Ratan Tata on Nano and future challenges

The year ahead will be a tough one, but the high sales volume of Nano will dramatically change the company’s market position.

The Indian economy continued to register impressive GDP growth, although the rate of growth declined marginally over the previous year, reflecting inflationary trends driven by the increase in the cost of energy and raw materials.

The level of industrial activity has also begun to decline as a result of fiscal constraints imposed on money supply and the raising of interest rates.

Investment flows into India increased by 20 per cent to a record level of about Rs 1,20,000 crore (Rs 1,200 billion). Investment and consequent growth could have been even greater but for the roadblocks to major investments arising from ideological differences, State-Centre conflicts and vested interests.

Some of these self-serving obstacles delayed major projects, depriving the country the opportunity to bridge the gap in infrastructure, energy, power generation, utilisation of the country?s vast natural resources and, finally, to improve the quality of life of its people.

Market report

The Indian automotive sector grew by 10 per cent overall during the year with substantial growth in the light commercial vehicles sector and new passenger car introductions.

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In the country, 499,978 new commercial vehicles were sold during the year and passenger car sales grew to 1.53 million vehicles this year. Tata Motors registered a growth of 5.5 per cent over the previous year in commercial vehicles but lost market share.

The company introduced several new models and variants of commercial vehicles during the year, but was unable to exploit its full market potential due to inadequate deliveries of powertrains and components from major suppliers.

The company also entered a new market segment through the introduction of a new mini van and mini people?s carrier which are expected to see substantial growth in the years ahead.

Sales of Tata Daewoo Commercial Vehicles increased by 38 per cent and its market share in Korea improved from 26 per cent in 2006-07 to 33 per cent in 2007-08.

In the passenger car segment, delays of the mainstream line of the new Indica and Indigo passenger cars contributed to the decline in sales and market share of the company in their product segments.

It is expected that this loss in market share will be regained following the introduction of the new Indica range, which is expected to be launched shortly.

The market introduction of Sumo Grande towards the end of the year was well received and its true potential will be realised in the current year.

Breakthroughs

Perhaps the two most significant events during the year which have had a momentous impact on the scale of the company’s operations and its global image were:

• The unveiling of Nano, the company’s new low-cost car.
• The acquisition of Jaguar and Land Rover from Ford.

These deserve elaboration.

As shareholders are aware, the company embarked on a path-breaking project of developing a ‘peoples’ car’ about four years ago to provide, safe, all-weather personal and family transport at an affordable price of Rs 100,000. The goal was considered to be unachievable by many global manufacturing and industry commentators at that time.

The goal was, however, achieved and Nano was unveiled at the Auto Expo in Delhi in January 2008. It attracted unprecedented global attention and catapulted Tata Motors onto the world stage.

The customer response in India was also unprecedented, and enormous interest in the car was shown by certain foreign countries.

Several international manufacturers are also now planning to be in the ultra-low-cost segment and many of them are looking at India as a possible location for manufacturing such a vehicle.

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The company’s new plant for Nano in Singur, West Bengal, is expected to go into operation in the last quarter of this calendar year.

These manufacturing facilities would be expanded to meet the demand in the domestic and international markets in the future. New variants of Nano are also currently under development to meet the new environmental and fuel price challenges, as also the market requirement of several international markets.

During the year, the company expressed its interest in participating in the Ford Motor Company’s intended sale of Jaguar and Land Rover on a going concern basis.

Both brands are highly regarded and have a long heritage in their respective segments. Jaguar has been a prestigious maker of high-performance passenger cars with a racing history, and Land Rover has always been the ‘Gold Standard’ for off-road vehicles.

Several international private equity firms and one other Indian automotive manufacturer participated in the process. After a protracted negotiation through the year, Tata Motors was considered by Ford for focused discussion, with the full support of the unions and the work force.

The two enterprises were formally transferred on June 2, 2008 at a signing ceremony at the Jaguar and Land Rover head quarters in West Midlands, when history was made and these two globally-renowned brands became Indian-owned.

In these brands, Tata Motors has acquired impressive engineering capabilities, substantial manufacturing facilities, (which reflect the major investments by both Ford and BMW in past years), and enormous goodwill amongst the dealer network and the Jaguar owners? community.

There is a need to introduce a greater number of attractive products for both brands, and to re-kindle Jaguar’s past image connected with its sports car heritage.

Both brands have tremendous unfulfilled market potential and a significant global presence.

To fund the acquisition of Jaguar and Land Rover, Tata Motors is raising Rs 7,200 crore (Rs 72 billion) on a rights basis and $500-600 million through an international offering of equity and/or cost-effective quasi-equity instruments.

The road ahead

The year ahead will be a year of major challenges. Higher fuel prices will negatively impact both commercial vehicles and passenger car sales.

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There will be an enormous and unprecedented increase in material costs in steel, tyres, and the like, and there will be the impact of tighter money supply with higher interest rates.

In addition, the company will have to manage the completion of the Singur plant and introduction of Nano in the market.

While dealing with these challenges in India, Tata Motors’ operations will also have to absorb the cost of the JLR acquisition, and deal with its integration.

These challenges appear daunting, but to the people in Tata Motors, the year ahead will be no more daunting than the challenges they have faced in difficult years in the past.

No words would ever adequately recognise the spirit, dedication and commitment of the people in Tata Motors who have faced adversity and major crises, delivered products which were not considered possible and repeatedly found solutions for situations which have thwarted many an organisation.

I, therefore, feel confident that the same spirit, dedication and commitment will enable them to face the challenges ahead and find solutions to ensure the sustainability of Tata Motors? long-term future growth and viability.

Despite the challenges mentioned, Tata Motors will have an exciting future.

Apart from its own growth domestically in both the commercial vehicle and passenger car areas, for which it has ambitious plans, the high volumes of the Nano range will dramatically change Tata Motors’ market position, reach and visibility. Internationally, the Jaguar and Land Rover brands will add global scale, profits and visibility to Tata Motors, enabling it to take its place in the global auto industry as a credible international automobile company.

Courtesy :- Business Standard