Tata Motors – The Perfect Storm

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Tata Motors domestic automotive business is in the midst of the perfect storm. Every segment that the company operates in is bleeding profusely. Sales are down in almost all segments due to either a weak economy or the sheer cyclic nature of the segment.

More worryingly, the wound for Tata Motors seems to be deeper than the competition.

This question has always intrigued us – if you lead a trend into an event, do you also lead it on the way out? Especially if the event is a slump?

Like always, we rely on data to do our bidding. Looking at the sales numbers of passenger vehicles, Tata Motors started a continuous convincing decline in November 2012, two months before the industry did so. After that the company has fallen much harder than the industry.

Passenger Vehicle Sales - Industry vs Tata Motors

Click to enlarge all graphics

 

If there was a correction in dispatch numbers needed, Tata Motors has achieved the same in a much shorter time. Technically, the company should also be leading the industry out of recession.

That is hardly the case as May numbers indicate. While most manufacturers have reported positive numbers and growth after many months, Tata Motors is still firmly in the negative zone. At 17% down year-on-year, Tata’s sales numbers were quite alarming.

In fact, most of Tata’s press release for May sales dispatches was splattered in red. M&HCV numbers are down 10% year-on-year while LCV numbers are down nearly 12%.

That’s Holy Cow to the power of three.

The above numbers indicate that anything from Tata Motors not wearing a JLR badge is witnessing a decline in sales. While some segments are suffering due to a weak economy, the cyclic nature of some other segments just makes the situation worse in other segments.

Is the slump a worry?

The analysts at EMMAAA are not really worried about the slump in Tata sales. Most manufacturers are witnessing a decline, as the economy has been weak. Customers don’t have the confidence to buy cars and businesses don’t feel the environment is conducive for them to replace or add-to their fleets.

However, it is the magnitude of the decline in the case of Tata Motors that is worrying. In the case of passenger vehicles, Tata has trailed the industry slowdown by another 30%-40%. In the small trucks segment, the sales have crashed so violently over the last 12 months that we believe that the worst is not over yet.

M&HCVs have entered their 27th straight month of decline and Tata Motors is suffering the decline the most in absolute numbers, as it is the market leader in the segment.

The Nano problem

While the media likes to term the Nano as Tata Motors’ flagship problem, it is far from the truth. With its small volumes, the Nano makes a very small impact on Tata Motors’ top line and no impact on the company’s bottom-line. A back-of-the-envelope calculation by EMMAAA reveals that the Nano accounted for only 0.21% of net revenues for the company. It is unlikely that the platform is profitable at all.

Even if the Nano did meet its initial lofty sales targets, the impact on Tata’s top line would have been to the extent of 2%-3%.

In a nutshell, this is not the problem that we should have highlighted right at the start of this analysis.

However, more than the Nano’s declining sales, it is the manner that the decline has happened and the way the company is handling the problem, which is of interest.

 

Looking at Nano sales data since its inception, there is a strong downward trend, starting June 2012 onwards. Between July 2010 and June 2012, arguably the golden period for the Nano (if such a term may be used for the car, that is), the Nano sold 152320 units, an average 6350 units per month.

Nano sales - Last 34 months - Series of sharp crashes

This volume dropped to about 5000 units a month, then below 4000 units a month and finally below 2000 units a month. In the next 12 months (July 2012-June 2013), the Nano sold only 35673 units, or less than 3000 units a month.

Since then volume has stabilised at around 1500 units a month. For the next ten months data available till April 2014, the Nano averaged 1819 units a month.

This was also the time period when the company introduced the Nano Twist, experimented with a different communication message and tried to give the Nano a cheerful, smiley appeal. The Twist raised sales to about 2400 units for three consecutive months till they crashed once more to 1027 units in April 2014.

Amidst the sales crash, Tata Motors has been in a continuous denial mode. It denied the fires, it denied a recall (while doing exactly that) and then it denied what the customers really wanted from a car in that segment. So what came to the customer in terms of product enhancements were a CNG variant and the Twist, a variant with a power steering.

Putting a power steering in a car weighing 800kg with only a theoretical 35% weight (Nano has a rear-engine, rear wheel drive architecture) on the front axle is not going to make a major impact in the market.

“It was the answer to a question no one asked,” commented Deepesh Rathore of EMMAAA.

The future looks bleak for the Nano as a major product overhaul / platform replacement is a few years away. Meanwhile, variants like the diesel and a more capable version for the European market remain elusive.

M&HCV segment slump

M&HCVs are victims of cycles. When they go up, there is no end to counting money; when they fall, they tear you a big one. And Tata Motors is feeling the pain as M&HCV sales fall through the floor. May 2014 was the 27th straight month of sales decline for the segment with no respite expected for the next 1-2 quarters.

