37872217 Tata Motors Final Project

8/8/2019 37872217 Tata Motors Final Project

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Executive Summary

The report talks about the Indian automobile industry in general and Indian

automobile giant. TATA Motors in particular. We have analyzed Indian

automobile industry using Porters 5forces model & its performance in the recentpast. Particularly we have tried to track the path of TATA Motors expansion of

international business in the recent past, at present as well as its future plans. We

have also discussed the impact of current financial meltdown on the recent

international ventures of the company. The company is rapidly increasing its

global footprint and is aiming to match the standards of international automobile

manufacturers in next 3 to 5 years. This rise to the level of a world-class

automotive manufacturer would involve a large quantifiable increase in revenues

from outside India with a focus on certain foreign markets. Currently internationalbusiness contributes 18.4% to companys revenues. Company is aiming to increase

it by 200% in near future to reduce its dependence on one single economy and one

single business cycle. This ambition of the company has led to numerous joint

ventures and increased activity in countries like the U.K., South Africa, South

Korea, Thailand, Brazil and Spain, as well as the company is listing on the NYSE.

With the recent acquisition of Jaguar Land Rover (JLR) from the Ford Motor

company in early 2008, the company has entered into the world of high-end luxury

brands. Customers of high-end luxury brands value image and exclusivity factors,

while image and exclusivity conflict with the proposition of TMLs other recent

venture, the inexpensive Nano. In this manner, the decision to compete in both the

high-end luxury and low-end economy markets certainly creates a big and

audacious task ahead for TML. If proven successful, this strategy would provide

the company with high margin (JLR) as well as high volume (Nano) revenues.

These two revenue streams, if proven compatible, could mitigate each others

risks.


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Indian Automobile Industry

Hailed as the industry of industries by Peter Drucker, the founding father of the

study of management, in 1946, the automobile industry had evolved continuously

with changing times from craft production in 1890s to mass production in 1910s to

lean production techniques in the 1970s.

The automotive industry in India grew at a computed annual growth rate (CAGR)

of 11.5 percent over the past five years, the Economic Survey 2008-09 tabled in

parliament on 2nd July09 said. The industry has a strong multiplier effect on the

economy due to its deep forward and backward linkages with several key segments

of the economy, a finance ministry statement said. The automobile industry, which

was plagued by the economic downturn amidst a credit crisis, managed a growth of0.7 percent in 2008-09 with passenger car sales registering 1.31 percent growth

while the commercial vehicles segment slumped 21.7 percent.

Indian automobile industry has come a long way to from the era of the

Ambassador car to Maruti 800 to latest M&M Xylo. The industry is highly

competitive with a number of global and Indian companies present today. It is

projected to be the third largest auto industry by 2030 and just behind to US &

China, according to a report. The industry is estimated to be a US$ 34 billionIndustry. Indian Automobile industry can be divided into three segments i.e. two

wheeler, three wheeler & four wheeler segment. The domestic two-wheeler market

is dominated by Indian as well as foreign players such as Hero Honda, Bajaj Auto,

Honda Motors, TVS Motors, and Suzuki etc. Maruti Udyog and Tata Motors are

the leading passenger car manufacturers in the country and India is considered as

strategic market by Suzuki, Yamaha, etc. Commercial Vehicle market is catered by

players like Tata Motors, Ashok Leyland, Volvo, Force Motors, Eicher Motors etc.

The major players have not left any stone unturned to be global. Major of theplayers have got into the merger activities with their foreign counterparts. Like

Maruti with Suzuki, Hero with Honda, Tata with Fiat, Mahindra with Renault,

Force Motors with Mann.


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Key Facts:

India ranks 12th in the list of the world's top 15 automakers

Entry of more international players

Contributes 5% to the GDP Production of four wheelers in India has increased from 9.3 lakh units in 2002-03

to 23 lakh units in 2007-08

Targeted to be of $ 145 Billion by 2016

Exports increased from 84,000 units in 2002-03 to 280,000 units in 2007-08

Porters Five Forces Analysis of Indian Automobile Sector

1. Industry Rivalry Industry Concentration: The Concentration Ratio (CR) indicates the percent ofmarket share held by a company. A high concentration ratio indicates that a high

concentration of market share is held by the largest firms - the industry isconcentrated. With only a few firms holding a large market share, the market isless competitive (closer to a monopoly). A low concentration ratio indicates thatthe industry is characterized by many rivals, none of which has a significantmarket share. These fragmented markets are said to be competitive. If rivalryamong firms in an industry is low, the industry is considered to be disciplined.


