Cyrus Mistry Steered Tata Motors On Right Track

When Ratan Tata handed over the reign of Tata Group to Cyrus Mistry, Tata Motors, one of the most important units of the group, was in need of immediate attention.

The Mumbai-based company was losing trust of consumers and facing a decline in passenger vehicle sales.

The models offered by Tata for Indian consumers were either restricted to cab services or failed to match design and specification of rival carmakers.

During the fiscal year ended 31 March, the company’s car sales declined 7.69 per cent to 149,420 units, while the industry grew 7.24 per cent to 2.78 million units. Between 2010-11 and 2015-16, the company's market share shrank from 13.97 per cent to 5.35 per cent.

Mistry, after taking the charge of the group laid down a plan to change the brand image of Tata Motors. Tata made a strong buzz in 2013 when it launched 8 facelifted cars on one day. Though most of them failed to excite consumers in the long run, the message of a revival was clear.

In the next few years, the company continued to launch new cars and undertook campaigns to connect with younger buyers, but an absence in emerging segment like compact SUVs and premium hatchbacks failed to give Tata the sales boost which it was looking for.

In a letter to the board after his removal, Mistry said Tata Motors faced a challenging situation.

"Before 2013, in order to shore up sales and market share, Tata Motors Finance extended credit with lax risk assessment. As a result, the NPAs mounted to being in excess of Rs 4,000 crores. Historically, the company had employed aggressive accounting to capitalize substantial proportion of the product development expenses, creating a future liability," he wrote.

On the Nano project, Ratan Tata's ambition to offer a cheap car to millions of Indians, Mistry said the Nano product development concept called for a car below Rs 1 lakh, but the costs were always above this.

"This product has consistently lost money, peaking at Rs. 1,000 crores. As there is no line of sight to profitability for the Nano, any turnaround strategy for the company requires to shut it down. Emotional reasons alone have kept us away from this crucial decision. Another challenge in shutting down Nano is that it would stop the supply of the Nano gliders to an entity that makes electric cars and in which Mr. Tata has a stake," he wrote.

Frequent changes in top leadership positions also had a negative impact on the day to day functioning of the company.

Tata hired industry veteran Karl Slym as the head of Tata Motors but his untimely death created a vacuum. Later the company appointed Mayank Pareek as the president of Tata Motors before settling on Guenter Butschek, who comes with experience from Airbus and Daimler.

Slowly under the dual leadership of Butschek and Mistry, the company started churning positive sales figures. It reported an 8 per cent increase in total sales at 48,648 units in September 2016.

The recently launched hatchback Tiago has brought Tata back in the game. With Argentinian football start Lionel Messi becoming the face of the car, Tiago has received more than 50,000 bookings since its launch earlier this year.

Internationally, the company managed to perform well on the backdrop of huge demand for Jaguar and Land Rover cars. Revenues of Tata Motors, the biggest contributor to the group in terms of sales, grew 5 per cent in the fiscal 2015-16.

Tata’s next offering for India will be it's much anticipated crossover, the Hexa. The car before its launch has earned positive reviews and now all eyes are on the pricing of the car. If the company sets an aggressive price for the car, there is no doubt the car may do a Tiago in its segment.

Coming Months Crucial

With an aim to become the third biggest passenger vehicle maker in India by 2019-20, Tata Motors is lining up a slew of new products to be launched in the coming months.

Tata Motors is gearing up to launch four new products in the Indian car market by the end of 2017. While the company is expected to launch the Tata Hexa crossover MPV in India by January 2017, the Tata Kite 5 compact sedan is expected to be launched by mid 2017.

The next Tata Motors launch will be the Tata Nexon sub-compact SUV, which is expected to be launched by H2 2017 while this will be followed by the launch of the Tata Nano Pelican entry-level small hatchback by the end of 2017.

"We have finalised our product plan for the next five years. Today, Tata Motors covers less than 60 per cent of the total market and one of the things which we focused during the product strategy is to increase our footprint in the 100 per cent of the market," said Mayank Pareek, Tata Motors president, Passenger Vehicles Business.

The company has reserved Rs 3,500 crore to Rs 4,000 crore, divided equally between passenger vehicles and commercial vehicle segments, for research and development purposes this fiscal.

Tata Motors will focus on reducing the number of platforms used in manufacturing passenger vehicles and increase platform sharing to drive down costs. The company will look at ways to weed out inefficiencies among its component suppliers to drive down costs.

"We have redrafted our product plan to reflect future and one of the big decisions in that is we will have less number of platforms but more number of cars. This helps us in reducing complexities, helps us in managing the change much better. It improves cost structure," Pareek was quoted as saying in the media.

Now that Mistry is out and Ratan Tata is taking over as interim chairman of the $104 billion group, it's not clear what strategies Tata Motors will deploy to revive its fortunes.