip by working with Bosch and Honeywell. It created a new 1.2-litre petrol engine that can operate in three driving modes — sport, economy and normal. This feature is available right now only in high-end cars and was a step up in Tata Motors’ portfolio of innovations. The turbocharger was built by Honeywell in Pune and the engine management system’s software was built by Bosch in Bangalore. “It took us 18 months to build this system,” says a source at Robert Bosch Engineering India. As the software anyway controlled the fuel economy of the car, “why not use it to provide performance and economy at the press of a button” he says by way of explanation.

Tata Motors then brought in Formula 1 race driver Narain Karthikeyan as a consultant to test the Revotron, the Zest’s 1.2-litre petrol engine. “He gave us inputs on the tuning of the engine and the ideal performance dynamics for a passenger car,” says Wagh.

While the product planning team had scored a bull’s eye, the company was yet to get the market segmentation right.  The company had realised that by the time the Nano came out in 2009, something had changed. Indian consumers had begun showing interest in cleverly marketed products that made their lives respectable. Was the Nano not respectable? It definitely was. It gave 25 km to the litre — still the best in its class — and it was not short on safety. Yet it was punished because its marketing campaign treated the Indian consumer as a deprived individual who needed something better than a two-wheeler.

Tata Motors took a hint from the boom in smartphones. “To communicate the design, drive and connect philosophies of HorizonNext you need to project the message of quality and consistency,” says Yadav, president, Tata Motors (Passenger Cars). With the new launches, dealers will engage customers differently. Sales executives will use tablets to explain the product and take bookings. After the car is sold, the customer can schedule interviews online and the car’s job card will be provided via a tablet at the service centre. “We need to make sure that there are no recalls, no issues at the plant and dealerships offer world-class service,” says Yadav.

Digital Dealers
When JD Power Asia Pacific, the automobile marketing consultants, released a dealer satisfaction report earlier this year, Tata Motors realised the need for immediate action. It was ranked ninth among 10 OEMs surveyed. Today, around 150 of the company’s dealers have gone totally digital in connecting with customers and their service centres are wi-fi enabled. Over 3,000 tablets have already been shipped to dealers. Customers can now sit in the lounge and track their cars while they are being serviced.

“Given the relatively weak outlook on vehicle sales, dealerships are concerned about the viability of their business,” says Mohit Arora, executive director, JD Power Asia Pacific. Increasing the share of service revenue is one of the ways in which dealers can survive tough times. “But retaining customers beyond the standard warranty has always been a challenge for dealerships,” says Arora. Toyota and Maruti Suzuki top dealership satisfaction surveys.

Tata Motors had to depend on Bose, the design head, to get the ‘world-class service’ message across from the manufacturing side to the dealers so that they, in turn, could communicate it to consumers and vendors. Design centres of Tata Motors in Pune, Italy and the UK worked on 600 design iterations of the product over two years before the concepts were showcased at the Auto Expo this year. The new products will remain consistent with the HorizonNext strategy and focus on communicating every aspect of its three vectors — DesignNext, DriveNext and ConnectNext — to the consumer. That is, right from the key, the door handles, to the seats, the digital tachometer, the touchscreen and the voice-operated telematics unit, the experience at each level is meant to wow the consumer who picks a Tata Motors vehicle.

“Customers subconsciously know what they want, but they cannot articulate it,” says Bose. Now, every dealer will talk about and emphasise the beautifully designed central console, the sporty steering wheel, the ergonomic seats and the easy-to-access telematics. Tata Motors will take its 400 dealerships to over 500 in the next 18 months. In comparison, Maruti Suzuki has around 1,200 dealerships and Hyundai has close to 650.

The Product Push
Tata Motors plans to take on Maruti Suzuki and Hyundai in every segment. In the Rs 4 lakh-and-below segment, or the A-segment, the Nano is expected to be revealed in an automatic version, and will take on Maruti’s Alto 800, Nissan’s Datsun Go and Hyundai Eon. Tata Motors did not spell out future iterations, but the Nano is expected to be a notch above the competition. The segment is dominated by Maruti Suzuki which sells 4,30,000 units on average every year.

In the B-segment, the Tatas are working on a car that can replace the Indica and Indigo soon. The car being tested is called the Kite, which will have diesel and petrol variants and come in hatchback and sedan versions. Maruti and Hyundai continue to dominate this segment, selling 2,00,000 units on a regular basis.

The C-segment is where Tata Motors will want to win over the market with the Zest sedan and the upcoming hatch called the Bolt. The sedan segment is a smaller market whose size is not more than 2,50,000 units, with Maruti Suzuki selling close to 1,97,000 units. The Bolt, which will be in the B-plus segment, will take on Maruti’s Swift and Hyundai’s Grand i10.The aggressive pricing of both cars is expected to win over new customers.

These cars apart, there are interesting new products undergoing testing. On the Zest platform, Tata Motors will launch an affordable SUV and an MPV, which was showcased at the Auto Expo as the Nexon. The SUV will take on the Ford Ecosport, Nissan Terrano, Renault Duster and Mahindra & Mahindra’s Scorpio. The MPV will be pitted against the Maruti Suzuki Ertiga, Honda Mobilio, the Nissan Evalia and the upcoming Renault Lodgy. There is also talk of a premium sports hatchback as well as driving in the old Land Rover Freelander rebadged as a Tata Motors product in the Rs 21 lakh-Rs 25 lakh range.

Success Stories
Who would have imagined that when Tata Motors bought Jaguar Land Rover (JLR) for $2.5 billion, the brands would one day churn out £15.7 billion in revenues (in 2013), a three-fold jump from 2009. Land Rover’s sales grew by 15 per cent with 3,48,383 units and Jaguar’s sales doubled to 76,668 units. The global revival of the brand has led the company to invest 500 million pounds this year on building low-emission engines.

Complementing the success of JLR is Tata Motors’ commercial vehicles arm — the largest in the country, with a 50 per cent market share. Of the total of 6,32,738 commercial vehicles sold in the country in 2013-14, Tata Motors accounted for 3,17,887 units. With the commercial vehicles industry seeing a 20 per cent drop in sales over 2012-13, Tata Motors has seen its sales drop 29 per cent in 2013-14. But the CV arm of the company will invest Rs 1,500 crore every year to build new vehicle platforms.

“There is innovation happening in new engines and platforms, many of which will be unveiled next year,” says Pisharody, executive director, Commercial Vehicles Division, Tata Motors. The Prima Truck, from the company’s South Korean division, sold in nine countries, is becoming a premier heavy haulage truck with state-of-the-art GPS and telematics units. Pisharody says there will be new iterations of the sub-one tonne Ace in the coming years. The Ace has sold close to 7,50,000 units since its launch in 2005.

So deep is the association of Tata Motors with the Indica and the Nano brands that few remember the miraculous turnaround it effected at JLR, which was on the brink of shutting down. While its strategy worked on a global level, it needs to get it right in its own backyard.

Again, much of the success of Tata Motors’ passenger cars will depend on the growth of the automobile industry. Last year, the passenger car segment fell 6.05 per cent with only 25,03,685 units sold when compared to 26,65,015 units sold in 2012-13. “The Indian market has changed, people want choice and want to be sold vehicles that can define their status,” says Y.J. Ahn, executive director, Hyundai Motors India.

Sage counsel that the Tata Motors brass can ill afford to discard.

(This story was published in BW | Businessworld Issue Dated 06-10-2014)