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High Fixed costs: When total costs are mostly fixed costs, the firm must producecapacity to attain the lowest unit costs. Since the firm must sell this large quantityof product, high levels of production lead to a fight for market share and results inincreased rivalry. The industry is typically capital intensive and thus involves highfixed costs.

Slow market growth: In growing market, firms can improve their economies.Though the market growth has been impressive in the last few years (about 8 to15%), it takes a beat in even slight economic disturbances as it involves a luxurygood. Aggressive pricing is needed to sustain growth in such situations.

Diversity of rivals:Industry becomes unstable as the diversification increases. Inthis case the diversity of rivals is moderate as most offer products which are closeto standard versions and the competitors are also mostly similar in strength

Highly competitive industry: The presence of many players of about the samesize little differentiation between competitors, and a very mature industry withvery little growth were the features of a highly competitive industry. Higher thecompetition in the industry lower would be the profit margin. To remain ahead incompetition, auto-makers were tempted to offer value added services to thecustomers incurring more costs.

2. Threat of New Entrants

These are the characteristics that inhibit the entrance of new rivals into the marketand in turn protect the profits of the existing firms. Based on the present profitlevels in the market, one can expect the entrance of new firms into the market ornot. The entrance is however also affected by the start-up costs

Economies of scale:The Minimum Efficient Scale (MES) is the point at whichunit costs are minimized. The greater the difference between the MES and theentry unit cost, greater is the barrier. Economies of scale are becoming increasinglyimportant as competition is driving the profit margins to lower levels. Also being acapital intensive industry economies of scale have important consequence

Government policies:(1)Automobile Industry was delicensed in July 1991 with the announcement of

the New Industrial Policy.(2)The passenger car industry was delicensed in 1993. No industrial licence is


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required for setting up of any unit for manufacture of automobiles except in somespecial cases.

(3)The norms for Foreign Investment and import of technology have beenProgressively liberalized over the years for manufacture of vehicles includingPassenger cars in order to make this sector globally competitive.

(4)At present 100% Foreign Direct Investment (FDI) is permissible underautomatic route in this sector including passenger car segment. The importof technology/technological up gradation on the royalty payment of 5%without any duration limit and lump sum payment of USD 2 million isallowed under automatic route in this sector.

(5)The automotive industry comprising of the automobile and the autocomponent sectors has made rapid strides since delicensing and opening upof the sector to FDI in 1991.

(6)The industry had an investment of about Rs. 50,000 crore in 2002-03 whichhas gone up to Rs. 80,000 crore by the year 2007. The automotive industryhas already attained a turnover of Rs. 1,65,000 crore (34 billion USD).

(7)The industry provides direct and indirect employment to 1.31 crore people.The contribution of the automotive industry to GDP has risen from 2.77% in1992-93 to 5% in 2006-07. The industry is making a contribution of 17% tothe kitty of indirect taxes of the Government.

With all the policies regarding the FDI and Tariff barriers as mentioned above, ithas become easier for the foreign players to enter the Indian automobile industry.

3. Threat of Substitutes

The replacement market is characterized by the presence of several small-scalesuppliers who score over the organized players in terms of excise duty exemptionsand lower overheads. A products price elasticity is affected by the presence of substitutes as itsdemand is affected by the change in the substitutes prices The cost of the automobiles along with their operating costs was drivingcustomers to look for alternative transportation options The new technologies available also affect the demand of the product

e.g.: In case of Marutis products, the threat of substitutes is high. The competitionis intense as several players have products in the categories given by Maruti.However, in the 800cc range it is the market leader and the threat of substituteproducts is low. Price performance comparison favors heavily towards Maruti inmost product categories. Also the high availability and quality of services offeredby Maruti gives the customer a better trade-off.


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4. Bargaining Power of Suppliers

Suppliers can influence the industry by deciding on the price at which the raw

materials can be sold. This is done in order to capture profits from the market. Steel is a major input in this industry and so steel prices have a sharp andimmediate impact on the product price The industry being capital intensive switching costs of suppliers is high, otherthan steel as raw material which is highly price sensitive and the firm may easilymove towards a supplier with lower cost.