M&HCV Sales - Industry vs Tata Motors

Commendably, while Tata Motors lead the industry in the initial stages of the downtrend, it has been doing better than the industry in recent months.

Tata Indica / Indigo – Struggle to stay relevant

For the Indica / Indigo segment, Tata’s struggle is to stay relevant for the retail customer. Most of the company’s sales are happening in the fleet and cab operator market and the retail customer is difficult to attract. Extensive selling to the cab market has also damaged the Tata brand name to the extent that for many customers, Tata Motors is not even in the consideration list and that hurts sales in two of the fastest growing segments in the market.

Product staleness is another factor. The original Indica was launched in 1999 and it is still around as Tata happily plugs it to the cab operators. The second generation – Indica Vista – was introduced in 2008 and has completed six years.

Or what is globally known as a normal product lifecycle.

Indica : Indigo over last 24 months

Tata is not planning a replacement. Instead, it has a car named the Bolt, a mildly facelifted version of the Vista, waiting in the wings. Only, Tata does not call it a facelifted Vista but an all-new product altogether.

The Bolt will not replace the Vista – it would be sold in parallel to the Vista and the first generation Indica.

Also to be introduced is the Zest compact sedan, which is essentially a compact body style version of the Indigo Manza and would replace play together the Indigo eCS sedan in the market.

Ace & Magic – The last bastion

The Tata Ace micro truck and the Ace Magic, its passenger-carrying variant have been grand money printing machines for Tata Motors. To their credit, they showed resilience against the downturn till a few quarters back. Ace sales only started falling in May 2013 while the Magic stayed in positive zone as late as July 2013, falling only in August 2013.

However, like many other Tata products, when the fall did happen, it was brutal. Since November 2013, the Ace Magic has seen a more than 50% fall in sales on a year-on-year basis.

Every month!

The same is the case with the Ace, which since September 2013 has witnessed a more than 30% year-on-year decline in sales, every month.

Ace and Magic sales crash

This collapse in sales is worrying as the intensity of the collapse and its recent timing indicates that we haven’t seen the most of it yet. The Ace and Ace Magic segments are driven by small businesses, a number of which are rural in nature. With the segment heavily trailing other vehicle segments into the depression, it is unlikely to recover within the next few quarters.

Such a brutal, and sudden, collapse in sales is also an indicator that in the months prior to the collapse, some amount of channel stuffing was being done. A heavy inventory had built up at dealerships to the point that dealers cannot absorb any more dispatches.

Is channel stuffing frequent in Tata Motors?

All sales numbers reported by SIAM are dispatch numbers. These are numbers that the manufacturer reports as been billed to dealers.

Channel stuffing, the industry’s term to describe dumping of vehicles on dealerships is a prevalent practice in the industry. All manufacturers practice it to some extent now and then, as at times sales managers want their books to look good at the expense of the dealer. At other times, it is done to unclog the plant and make space.

Often channel stuffing also means the manufacturer shipping vehicles from its plant to a company owned warehouse / field where they are parked for many weeks. The vehicles have been dispatched to the dealer on the books even though they stay with the manufacturer.

Meanwhile, the books look good.

However, in most cases channel stuffing is done for not more than 2-3 months at a stretch, as anything longer is not sustainable for the dealer.

The Ace / Ace Magic sales collapse does point to some channel stuffing. However, other competing products like Ashok Leyland’s Dost small truck and Mahindra Maxximmo micro-truck have shown similar collapse in sales

So maybe channel stuffing did not play a major part.

However, a look at the Tata Indigo’s numbers for 2010 shows an intriguing picture. During the year, Tata Motors sold 81383 units of the Indigo range. At the same time, they produced only 37677 units (all data – SIAM). This leaves 43706 units being sold but not produced in that year.

Tata Indigo circa 2010

In simple language, those were 43706 units of the Indigo range that were parked next to a sunflower field for a long time.

So what does it mean?

Now there is nothing wrong in a company manufacturing cars and running a large inventory. It is a simple case of have land, will run inventory. However, this is not something of a best practice and indicates the distance that Tata Motors still has to cover to become a modern manufacturing organisation.

Product delays

Tata Motors is terrible at maintaining product timelines. At multiple times in its history, Tata products have been late to the market. Due to delays, the products spend much longer time in the market and that affects sales. In recent times, the Safari Storme is one such product, which was glued to the drawing board for nearly two years till they decided to launch it.

Also delayed has been the Ultra, Tata’s next generation LCV platform. The company’s 407 range has been around since 1986 and the replacement has been many years in preparation. It has been introduced only recently and would be sold in the market parallel to the 407.

