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Indy Is The Pendant

Tata Motors has taken the corner, now it sells even in England. But hey, watch the rearview mirror.

Indy Is The Pendant
Jitender Gupta
Indy Is The Pendant
Scepticism has always dogged Ratan N. Tata. In the early '80s, much before he became Tata Group chairman, he had made a presentation to the Tata Sons' board, urging it to enter areas now known as the new economy and also seek global pastures. Everyone agreed the plan was great but they were unsure about the underlying premises. His critics reacted the same way when he decided to go global with Taj Hotels or buy out the British tea giant, Tetley.

Each time, Ratan Tata has silenced the sceptics, most resoundingly now in passenger cars. In 1996, when he unveiled his dream project to build India's first indigenous four-wheel passenger car, most experts scoffed at the idea. But five years since its launch in January 1999, Indica has become India's second-largest selling model in the B segment, which includes Zen, Santro and Alto. Indigo, the three-box saloon from the Tata stable, has gone a step further, outselling every C segment model (like Ikon, Esteem and Opel Corsa) in eight of the 13 months since its debut in January last year.

Although Tata Motors, makers of the two models, doesn't give a segment-wise break-up of its turnover, car revenues are expected to cross the $1 billion mark this year. More than that, Indica has just made an appearance on British roads. Rechristened City Rover and sold under a tie-up with Birmingham-based MG Rover, its UK sales may be around 100,000 over the next five years. "You will soon see or hear of Indian cars in England," says the Tata Group chief, who retains the right to sell the car separately as Indica in the UK and other markets.

Back home, the company showcased its new station wagon prototype, the Marina, at last month's Auto Expo in New Delhi. But the buzz, of course, is over the Rs 1 lakh car Tata Motors is working on. This success is reflected in the company's balance-sheet as well. A net loss of Rs 500.34 crore in 2000-01 has now turned around to a net profit of Rs 517.87 crore for the first nine months of the current financial year. Predictably, it has sent detractors scurrying for cover.

A most important ingredient of the Tata Motors' strategy has been to emerge as the lowest-cost producer of cars. Between 2000-01 and 2002-03, it cut expenditure by a whopping Rs 947 crore. About 65 per cent of this came through savings in raw material expenses, and another 25 per cent in interest costs. "We went ruthlessly after fixed, material and conversion costs with a scalpel," say executive-director (passenger car unit) V. Sumantran, who gave up a plum job at General Motors-owned Saab in Europe for his current position in 2001. Of course, the revival in the commercial vehicles segment, where Tata Motors' sales grew 44 per cent in April-December 2003, helped. But even cars contributed to the bottomline. "Cars will account for 37-40 per cent of our turnover this financial year," says vice-president (passenger cars) Rajiv Dube.

For Tata Motors, though, the battle in the domestic market is far from over. And scepticism, while curbed, hasn't altogether died. While it is a cost leader, the quality of the cars still leaves a question mark. In addition, competition is fast catching up with it in the diesel segment. So the Tatas need to dramatically change gears, access new technologies and develop new platforms to launch new models.

"Tata Motors is known as a low-cost manufacturer, not necessarily a high-quality one," says a senior manager in a rival car company. Tata Motors' Sumantran too is candid on the issue, admitting the company is indeed looking to provide value for money—or more car per car—but "we can improve its (Indica's) fit and finish". In fact, Indica has never been rated highly by JD Power, which conducts consumer-based surveys. In its latest 'initial quality study' in December '03, Indica was placed fifth, second from the bottom, among the premium compact cars with 237 problems per 100 vehicles.Wagon R topped the list with 118. A caveat though: this survey takes into account actual problems as well as perceptions. Another indicator: for the UK market, the City Rover has been spruced up quite a bit. Apart from cosmetic changes like a new bumper and grille, it has different engine diagnostics and comes with airbags and anti-lock brakes. In addition, the City Rovers are petrol-driven, unlike the diesel models that form an overwhelming share of Tata Motors' India sales.

But even the diesel models of Tata Motors are in for fresh competition. Hyundai has launched the diesel version of Accent, which it claims is superior as it has the latest microprocessors-based common rail direct injection (CRDi) technology that supposedly increases fuel efficiency and reduces pollution. It also plans to have diesel options for its forthcoming compact model, Getz, as well as Santro. Maruti, which imports the engines for its diesel Zen and therefore doesn't find it viable to make more than 500-900 vehicles a month, is also thinking of tying up with a global manufacturer for diesel technology. "We are looking at it seriously. It's a gap in our portfolio. But, in line with the trends in Europe, the product has to be accepted on the basis of its performance," says Maruti Udyog CEO Jagdish Khattar. The unspoken bit: not on the basis of the price differential between petrol and diesel alone.

Analysts also believe Tata Motors needs to get into newer and better technologies in diesel as well as look at other fuels. The recent slow growth of Indica, a shade less than 10 per cent in the first nine months of this fiscal compared to the overall B segment's 18 per cent and Maruti's 37 per cent, gives more fodder to the criticism that Tata Motors cannot keep flogging the Indica platform. Agrees Ratan Tata: "In diesel engines, we are looking at common rail as the way to go." However, he is averse to a tie-up, which doesn't "transfer technology". He also thinks there should be a greater focus on other fuels. "I would not like Tata Motors to be viewed as a purely diesel manufacturer."

Sumantran reveals that the development of Indica's successor platform started "a little while ago". Considering that development of a platform typically takes around three years, he should be ready with it by 2006-end. The shift to newer fuels will be dictated by the fact that the price differential between diesel and petrol will get bridged over the next few years. Avers Ratan Tata: "Hopefully, at a later stage we will look at other types of fuels and engines...maybe hybrids."

Tata Motors is not unduly worried about Indica's slow growth. "Our plants are working flat out," reveals Sumantran, who adds that it is also due to the export thrust. Agrees Kalpesh Parekh, who tracks the sector for ask Raymond James: "Tata Motors has to balance export production with the domestic one...." There's nothing wrong with this, he says, as "what they sell to Rover has higher realisation". What that means is that it's more profitable for Tata Motors to sell in the overseas markets.

As Ratan Tata and Sumantran steer the company into Europe, they are bubbling with confidence. "Indica is a bit of a landmark car. Its title—great or not— will be decided by history," says Sumantran. But that title will really depend on how the Indica fares overseas. Looks like they will have to drive with one eye on the rearview mirror to watch the market, competition and well... sceptics back home.
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