5. Bargaining Power of Buyers

It specifies the impact of customers on the product When buyer power is strong, the buyer is the one who sets the price in themarket. Here there are purchases of large volumes. There is prevalence of alternative options. Price sensitive customers were some of the factors that determine the extent ofInfluence of the buyers in this industry e.g.: In the case of Maruti, the salesvolumes have shown increasing trend over past so many years. The customers aremore or less concentrated in metros or other tier two cities. The industry is also

concentrated in these regions mostly. Most of them are have good amount ofknowledge about the product. Except the 800cc range in other categories brandloyalty is only moderate. Also it is difficult to measure since repurchases are rare.Product differentiation is high as there are many categories in the passengervehicle segment. Buyers get incentives in the form of cost discounts and betterafter sales services.


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TATA GROUP

TATA Group is more than 150 years old. In terms of market capitalization andrevenues, Tata Group is the largest private corporate group in India and has been

recognized as one of the most respected groups in the world. It has interests insteel, automobiles, information technology, communication, power, tea andhospitality. The Tata Group has operations in more than 85 countries across sixcontinents and its companies export products and services to 80 nations. In the pastfew years, the TATA group has led the growing appetite among Indian companiesto acquire businesses overseas in Europe, the United States, Australia and Africa -some even several times larger - in a bid to consolidate operations and emerge asthe new age multinationals.The TATA group is 11th most reputable company in the world according toForbes. At home in the world Anchored in India and committed to its traditional

values of leadership with trust, the Tata group is spreading its footprint globallythrough excellence and innovation. The Tata groups revenues for 2007-08 from itsinternational operations were $38.3 billion, which constitutes 61 per cent of itstotal revenues. Each operating company in the group develops its internationalbusiness as an integral element in an overall strategy, depending on the competitivedynamics of the industry in which it operates. Exports from India remain thecornerstone of the Tata groups international business, but different Tatacompanies are increasingly investing in assets overseas through Greenfield projects(such as in South Africa, Bangladesh and Iran), joint ventures (in South Africa,

Morocco and China) and acquisitions.Acquisitions are a crucial component of the global expansion of Tata enterprises.Over the past eight years the group has made overseas acquisitions of $18 billion.Among the bigger deals on this front have been Tetley, Brunner Mond, Corus,Jaguar and Land Rover in the UK, Daewoo Commercial Vehicles in South Korea,NatSteel in Singapore, and Tyco Global Network and General Chemical in the US.Priority markets. While individual Tata companies have differing geographicalimperatives, the Tata group is focusing on a clutch of priority countries, which areexpected to be of strategic importance in the years ahead. The regions are NorthAmerica, UK, China, the Netherlands, Germany, South Africa, members of the

Gulf Cooperation Council, Brazil, Vietnam, Thailand and Sri Lanka.Ratan Tata, Chairman, Tata Sons, sums up the Tata groups efforts tointernationalize its operations thus: I hope that a hundred years from now we willspread our wings far beyond India, that we become a global group, operating inmany countries, an Indian business conglomerate that is at home in the world,carrying the same sense of trust that we do today.


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TATA MOTORS

TATA Motors is the flagship company of the TATA group & is India's largestautomobile player, with revenues of $7.2 billion in 2006-07. With over 4 million

TATA vehicles plying in India, it is the leader in commercial vehicles and thesecond largest in passenger vehicles. Previously TATA Engineering andLocomotive Company (Telco), TATA Motors is listed on the New York StockExchange in 2004.

Competition at Home TATA Motors is vulnerable to greater competition at home. Foreign vehiclemakers including Daimler, Nissan Motor, Volvo and MAN AG have struck localalliances for a bigger presence. TATA Motors, which has a joint venture with Fiat for cars, engines and

transmissions in India, is also facing heat from top car maker Maruti Suzuki IndiaLtd, Hyundai Motor, Renault and Volkswagen. Making Waves Internationally NANO will mark the advent of India as a global centre for small-car production International praise came from Standard & Poors, which in December 2006

expressed the view that the policy to support its companies and the improvedfinancial profile of its entities also enhances the overall financial flexibility ofTATA Motors.Environmental Regulations


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SWOT

Strengths:

Strong domestic player:Tata Motors is Indias largest automobile manufacturerby revenue. The companys market share in the Indian four-wheeler automotivevehicle market (i.e. automobile vehicles other than two and three wheelercategories) stood at 26.1% in FY2008. The company is also the leader in the Indian

commercial vehicles with a market share of 62.7% and is the second largest playerin the Indian passenger vehicles market with a share of 14.2% in FY2008.Steady revenue growth: The company recorded strong revenue growth during2004-08. During this time, the revenues of the company grew at a CAGR of 27.1%to reach INR365,230.6 million (approximately $9,072.3 million) in FY2008 fromINR139,696 million (approximately $3,096 million) in 2004. The strong revenuegrowth of the company has contributed to its market dominance.Research and development activities: Tata Motor has strong research anddevelopment (R&D) capability. The company incurred large expenditure for itsR&D activities. The companys R&D activities focus on product development,

environmental technologies and vehicle safety through its Engineering ResearchCentre (ERC). The ERC is one of the few government recognized in houseautomotive R&D centers in India. In the recent period, the ERC developed the TataNano, an affordable family car. The strong R&D capability enables the company tobuild a broad range of vehicle portfolio and improves its competitive strength inthe automotive industry.


