‘Aim to make domestic biz profitable’
Tata Motors, the country’s biggest commercial vehicle (CV) maker, has renewed its focus on this segment. The segment forms over 80 per cent of the firm’s standalone revenue, where the firm is incurring losses. GUENTER BUTSCHEK, chief executive officer and
GUENTER BUTSCHEK, CEO and MD at Tata Motors, tells AjayModi that the commercial vehicles business has suffered, owing to challenges in the industry environment and the company’s “complacency”, but that is changing fast.
You recently called the CV business the ‘backbone’ of the company. Why this sudden increase in focus?
I am surprised to know that I am talking about CV as the backbone for the first time publicly. Possibly because I had expected that everybody knows the reality of Tata Motors, because there is not too much of a secret that we are by large a CV manufacturer, irrespective of the share we have lost in the last couple of years. Right from the beginning the CV business was on the top of my priority.
Can we get a sense of the break-up of your standalone revenue between the CV and PV? How different are the challenges?
About 80 per cent revenue comes from the CV business. As a per cent of total cake, PV is an extremely small part. If I do take the profitability in terms of contribution margin, I have a very serious task on the PV side, which we have effectively addressed. Cost in PV is a question of volume and you need to leverage the platform. We are going to go to two platforms from the current four, to create economies of scale.
In CVs, we are in process to upgrade old fleet with new power-train solutions. We have three main focus areas in CV. We need to improve our cost position. We have built up cost over the years and it needs to be right sized. Secondly, we will focus on volume and gain market share. From a revenue and profitability point of view, it is CVs (medium heavy duty trucks)…it is the focus point. This is the backbone that keeps Tata Motors going. The reason why we have lost substantive market share is not necessarily due to inappropriate cost structure. It was because we provided too much space in product portfolio to the competition.
What will it take for a leader to maintain and grow share?
The first point is: change in attitude. Never become complacent or take rest. This is where it starts. There are lots of examples where so-called market leaders actually took rest and some of them just disappeared. You need to be alert and leverage your customer base. This is the biggest asset we have in the company. You need to be in touch with market, listen to customers and invite them to be part of product development.
You initiated a study to discontinue some of the products in CV and PV. Where has this reached? Do you think vehicles like the Nano can contribute to the PV business?
The study was performed. We have taken a slightly different direction that was expected initially. In CV, we took decision to upgrade the product range to make them meet future requirements. We have, therefore, decided to retire fewer products.
In PV side, we terminated products like the Manza. We have critically reviewed the product line up. As we launch products, we phase out some. We will not make announcement on individual products. We will look at the segments where we want to remain. The legitimate role that Nano plays today is that it is the entry hatch. That it cannot be selling on a lower volume in a competitive environment is a different issue. If not Nano what is going to be the future entry model of Tata Motors. People start speculating on the future of the Nano but no decision has been made. It is not about a decision on the Nano. It is about how would Tata Motors like to play in the entry hatch segment, and this question has not been answered yet.
The partnership with VW was dropped. The CTO has decided to leave the company. How do you see these two impacting the future product planning?
Partner would have helped expanding volume on the platform and would have helped us access new technology. Currently, we have to do these on our own, which is a huge cost. We are still open for this kind of collaborations but it needs to be a collaboration that brings volume and scale. I respect Tim’s (Leverton, CTO) decision to relocate after seven years in India. It is a loss as he brought lot of energy and global benchmark to Tata Motors.
why the company has changed the tone to ‘turnaround’ from ‘transformation’?
When we launched the transformation journey in June 2016, it was launched on two assumptions: that we would deliver on our business plan and enjoy 2-3 years to get us future ready. It was supported by the board. But due to the GST (goods and services tax), demonetisation and BS-IV, we incurred losses. Transformation brought new organisational structure and rich pipeline of cost saving opportunities, but we needed to accelerate. If you want to create highest impact we need to focus on CVs, cost reduction, volume and market share. Turnaround has a high degree of commonality with transformation, but turnaround remains extremely focussed and simple for the organisation to demonstrate rigorous execution.
You expect the standalone business to turn profitable in your tenure?
Yes. We talked about ~1,500-croreplus bottom line improvement coming from volume driven top line improvement, plus results of cost reduction and contribution margins. This is based on 5 per cent share gain in CV and the expanded market share. If it is less, the amount will be lower. The second one is internal costs where we have not mentioned a figure. We hope a positive result in FY18 dependant on market volume because we are in a volume business and that will determine baseline improvement.