Also late to the market is the Zest compact sedan. A shortened variant of the Manza has been under preparation for a long time (The Manza entered the market in Oct 2009) and is expected to enter the market only in the next few weeks.

And then there are projects, which play on-off-on again multiple times, much to chagrin of suppliers. A senior supplier executive (anonymous, obviously) quipped, “for every program of Tata Motors, we have to reconfirm the same with multiple sources within the company.”

Deviation from RFQTata Motors - Deviations from RFQ

This is a hornet’s nest that we have stoked earlier. Tata Motors is quite poor at maintaining their RFQ numbers with suppliers. In many cases like the Nano, Sumo Grande and Aria, Tata Motors has only produced 10% of annual volumes.

 

 

In other words, they missed their RFQ volumes by 90%. This, to a supplier, means an OEM whose future RFQs need to be taken with a pinch of salt. This also means an OEM to whom many suppliers won’t offer the best technology or price.

 

 

 

 

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2 Responses

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  1. PagalFellow
    Nov 28, 2014 - 09:31 AM

    lol Tata Motors always gets its own Analysis thread/post…

    Aria : With 17L. people expect from Tata what Germans give in their 40-50-80L cars.

    “This question has always intrigued us – if you lead a trend into an event, do you also lead it on the way out? Especially if the event is a slump?”
    I don’t think that can be, whats happened is plain unfortunate. Mainly to to insufficient marketing.

    WHY insufficient marketing? Because NO ONE knows how to estimate marketing costs. Even a small incident can cause a big issue to be raised about the product. When 1 Nano caught fire, media blindly went behind TATA. Nobody gave the perspective of a possible sabotage by the VERY jealous Maruti, a company that as VERY vocal in disapproval of Project Nano.

    “Like always, we rely on data to do our bidding.”
    Don’t always rely on stats, they’re just numbers. What has happened on ground and why, is most often a different story. It cannot be zero’ed don to numbers.

    So, IMO basically they lost out due to an unstructured selling format. They didn’t know which set of customers would buy what and when. Yes, MAMATA Bannerjee held the Nano hostage and people were left thirsty for a low cost car for a long time.

    In comes Maruti with its grand Ads and they sell the Alto to all those waiting for the Nano. Then there was no looking back. After the Tier – I cities were saturated, Maruti moved to the Tier – II & III cities with its Alto and Matchbox (Omni), where again people bought what people in the City bought. Alto.

    Else, there are plenty of decent rich people in cities who found even the first iteration sufficiently “proper car”-like to get around the congested city traffic.

    People say their A.S.C’s weren’t good. Not really. Tatas were working on that too.
    Else Which stupid company will sell cars for 1.5 Lakh and let consumers come to know that they ASC isn’t very good ? Everyone wants repeat customers.

    Yeah, but one thing led to another and TATA’s got screwed big time while it made its honest attempt to give the Indian people some decently cars.

    Was always very easy for reviewers to label their designs as OLD and scorn at them pointing asif it were a freak. And the “Taxi Image” was overplayed to the hilt! Even Innova is widely used as a Taxi, but do reviewers scornfully make a big deal out of that?

    Tata was headless & directionless for quite a while before Karl Slym joined. One of the most important things he did was to rescue the new gen Safari.

    The boffins were supposed to make a decent product in 18 months, but they made a mess. Then delayed it further by 6 months. After which it took Karl 18months to rescue the brand and roll out a decent product that the market could call as an upgrade to the current Safari. They launched it at a measly 9.95L!

    By then it was 42months and the XUV took away many of the customers, leaving TATA with fans who waited to buy the Storme.

    Yes they screwed up quite some times, but it was mostly other factors beyond their control that they lost out.

    Reply
    • Dipak
      Dec 03, 2014 - 05:04 AM

      I agree to PAGALFELLOW to some extent about the factors beyond control led to loss of market but not fully.
      In my opinion, the TATA brand has huge credibility in India and I guess that’s the biggest plus company has. For Nano product it enjoyed a huge positive publicity before its launch but somehow after the fire accidents that took place company failed to handle that negativity about the product. Internally company took some steps to improve the quality to prevent such incidences, however somewhere the communication to the customers failed and which led to failure of one of the great product.
      Also, in spite of acquiring the two leading brands in 2008, TATA has not been able to leverage its own strengths. In the time when the competitors are rolling out the vehicles which are not just evolutionary but revolutionary in terms of design we see the same old design in TATA stable. Of late we have seen some new products in form of Zest but it hasn’t able to make a mark in terms of numbers. The performance of the new power-train though looks promising on paper; it is yet to prove its worth on ground.
      (Please note above is my personal opinion )

      Reply

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