Tata Motors tried hard to make the JLR acquisition a success story as we saw in Part 1 of this article, but did it really succeed? Let’s see in this article on what went wrong in the last 5 years at JLR and also the tragic story of people’s car – Nano.
In August 2020, Tata Motors revealed that it was hoping to become debt-free in the next three years. This ambitious target caught analyst and investor’s eye. But how did Tata Motors get under the debt burden, considering it revived JLR in 2009-2010.
The fall of JLR
The hope of entering a global auto market for TAMO turned upside down when geopolitical tensions flared up rather quickly.
Britain finally decided to separate itself from the European Union (EU). This meant the UK had to revisit its relationship terms with other members of the Union —on matters of trade, tariffs, people movement, etc. For example, the EU had a contribution of around 21% of all sales accruing to JLR. The company also imported 50% of all its ancillary components from other EU countries. So, friction between the UK and the EU had to have material consequences for both Tata Motors and JLR.
JLR sold diesel cars. In fact, 90% of all cars sold in the EU were diesel variants. But after the Volkswagen emission scandal rocked the EU authorities, governments started to ramp up taxes to discourage the use of polluting fuels (including diesel). This meant, JLR had to change things rather quickly. They began clearing diesel vehicles inventory by offering huge discounts and made expensive investments in the hope to produce and promote eco-friendlier variants. And while this was critical to their long-term strategy and vision, it weighed heavily on the company’s profits.
JLR was also having trouble with QC (quality control). In 2014 China, TAMO started local manufacturing through a JV with Chery Automobiles. The aim was to modify the cars slightly to cater to local taste, simultaneously avoiding the import tariff of 25% on imported vehicles.
The move did great. China sales rose from 100,000 in 2015 to 150,000 in 2017. But with rising volumes, customer dissatisfaction became more frequent. Product quality was a regular source of concern. Eventually, the carmaker lost its mojo. Once China contributed around 30% of total sales, today its contribution has been reduced to a meagre 10%.
And its position back home in India also was not too enticing either. Regulatory changes affected sales of CVs — trucks, buses, tempos etc. Slowdown in auto sector in general and other economic woes affected domestic car segment. In fact, even the TATA group chairman, N Chandra admitted in 2017, that Tata Motors was losing money on every car sold in India.
All this led to bad investments that failed to translate into meaningful results. In 2018, JLR wrote off 27,000 cr INR in assets, thus telling that these assets had no real value and ought to be taken off. Also, the company’s debt went out of hand — from 33,000 cr in FY11 to 1.2 lakh cr INR in FY20.
Nano – the Brainchild of Ratan Tata and its Subsequent Failure
Let’s now shift our focus to another interesting product innovation from Tata Motors. Was it successful or just another marketing gimmick? Read On….
The term failure is actually not something we generally associate with the Tata Group. From steel to automobile to software & services, the TATA group is present everywhere.
More than a decade ago, the market was euphoric with the talks of a revolutionary new car by Tata Motors. The Tata Nano was touted to change the entire landscape by making a four-wheeler car accessible to anyone. Reliable, Cheap & Fast - Tata Nano was the answer to all our problems.
Newspapers & Magazines were printing regular updates about the much-awaited & hyped Tata Nano. Everywhere you went, people were talking about the Nano. Very rarely does a product receive as much hype before its launch as received by this car.
Fast forward to today, and the Tata Nano has just disappeared from the auto market. All that is left are a few sparse sightings of this car on the Indian roads, and the product specification details on the company webpage.
What really happened? How did an auto product that was so hyped up fade so fast and that too in less than a decade?
What made it go from the car that would change the industry to the car that no one remembers now?
In order to understand the Nano’s failure, we must go back to where it all started.
Birth -of Tata Nano
The concept behind the Tata Nano was rooted in the principles on which the Tata Group companies operate - Business is not just a means to an end.
Tata patriarch Ratan Tata had over the years keenly observed the plight of the middle class and lower middle class Indians. He saw how normal people travel by public transport. Come wind, rain, scorching sun, Indians had to resort to local trains and buses to commute. A personal vehicle was considered to be of immense luxury. At the best, all normal people could afford was a two-wheeler, however, that did not solve any problem.
