Pandemic Reveals The Turnaround At Tata Motors
For Tata Motors Ltd., the pandemic-ravaged year has brought into spotlight what was in the works for half a decade—a turnaround.
The maker of the Nexon compact sports utility vehicle reported best monthly sales in eight years in October, outpaced peers in the last few months and gained market share. Analysts and company executives say the turnaround has been a culmination of a new management focus, fresh models and better coordination and inventory management with dealers.
That comes when Covid-19 lockdown decimated demand and the economy has contracted for two straight quarters. While a recovery is underway, consumer sentiment is still cautious amid widespread job losses and salary cuts.
“Tata’s story under this (Covid disruption) scenario is not just good, but outstanding,” Hormazd Sorabjee, editor at Autocar, told BloombergQuint over the phone.
The numbers speak for themselves:
- It sold 23,617 units in October, the highest since July 2012. It sold more than 21,641 in November.
- Last year, it was India’s fifth biggest carmaker—this year it jumped to the third spot.
- Market share improved to 7.6% in April-November compared with 4.7% a year earlier.
- From April-November its volumes have grown by 22.3%, according to data shared by market researcher JATO Dynamics India.
The demand rose so much that it had to ramp up production of petrol variants three times in six months, Shailesh Chandra, president of the passenger vehicle business unit at Tata Motors, told BloombergQuint in an interview. He attributed it to focus on safety, stylish design and superior drivability.
Tata Motors once sold runaway hits like the Safari and the Sumo utility vehicles and tasted success with the Indica small car. But its reputation suffered because of the Nano. Even Ratan Tata admitted the mistake of branding it as a cheap car. Long dead, the Nano was officially buried this year as the company didn’t roll out a newer version requiring stricter emission controls.
Tata Motors’ market share decline started nearly a decade ago as competition increased, and the company was absent in key growth segments. “They were so bullish on the Nano that the entire strategy revolved around it, and couldn’t focus on other vehicles and segments,” Puneet Gupta, associate director for the Indian automotive market at IHS Markit, told BloombergQuint over the phone.
The company tried clawing back share with the Zest, launched in August 2014, and the Bolt in 2015. Both failed.
Yet, change was coming.
New Boss For Car Business
Tata Motors hired Mayank Pareek, a former top executive at Maruti Suzuki India Ltd., to head its passenger vehicle business unit in 2014. He brought with him the experience of marketing products for the nation’s biggest carmaker.
Pareek started by analysing the reasons for the loss of market share and went around the dealerships, IHS Markit’s Gupta said. “Everything from product planning, quality, sales and marketing strategy, dealers response, he tracked everything and fixed the gaps,” Gupta said. Pareek, according to Gupta, brought in the concept of pre-launches and introductory pricing.
The new boss of the unit monitored each and every dealer and leads, ensuring that all new models and vehicles were available at dealerships before the launch.
Pareek knew the pulse of the market, and drove many changes at Tata Motors. In a way, a lot of expertise came with him. Overall, it was a team effort, but he was leading it from the front. Turnaround started form the time he joined.Puneet Gupta, IHS Markit
Sorabjee agreed. “It’s the way changes at the top management have happened is the single biggest driver for all that is happening. Tata as a brand is more focused now,” he said, adding that the management has been listening to the dealers, is a lot more proactive, and have been fixing the basics things.
Analysts concur that under Pareek the company was focused on revamping and supporting the dealership network, a key to Tata Motors turnaround.
They’re looking at dealers’ profitability and providing support in terms of working capital, said Ravi Bhatia, president and director of JATO Dynamics India, an industry researcher.
Bhatia also pointed to a rewards or sales incentive system for dealers among the recent efforts.
Tata is becoming more retail-focused as against the industry which is more wholesale focused, agreed Chandra. The company gives more weight to retail sales to growth, said the executive who took over from Pareek in April.
Choice For Buyers
Between 2008 and 2015, Tata Motors launched four new vehicles, including the Nano.
In the last four, it brought in five—the Tiago hatchback, the Tigor sedan, the Harrier (SUV) and Nexon, the compact SUV, and the Altroz hatchback. With these vehicles, the company has tried to address the missing elements of styling, features and quality.
Chandra said the company has identified sub-segments within product categories to grow. In the sub-compact SUV segment, Tata’s Nexon ranks third, after Maruti Suzuki’s Brezza and Hyundai Motor India’s Venue.
“We know that SUV is bound to grow whichever segment we are in, while sedan will de-grow,” Chandra said. “We have selected the high growth segments in hatches also,” he said, adding that the recent launch of the Altroz and the existing Tiago in the mid-hatch segment are bound to grow at a much faster pace.
Tata Motors is also offering up to 20 variants for some of its cars, a strategy to capture a buyer’s mind. “What it does is it creates packages for customers at attractive price points,” Ravi Bhatia of JATO Dynamics said, adding it also offers good customisation.
While Jaguar Land Rover is struggling and is a drag on the company’s profitability, Tata Motors benefited from its engineering and R&D, said Gupta. The Harrier SUV is based on an architecture derived from JLR, and the company will be launching more vehicles on the same platform in India.
Focus On Safety
Focus on safety and quality have also worked well for the company. The Altroz has managed to score a five-star rating from Global NCAP, the company’s second vehicle after the Nexon to achieve it. “They have forced the safety agenda on the industry and it is one of their strengths now,” Bhatia said.
More focus on safety boosted the average retail price of Tata Motor’s vehicles by 1.2% in April-October compared with a year earlier, according to JATO Dynamics. The company also reduced incentives or discounts by about 38%.
Sales, however, continue to rise. In July-October:
- The Tiago volumes rose 45-50% over a year earlier.
- Nexon’s sales surged 75-80%.
- Demand for Harrier doubled.
- Altroz, launched in January, has already sold 25,000 units.
“The issue with Indian companies is that as they become more competitive, their quality degrades,” Gupta said. “But somehow, Tata has been able to tie both the nodes well.”
The Indian auto market is cutthroat. Besides the established giants like Maruti Suzuki, Hyundai and Mahindra & Mahindra Ltd., Tata Motors is also up against Kia Motor Corp., MG Motor India, Nissan Motor India Pvt., and Renault India Pvt.
Each is readying new models at aggressive pricing. Nissan, for instance, launched a sub-compact SUV at a starting price of Rs 4.99 Lakh.
Chandra said Tata Motors is prepared, banking on its retail focus. And two new launches are in the pipeline—codenamed Hornbill, a sub-compact SUV, and Gravitas, a 7-seater SUV—in the next year. He expects these two vehicles to be the biggest growth drivers in a country where every third car sold is an SUV.
Gupta, however, noted that to maintain the momentum Tata Motors needs the latest technology. “It’s difficult for companies like Tata and Mahindra to invest in research, so they have to be dependent on other players,” he said. Yet, with the kind of growth momentum the company is seeing and the way they have kept the ethics intact, Tata Motors will be the first choice for any global manufacturer to partner in India, he said.
The company has already announced plans to hive off the passenger vehicle business, including electric vehicles. While it is scouting for a strategic partner, Chandra said: “It’s not a need for today but a need for tomorrow.”
According to Bhatia, what works in Tata Motors’ favour is that the company isn’t buying its way to higher market share but is winning it. “A few years back no one wanted to be associated with Tata cars. But now that’s changing.”
Still, according to Sorabjee, they will have to churn out new line-ups to take on the competition. “They are on a treadmill and have to keep running and investing and keep feeding new products.”