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Weaknesses:

Decline in vehicle sales: Tata Motors recorded decline or marginal growth in its

vehicle sales in the last financial year. The company recorded a sale of 585,649vehicles, a growth of 0.9% over last year. During the same time, the automotiveindustry in India recorded a growth of 10.4% to reach the total vehicle sales to2,309,324 units. The overall market share of the company stood at 25.4% in 2008as compared to a market share of 27.8% in 2007. The decline in sales wouldfurther affect the companys market share, and erode investors confidence. Employee productivity: Tata Motors posted weak revenues in proportion to thetotal number of its employees. The revenue per employee of the group stood atINR10 million (approximately $0.24 million), significantly lower when comparedto its global competitors such as Toyota Motor ($.73 million), and Nissan Motor

($.53 million). The weak revenue per employee of the company compared to theglobal auto majors indicates its weaker productivity and operational inefficiency.

Opportunities:

Product launches: Tata Motors has launched various new products during the lasttwo year period (200708). For instance in December 2007, Tata Motorsintroduced its new range of Medium and Heavy Commercial Vehicles. In March2008, Tata Motors (Thailand) launched the Tata Xenon 1-ton pickup truck at the

annual Bangkok International Motor Show. In FY2008, the company launched theIndigo sedan and Indica with the Direct Injection Common Rail (DICOR) andSumo Grande. Furthermore, the launch of its small car, NANO in January 2008would further fuel its presence in the passenger vehicle market.Acquisition of Jaguar and Land Rover brands: These brands had salesoperations in more than 100 countries with over 2,200 dealers. Acquisition of JLRprovides the company with a strategic opportunity to acquire iconic brands, andincrease the companys business diversity across markets and product segments.

Threats:

Increasing competition: Tata Motors face intense competition from its domesticas well as foreign competitors including General Motors, Honda Motor, MarutiUdyog, Mitsubishi Motors, Fiat, Ford and so on. Competition is expected tointensify further as Indian automotive manufacturers obtain greater access to debtand equity financing in the international capital markets or gain access to more


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advanced technology through alliances. Additionally, in recent years, thegovernment of India has permitted automatic approvals for foreign equityownership of up to 100% in entities manufacturing vehicles and components inIndia.Environmental regulations: The company is subjected to extensive governmentalregulations regarding vehicle emission levels, noise, safety and levels of pollutantsgenerated by its production facilities. These regulations are likely to become morestringent in the near future. In addition, Jaguar Land Rover has significantoperations in the US and Europe which have stringent regulations relating tovehicular emissions. The proposed tightening of vehicle emissions regulations willrequire significant costs for the company.

Major international ventures of TATA Motors in recent past are discussed

below:

1. TATA Daewoo Commercial Vehicle- In 2004, TATA Motors acquired theDaewoo Commercial Vehicle Company ofSouth Korea. TATA remains India'slargest heavy commercial vehiclemanufacturer and TATA Daewoo is the2nd largest heavy commercial vehicle


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manufacturer in South Korea. The reasons behind the acquisition were:

a) Company's global plans toreduce domestic exposure. Thedomestic commercial vehicle marketis highly cyclical in nature and proneto fluctuations in the domesticeconomy. TATA Motors has a highdomestic exposure of ~94% in the

MHCV segment and ~84% in thelight commercial vehicle (LCV)

segment. Since the domestic commercial vehicle sales of the company are atthe mercy of the structural econo mic factors, it is increasingly looking at theinternational markets. The company plans to diversify into various marketsacross the world in both MHCV as well as LCV segments.

b) To expand the product portfolio TATA Motors introduced the 25MT GVWTATA Novus from Daewoos (South Korea) (TDCV) platform. TATA plans toleverage on the strong presence of TDCV in the heavy-tonnage range andintroduce products in India at an appropriate time. This was mainly to cater to theinternational market and also to cater to the domestic market where a majorimprovement in the Road infrastructure was done through the National HighwayDevelopment Project. TATA Motors has jointly worked with TATA Daewoo todevelop trucks such as Novus and World Truck

2. Hispano Carrocera- In 2005, sensing the huge opportunity in the fully built bussegment, TATA Motors acquired 21% stake in Hispano Carrocera SA, Aragonesebus manufacturing company with an option to acquire 100% holding. Hispano

Carrocera is an established and reputedbus and coach manufacturer in Spainenjoying excellent reputation fordeveloping high quality vehicles. Itoperates in two manufacturing locationsnamely, Zaragoza in Spain andCasablanca in Morocco, North Africa.


