Mayank Pareek, President, Passenger Vehicle (PV) Business at Tata Motors, is glad to keep his team in a permanent state of paranoia. An obsession for cost control has helped the maker of Hexa sports utility vehicle and Tiago hatchback turn on its head with a steady climb in sales over the last one and half years, from where it plans to start making money.
This paranoia on cost control is no delusion. It is powered by the company’s GEAR logic (Generate idea, evaluate each idea, action the idea and realise it) programme, which was implemented for the PV business in the beginning of the ongoing fiscal, as part of the second phase of turnaround strategy scripted by Guenter Butschek— MD and CEO, Tata Motors. While the turnaround has helped the company get back in the reckoning in the PV market, grow its market share and volumes, it is still to match the levels it was at, five years ago when Tata Motors sold 0.314 million units and had a market share of 11.8 per cent. The clock, therefore, is ticking fast for Pareek and his team.
“We are still at 6.6 per cent market share and the road ahead is long and winding. The cost-cutting target taken this year is six times more than whatever we had done in the past. Earlier, the time taken to travel from G to R (generating an idea to realising it) was a year, I have squeezed it to three months. We need to do this for three years, after that we become structurally strong and become less vulnerable to external headwinds. Then it also becomes a habit,” said Pareek who was brought in from Maruti Suzuki India, by Cyrus P Mistry, then chairman Tata Sons to head the PV business in October 2014.
Butschek’s turnaround plan in FY19 is based on the three key principles of “win decisively” in commercial vehicles, “win sustainably” in passenger vehicles, and embed a culture of turnaround deep into the organisation.
Having drastically pared its losses at the Ebitda level to Rs 0.25 billion in the latest June quarter from Rs 4.62 billion in the year-ago period, Tata Motors is expecting an operational breakeven in its PV business in FY19 for the first time in a decade on the back of briskly expanding volumes and cost-cutting programmes. Ebitda stands for earnings before interest, tax, depreciation and amortisation, and reflects the operational performance.
Even as Pareek has kept his team busy with targets on sales, costs and margins, Dinesh Bhasin, Vice President, Customer Care for the PV business, has been working behind the scenes to win back the trust of Tata passenger vehicle owners, which in turn has been reflecting in company’s growing sales. In a stark departure from the past when company’s apathy towards after sales service irked owners, Bhasin vouches that Tata passenger vehicles’ workshops today are competent enough to resolve 80 per cent of the complaints within 24 hours.
Also, the number of complaints have reduced sharply from 3.5 per cent earlier to 1.5 per cent now, of vehicles serviced at our workshops. Recent initiatives like use of specifically developed digital applications that show the service history, use of bar code for stocking spares and, adoption of a so-called ‘six signature practice’ that involves a PV dealer executive visiting a new owner on the seventh day from vehicle purchase, have also helped.
Bhasin and his team’s efforts reflected in JD Power Customer Service Index (CSI) rankings of 2017 where Tata Motors scored 893 points breaking into the league of Maruti Suzuki and Hyundai Motor India— which ranked first and second in the CSI rankings. “Irrespective of whoever heads customer service in the company, the robust processes and systems will ensure that service remains top notch,” said Bhasin who superannuates next month after a seven-year stint at Tata Motors.
“While all the recent initiatives are laudable, the consistency in margins are important,” said an analyst at a domestic brokerage. The company’s ability to pass on the costs and command a pricing power will be the key driver of profitability. Tata Motors, the analyst says, needs to streamline capacities. “Presently, it makes passenger vehicles at four locations—Sanand in Ahmedabad district, Pimpri and Ranjangaon near Pune and Pantnagar in Haridwar. Multi-locational facilities weigh on your costs,” he added.
Pareek is not unmindful. A consistent sales performance of the Tiago and Tigor has made the company’s Sanand plant reach an optimal capacity. “The challenge is in Pune,” he conceded adding that the Harrier (company’s SUV that will go on sale in January next year) will take care of that.
Pareek said a consistent sales performance has also given the much-needed pricing power. In the first week of April, Tata Motors took a price hike of 3.5 per cent in its PV line-up, which is the single largest hike by the company in five years, he said.
Tata Motors is also pinning its hope of winning sustainably in the PV market, on a strong pipeline of 10 to 12 new SUVs, hatchbacks and sedans that it plans to launch over the next three to four years. These launches, in turn, will help the company address close to 90 per cent of the market, up from 50 per cent now. The modular nature of the SUV and car platforms, which will underpin these models, will help the company churn out new models at a faster pace and at lesser costs.