He, thus envisioned an India where commuters do not have to brave the weather conditions and the woes of public transport system in order to reach their offices. Ratan Tata realised that in order to make the four-wheeler car accessible to a larger audience, he would have to create a product which was priced as low to the possible extent. Thus, the idea for the cheapest car in India germinated. The Nano was originally marketed with price tag of 1 lakh INR. This was never heard of, for a four-wheeler car and took the auto industry and the general market by a storm. That seemed like the perfect plan, then why and how did the debacle happen?
Reasons for Failure of the Tata Nano
Below are the three main reasons for the failure:
Understanding of target audience is of utmost importance before launch of any product. Customer psychology, their wants and desires needs to be checked. The competitive advantage needs to be aligned with the desires of the consumers. And this is where Tata Nano failed. Nano was marketed as the cheapest car in India. The marketing campaign made it obvious that the USP of Nano was its unbelievable price of 1 lakh INR. Tata’s thought that for a 4-wheeler, this seemed to be a right strategy as the normal price of the cheapest four-wheelers was at least double that amount.
What the management failed to understand was the fact that the Indian consumer are different from that of the world. Indians have always associated a four-wheeler with pride, emotions, and luxury. In fact, this mind-set is so deeply ingrained in consumers that they perceive a car as a status symbol, as is evident from the cars that are gifted during wedding time. When this happens, emotions take over rationality & logic. Thus, the most attractive feature (according to TATA’s) about the Nano, i.e., its price, became its biggest embarrassment. The image of the cheapest car (and the word cheapest) in India made the Nano seem unwanted to its intended targeted audience. It somehow directly contradicted association with a person’s status symbol.
The consumers associated low price of the Nano as a reflection of its quality. What started off as a brand marketing campaign ultimately took a turn that it ruined the whole image of the product even before it was commercially launched.
This was a very unfortunate turn of events, but that’s how the Indian market landscape is.
The hype that was created led to Tata Motors initially receiving massive pre-booking orders for the Nano.
TAMO was excited at this response, and they decided to procure a large production facility where they could mass-produce the Nano. This search led them to Singur in West Bengal. Here, they obtained a space which was enough to house the Nano plant for its mass production.
However, then came another problem at the forefront. The same old farmer political nexus hit Nano.
Singur is a small village in rural West Bengal. The life and livelihoods of farmers and peasants largely depend of the fertile land of Singur. TMC leader and the current chief minister Ms. Mamata Banerjee mobilised the farmers of Singur and led them in a unified protest. This protest started mounting pressure and eventually, Tata Motors had to give in and leave Singur in between.
Tata Motors moved the production of the Tata Nano from Singur to Sanand in Gujarat. Here they created the Nano plant and started production. However, shifting a production facility in between resulted in delays and the associated costs had a huge impact on the final product. Tata Nano was eventually released almost two years behind its original schedule launch. Due to increased costs, the final product was priced at more than 1 lakh INR as was initially promised.
The delays associated with the Singur protest had disastrous impacts on the entire production plan of the Nano. The delay caused people’s enthusiasm to die down and the car lost its sheen ultimately.
Failed promises along with delayed delivery contributed to the Tata Nano failure.
TAMO expected the Nano to score well in the Euro New Car Assessment Program (NCAP) crash test. However, when it was tested by a German automobile club in 2014, it failed and failed miserably. As was expected, it was later deduced that the Tata Nano’s low price came at the cost of several important safety features. The Nano had no airbags. Further, as the car was lightweight and came with narrow tyres, it led to stability issues which was essential on roads in India.
Further, reports started coming up from different parts of the country about Nano cars catching fire for unexplained reasons. This diverted everyone’s attention towards faulty manufacturing practices and inherent defects in the design of the car. Tata Motors claimed that the reason for the fire was related to the foreign electrical equipment used in the exhaust.
All these reasons made the Nano’s image getting completely ruined in the public eye. Customers no longer trusted in its safety. Compromising on comfort is acceptable considering the price point, however, giving up on safety is an unforgivable sin.
This proved to be the final nail in the coffin for the Tata Nano.
After declining car sales for a few years, the manufacturing of Nano was stopped in 2019. It still remains as one of the biggest failures of the Tata Group and the Indian auto market.
So, what’s next for TAMO. Is there something concrete that they have under the hood or would the laggard days continue in the upcoming decade as well? The third and final part of this article is to know the outlook of TAMO and some interesting innovations…