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4. TATA Xenon- TATA Xenon was released in late 2007. It was first displayed atthe 2006 Bologna Motor Show. The car is assembled in Thailand by Tata-ThonburiJV and in Argentina by Tata-Fiat JV. The Xenon has been well received in Europe

especially in Spain and Italy. SPRINTwas the code name of the Project fordevelopment of Tata's World Pick-up(truck). World Pick-up market (otherthan USA) is dominated by JapaneseAuto majors like Toyota, Isuzu,Mitsubishi, Nissan. As per the studyconducted by Tata Motors, there is a bigopportunity for TML to grab substantial

market share of world Pick-up market. Tata initiated an in-depth market study invarious countries in Europe, Middle East, S Africa, Thailand, Australia, Latin

America etc to understand needs of target segments for a new Pick-up. While anew product development timeline takes between 36 to 50 months, it is said that sofar only Toyota has achieved the Timeline of 18 months. Hence, the name SPRINTwhich signifies and continuously reminded project team about the Speed of theproject. The team worked round the clock relentlessly, applied principles of"Concurrent Engineering", distributed work load in 9 different countries in order tocrash timeline by overlapping maximum possible key activities. The teamdelivered project in 17 monthsfrom styling freeze in Dec 05 to SOP ( Start ofProduction) in May 7. Bologna Motor Show 2006 (Dec) was the occasion whenXenon was unveiled for public display and later in March 2007, it was alsodisplayed at Geneva Motor Show 2007. Till date Xenon has been launched in 14countries in Europe, Middle East, Africa and SE Asia. Tata Motors signed a jointventure with Thonburi Automotive Assembly Plant Co. (Thonburi), the Thailand-based independent assembler of automobiles to manufacture, assemble and market

pickup trucks in Dec06. The joint venture, in which Tata Motors holds 70% of theequity and Thonburi 30%, gets vehicles manufactured in Thonburis manufacturing facility.

The joint venture facilitated Tata Motors address the Thailand market, the second

largest pickup market in the world after the US. Both partners jointly manage theoperations.


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5. TATA Fiat- The TATAs and Italian car giant Fiat kicked off their partnershipwith the former marketing Fiat cars since Mar06. Fiatbranded cars are distributed by Tata through the Tata-Fiatdealer network. The partnership took off to the next level inDec06 with both the sides announcing the formation of a

joint venture with aggregate investments of over Rs 4000crore (over euro 665 million) in a phased manner tomanufacture vehicles for the Indian and overseas markets.The 50:50 joint venture enabled Fiat plant at Ranjangaon,Pune with capacities to produce in excess of 200,000 carsand 300,000 engines and transmissions yearly, at steadystate. The JV may be expanded to produce trucks as well.This strategic alliance with Fiat enables the two companies

jointly to present a wider range of

product offerings to the Indian market. It enables Tata Motors to access world-class powertrains from Fiat for its next generation car offerings while enhancingthe model line at its dealerships. Fiats Ranjangaon manufacturing facility isbenchmarked against the global car manufacturers units in Turkey and Brazil. Itcompares well as the lowest-cost manufacturer, and Fiat will eventually sourceright-hand drive Linea cars from here for the UK and Australia. Fiat has a costadvantage of 14-17% over Brazil and Turkey due to localisation of parts andlabour costs. Fiat had almost decided to quit the Indian market but for Fiat chiefexecutive officer Sergio Marchionne and Tata group chairman Ratan Tata comingtogether in 2005. Such was the level of confidence among both the partners thatinvestments began at least two years before even a formal agreement was signed.JV is already producing the Fiat Palio, Stile and Linea models and select TataIndica models.


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Future Plans:

The company is readying tolaunch the Grande Punto, acompact car, in the thirdquarter of the fiscal year- 2009-10. The second model will beTata Motors new three-boxoffering, code-named X1.

Planned launch of the Fiat Bravo is being delayed because of the economicslowdown. Fiat manufactures Tata Motors 1-tonne pick-up truck at its plant in

Argentina for Latin American and overseas markets. The JV is expected to breakeven by 2011-12.

