Introduction
Tata Motors Limited is India’s largest automobile company, with revenues of Rs. 35651. 48 crores (USD 8. 8 billion) in 2007-08. It is the leader in commercial vehicles in each segment, and among the top three in passenger vehicles with winning products in the compact, midsize car and utility vehicle segments. The company is the world’s fourth largest truck manufacturer, and the world’s second largest bus manufacturer. Established in 1945, Tata Motors has over 4 million vehicles plying on Indian roads. The company’s manufacturing base in India is spread across Jamshedpur (Jharkhand), Pune (Maharashtra), Lucknow (Uttar Pradesh) and Pantnagar (Uttarakhand).
Following a strategic alliance with Fiat in 2005, it has set up an industrial joint venture with Fiat Group Automobiles at Ranjangaon (Maharashtra) to produce both Fiat and Tata cars and Fiat powertrains. The company is establishing two new plants at Dharwad (Karnataka) and Sanand (Gujarat). The company’s dealership, sales, services and spare parts network comprises over 3500 touch points; Tata Motors also distributes and markets Fiat branded cars in India. Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand and Spain.
Among them is Jaguar Land Rover, a business comprising the two iconic British brands that was acquired in 2008. In 2004, it acquired the Daewoo Commercial Vehicles Company, South Korea’s second largest truck maker. Rechristened Tata Daewoo Commercial Vehicles Company, it has launched several new products in the Korean market, while also exporting these products to several international markets. Approx, two-thirds of heavy commercial vehicle exports out of South Korea are from Tata Daewoo.
In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a reputed Spanish bus and coach manufacturer, with an option to acquire the remaining stake as well. Hispano’s presence is being expanded in other markets. In 2006, it formed a joint venture with the Brazil-based Marcopolo, a global leader in body-building for buses and coaches to manufacture fully-built buses and coaches for India and select international markets. In 2006, Tata Motors entered into joint venture with Thonburi Automotive Assembly Plant Company of Thailand to manufacture and market the company’s pickup vehicles in Thailand.
The company has also entered the commercial and passenger vehicles market in several countries in Europe, Africa, the Middle East, South East Asia, South Asia and South America. It has franchisee/joint venture assembly operations in Malaysia, Kenya, Bangladesh, Ukraine, Russia and Senegal. The foundation of the company’s growth over the last 50 years is a deep understanding of economic stimuli and customer needs, and the ability to translate them into customer-desired offerings through leading edge R&D.
It was Tata Motors, which developed the first indigenously developed Light Commercial Vehicle, India’s first Sports Utility Vehicle and, in 1998, the Tata Indica, India’s first fully indigenous passenger car. With Tata Ace, India’s first indigenously developed mini-truck, Tata created a new segment in the market and in January 2008, Tata Motors unveiled, its 1 lakh car, the Tata Nano – the world’s least expensive car.
Vision
Best in the manner in which we operate, best in the products we deliver and best in our value system and ethics.
Restructuring at Tata Motors. The Crisis
Telco was one of the elite blue-chips that most shareholders securely locked up and threw away the key. However, growth post-1997 stagnated, as fixed and raw material costs spun out of control, and depreciation and amortisation charges started eating into the bottom line.
The flashpoint came in March 2001. As costs continued to bloat, the commercial vehicles sector slipped into a vicious downcycle even as the fledgling car business got bogged down by teething problems. Result? A hole of Rs 500 crore in the P&L (profit and loss), the largest ever splash of red reported in the private sector. Investors were perplexed as the stock price crashed, and analysts and editors questioned Ratan Tata’s decision to make cars as well as Telco’s very survival. text:bookmark-start} The Cause {text:bookmark-end} Till 2000, Tata Motors was predominantly a manufacturer of commercial vehicles, and that is a very cyclical business. At the time, Tata Motors was making huge investments in car manufacturing to move away from that cyclicality. But while the company was in the middle of this diversification, the commercial-vehicle market in India shrank by more than 40 percent, with massive consequences for both the top and, more particularly, the bottom lines of the company.
The 5 billion rupee loss in 2001 was the first time something on this scale had happened in the company’s history, and it shook everybody within the organization. {text:bookmark-start} Recovery Strategy {text:bookmark-end} Tata Motors studied the situation tried to understand what had gone wrong and to create a strategy to ensure that the organization would never get into such a situation again. The company still retained its leadership position and market share in the now reduced segment size.
So, in 2001, the company decided on a recovery strategy in three distinct stages, each of which was intended to last for two years – six years in all.
Between 2001 and 2004, Tata Motors reduced its costs by a whopping Rs 1,000 crore. Of these 65 per cent were on the raw material front, 20-25 per cent were interest costs and the rest conversion (fixed) costs. The amount, the company was paying in interest charges can be gauged from the fact that in 2001, the average borrowing on a monthly basis was Rs 4,000 crore on a turnover of Rs 7,500 crore!
To cut costs on raw materials and get cash discounts, the company started paying suppliers up front, compared to the earlier lag of 90-100 days. Receivables were also brought down from 75-90 days to 10 days, as the company started selling products on cash rather than credit. Working capital also came down from around 150 days into negative territory. As Kadle began to whittle away at costs, he also found the time opportune for a Rs 1,000-crore rights issue, at Rs 65 per share. Shareholders remained unconvinced and the group had to step in and subscribe to the issue.