6. City Rover- The City Rover was a hatchback car model offered by MG RoverGroup in the UK market. Launched in theAutumn of 2003, the car was a rebadgedversion of the Tata Indica. MG Rover groupused to import TATA Indica from India andsold as City Rover in UK market. The CityRover's running costs wererather high, and its asking price was highcompared with newer, better built and better

specified rivals such as the Fiat Panda. MG Rover was reported to be paying Tata3,000 for each car and, despite each model featuring a Rover corporate nose andrevised suspension settings, the buying public was not impressed by the 7,000starting price. Along with the rest of the MG Rover range, production of the CityRover ended in April 2005 when the company went into receivership, the lastvehicles brought into the UK being purchased and sold on by a non-franchiseddiscount dealer group. Although MG Rover was bought by Nanjing Automobile of

China in July 2005, the company's new owners did not include the City Rover orindeed any direct successor in their plans for a new model range. This was one ofthe unsuccessful attempts of Tata Motors to go global.


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7. Exports Market (CV)- TATAs exportits commercial vehicles to neighboringAsian countries like Nepal, Sri Lanka,Bangladesh, Afghanistan apart fromSouthAfrica and Middle East markets. Itcompetes with the likes of Mercedes,Volvo, and Hyundai etc in Middle Eastmarkets.

8. World Truck- TATA Motors unveiled its World Truck range, developedjointly with TATA Daewoo Commercial Vehicles of South Korea in May09. The

developing infrastructure in India makes itpossible for transporters to reap the benefit oftrucks with higher power, speed and carryingcapacity. The new range from Tata Motorswill meet those needs. It will also help itpenetrate international markets moreeffectively and competitively.

Future Plans:

The commercial launch of these trucks in India is scheduled during July-September09. They will debut in South Korea, South Africa, the SAARCcountries and the Middle-East by the end of the fiscal. The trucks will be made atthe Jamshedpur facility and at Gunsan in South Korea. The company expectsinternational volumes to be at par with numbers in India.


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9. TATA Nano- Conceived in 2003, Tata Motors had launched the much- hyped'cheapest' car in India in Mar09. The car has cost over Rs 2,000 crore to the

company. The car is expected to boost the Indian economy, create entrepreneurial-opportunities across India, as well as expand the Indian car market by 65%. Thecar was envisioned by Ratan Tata, Chairman of the Tata Group and Tata Motors,who has described it as an eco-friendly "people's car". For the first time, thanks to

Tata's Nano, India has been established as an R&D leader, and not just a low-costhub known for cheap labor. It has shown to the world that India can be atechnology leader. It is a great innovation, because innovation is all about thinkingof the next decade and not the next quarter.The Tata Nano will certainly find big takers in India. However, it can have amarket in the US, as well. If the car is enriched with high technology functions tomake it an intelligent car, many in the US will look forward to own it. Anintelligent car at $3000 would be a good A Promise is a Promise bargain after all,for many Americans. Tata's Nano shows that there is a huge opportunity for Indiancompanies to build profitable low-cost products and then take them to the US.

Future Plans:

Tata Motors will be launching it in Nigeria within the next year and a half. InNigeria, the Nano will cost 357,480 NGN (Rs 1.16 lakh), almost the same as itscost in India, making it cheaper than even used cars in the country. According toTATA Motors officials, Nano will greatly benefit Nigerians as there is no properpublic transport system in the country. Company is yet to decide whether the carwould be assembled in Nigeria itself or if it would be made available as a

Completely Built Unit (CBU). The company is planning to market Nano in othercountries, but timelines, modes and countries are yet to be finalized. Earlier thisyear, the Tata Nano Europa (the European version of the Nano) was unveiled at theGeneva Auto Show. The Nano Europa will be launched in 2011.

10. TATA-JLR: TATA Motors bought the iconic Jaguar and Land Roveroperations from Ford for 1.15 billion pounds in Mar- Apr08. Tata gained the


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rights to the Daimler, Lanchester, and Rover brand names. In addition to thebrands, Tata Motors also gained access to 2 design centers and 3 plants in UK. Thekey acquisition would be of the intellectual property rights related to thetechnologies. With the acquisition of Jaguar and Land Rover (JLR), Tata Motorskilled several birds with one stroke. The acquisition paves the way for thecompanys entry into the European car market and gives the company acomprehensive range of models ranging from the luxury Jaguar to the $2,500Nano. It provides an entry point into Indias growing luxury car market whichgives new impetus to the companys development program as well and provides acaptive customer base for the component companies of the Tatas. In the long-runTATA Group and TATA Motors footprint in South-East Asia should helpJaguar/Land Rover diversify their geographic dependence from US (30% ofvolumes) and Western Europe (55% of volume). Analysts believe that TATAsownership of JLR will open doors for outsourcing of parts from India, particularly

from the current pool of suppliers who service TATA Motors in India.

Present and Future Plans:

A year after Tata group purchased Jaguarand Land Rover, it launched the Britishiconic luxury brands in the Indian market.The India foray comes at a time whenworldwide sales of luxury cars are falling.

The global meltdown dragged JLR intohuge losses as consumers haltedpurchases. Sales, after the $2.5 billion

takeover by Tata Motors last June, dropped a third to 1.67 lakh vehicles. Thebridge from the Nano to Jaguar XF is probably the biggest that exists in theindustry. A $2,500 car and a $100,000 car: no other company in the world has aportfolio that wide.Why JLR?

Long term strategic commitment to automotive sector Opportunity to participate in two fast growing auto segments Increased business diversity across markets and products Land rover provides a natural fit for TMLs SUV segment Jaguar offers a range of performance/luxury vehicles to broaden the brand

portfolio Benefits from component sourcing, design services and low cost engineering.


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Impact of Current Global Slowdown on

TATA-JLR Deal:

We went too far with JLR: Ratan TataTata Sons Chairman Ratan Tata recently saidhe may have overstretched himself in paying1.15 billion pounds for Jaguar Land Rover

just as a recession loomed. A year after theTata group took over the two of Britainsmost iconic automobile brands, Jaguar and

Land Rover, it is faced with newer and bigger challenges than it would haveexpected when it paid $2.3 billion to Ford for the acquisitions on March 26, 2008.In FY 2008-09, Tata Motors Ltd posted its first annual loss in at least eight years

after sales at the luxury units, Jaguar and Land Rover plunged amid the globalrecession. The consolidated net loss was Rs 2,500 crore in the year ended 31March, 2009 compared with a net income of Rs 2,200 crore billion a year ago.Ratan Tata is slashing investments by as much as 38% in the year to March onslow economic growth. At the time of acquisition of JLR by TATA Motors, therewere some who called for caution. They pointed out that buying into an automobilemajor when the market for automobiles was set for a downturn might not reflectgood business sense. Moreover, post acquisition, debt at the level of both parentand the United Kingdom subsidiaries in the TATA group was slated to risesharply. Unfortunately for Tatas, the worst fear of the skeptics has come to pass.Within months of the acquisition, the world witnessed the onset of a financial crisisthat triggered a credit crunch and precipitated a real economy recession. Industriessuch as steel and automobiles were among the worst affected. This had twoimplications. First, the sales and revenues of JLR were far short of expectations,making it difficult for Tatas to meet commitment on their debt and reduce thedegree of leverage. Second, with much of this debt being of a bridge loan kind,loans that mature and cannot be repaid have to be refinanced and rolled over toprevent default. Given the current circumstances, this is difficult, as Tatasdiscovered this May, when the $3 bn it had borrowed to finance acquisition of JLR

was due for refinancing. After the Tatas acquired the company, business challengeswere mostly a result of adverse market conditions. In the first half of 2008,Jaguars sales volume was 11.2 % more than in the same period in 2007 whileLand Rovers was 0.6 % ahead of 2007. At the end of 2008, Jaguar was 8.2 %ahead of 2007 for the year, while Land Rover had felt the impact of the downturnand its full-year sales were 17.6 % less than in 2007. In the first two months of2009, Jaguar was 6.9 % ahead of 2008 and Land Rover 45 % down when


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compared with the same period last year. There have been a series of non-production days at all three of its UK assembly plants Castle Bromwich andSolihull in the West Midlands and Halewood on Merseyside. Each plant lost anaverage of 25 days production, which equated to a volume reduction ofapproximately 25 per cent month on month. A worsening economic situation couldlead to further job losses and even plant closures at Jaguar Land Rover (JLR) inBritain. Tatas bankers are seeking to secure short-term finance of between 500million and 1 billion to allow Jaguar Land Rover to pay off supplier paymentsdue by the end of the summer and stop it running out of cash. The Tatas are tryingto persuade the British government to stand guarantee for loans that they plan toseek from the UK banks to bail out JLR. The British government has beenreluctant to provide these loan guarantees so far. If the UK governments help doesnot come soon, Tata Motors will have to cut down its investment plans for JaguarLand Rover (JLR) with possible job losses and plant closures. While Tata looks to

sustain JLR through the downturn, the UK government's support is crucial as JLRwants it to guarantee a pound 340 million European Investment Bank loansanctioned in April. Although JLR has the option of getting guarantees fromprivate banks, it may work out to be an expensive proposition. To get thegovernment's help, Tata may have part with some equity interest in JLR, besidesgiving board representation. According to a recent report in The Economic Times,the company is negotiating at the moment and if there was a large financialpackage from the UK government to the company then there would be acommensurate level of representation on the board.Despite the challenges, there have been some good news, the companys 14,000-odd workers agreed to a two-year pay freeze on condition of no compulsorylayoffs. This is expected to save the company up to 68 million a year. Thecompany also bagged a significant order from China for supplying 13,000 carsworth 600 million over the next three years. More recently, the UK governmentapproved a grant of 27 million (Rs 192 crore) to JLR for producing a new eco-friendly car based on Land Rovers LRX Concept. Luxembourg-based EuropeanInvestment Bank is also considering giving a loan of 275 million (Rs 2,100 crore)for research to reduce the CO2 emissions from JLRs future products.What is remarkable is that the Tata group has been able to ride the waves and come

ashore safely this time as well. Tata Motors returned $1.11 bn of its original bridgeloan by mobilizing funds through a rights issue, launching a fixed deposit schemeand by selling the shares of Tata Steel it held. Second, the Tata group hasmobilized the support of the Indian government. Even when the group embarkedon its ambitious overseas acquisition strategy, there was evidence that it had thebacking of the Indian government, which too was seeking to build India itself as aglobal brand. Tatas mobilized Rs 42 bn through bond markets with the help of


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government-owned State Bank of India. Tatas are also in talks with defenseestablishment to obtain secure orders for the Land Rover. Finally, the Tatas haveused innovation to obtain support from the Indian public for its UK operations.Tatas launched Nano in Apr09 and received 203,000 advance orders & raised Rs 25 bn from Indian public. This money was in essence a loan from public atlarge & Tatas will pay interest rate on the same. This money is also crucial to theTatas survival strategy. In sum, despite its grievous errors in the form of the crisis-eve, debt-financed acquisition JLR, the Tata group has escaped a group-wide crisisby leveraging its brand, the Indian government and the Indian public. That isindeed remarkable, even if fortuitous to some degree.


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Recommendations

Industry analysts expect GM to sell the Hummer brand in 2009 and without a seller

in sight, there is a real possibility that the brand will cease to exist. A push indeveloping cutting-edge products in the Land Rover brand could enable Tata tocapture Hummer customers as they look for comparable - or better products.Company needs to focus on these 3 aspects to attract the consumers of the high-end market products:1. Brand Appeal and Endorsement2. Performance Characteristics3. QualityTML can greatly enhance customers perceptions of these three criteria with targeted increased investments. Brand appeal, performance and quality are all

functions of the investments made in product development and marketing. Ascompetitors such as Volvo, Saab, Hummer and others fail to maintain investmentsin either development or marketing, this leaves the door open for TML tocapitalize and gain both market share and momentum. TML is in a unique positionto invest given the company's strong balance sheet and overall financial health.The two ways firms compete are by either a differentiation strategy or a low coststrategy. However, as we've seen the route TML has taken involves competing onboth strategies. While the Nano targets the price conscious common man, theJaguar Land Rover deal shows us that TML is now targeting brand conscious,

high-end consumers. TML needs to have a similar differentiated strategiesfocusing separately on these brands. TMLs vision is to be best in the manner inwhich we operate, best in the products we deliver and best in our value systemsand ethics. TML has come to be known as an innovator in the passenger carsegment not just in manufacturing but along multiple areas along the value chain.The Tata Indica and Tata Nano are prime examples of the companys innovationcapabilities and bear testimony to the strength of the companys R&D efforts. Thisinnovation fuelled growth coupled with strategic acquisitions is expected tocatapult the company to a preeminent position internationally.


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References:

www.tata.com

www.tatamotors.com http://en.wikipedia.org/wiki/Tata_motors http://en.wikipedia.org/wiki/Tata_group http://en.wikipedia.org/wiki/Indian_automobile_industry http://en.wikipedia.org/wiki/Tata_Xenon www.rediff.com www.ndtv.com Kelly School of Business Report on Tata Motors Limited ComprehensiveStrategicAnalysis

IHS Global Insight Report: India (Automotive) - July09 The Economic Times

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37872217 Tata Motors Final Project

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