TaTa Motors has been a successfully diversified car company in India since 1945. In 2012, they were the number one in revenue for Indian car manufacturers. They quickly lost ground though, and had lost even the number three spot by 2014. While the economy is partly to blame for some of the issues which caused TaTa motors to so quickly decline, there are many other issues which added to the bigger problem.
The purpose of this paper is to define the problems which TaTa motors is facing, analyze their causes, and to make recommendations as to the actions that should be taken to improve business.
Identification of Problems
While TaTa motors has made some strategic decisions that are good for the company as a whole, there is also a large amount of issues with some of their activities and it has affected their bottom line. Their major issues are as follows:
The Nano has serious safety issues.
Other companies are trying to make smaller vehicles that will directly compete with the Nano.
Their commercial vehicle line is suffering from declining sales.
The economy has been in a downturn, and is only slowly recovering.
TaTa has consistently been losing revenue for several years.
Analysis of Identified Problems
Many of the issues which TaTa motors is facing trace directly to the creation of the TaTa Nano. While the initial idea of the Nano is a good one and is seemingly strategic since it is an inexpensive car that offers alternatives to scooters for families, there were some issues in the planning and creation of the Nano. The Nano also is in line with the mission statement of Tata motors. The mission statement is, “To be passionate in anticipating and providing the best vehicles and experiences that excite our customers globally” (Cvglobal.tatamotors.com n.p.). The Nano was designed in anticipation of the need for an affordable small car in India. Where it falls short is that it is not one of the best vehicles, as they claim to want to make in their vision statement (Cvglobal.tatamotors.com n.p.). Also, the low quality of the vehicle and the safety issues which it creates are a direct violation of Tata motors Vision and Values. The vision statement is, “Most admired by our customers, employees, business partners and shareholders for the experience and value they enjoy from being with us” (Cvglobal.tatamotors.com n.p.). The values are, “Inclusion, integrity, accountability, customer, innovation, concern for the environment, passion for excellence, and agility” (Cvglobal.tatamotors.com n.p). While the Nano is environmentally friendly and innovative, Tata Motors lost their “passion for excellence” in pursuit of making the Nano; they also lost some of the excellent reputation which they once had with their customers (Cvglobal.tatamotors.com n.p.).
One of the first issues with the Nano is that they did not do proper marketing research to decide what aspects of a micro-car would be important to the Indian populations and other populations. The assumption that price was the only important point hurt them. Also, by trying to keep the manufacturing costs reduced, they left out important safety features such as airbags. They also incurred additional costs to the Nano because of an unexpected need to move a plant due to disturbances and security issues (Gourav n.p.). Also, in an effort to be the low-cost small car provider, they created a car that Indian’s felt was only for poor men. These cheapened the entire brand.
The Nano has so many issues that entire forums have been dedicate to owners complaining about the many issues which they have had with their Nano such as bad solenoids and issues with the engine smoking or catching fire (Team-BHP.com n.p.). This kind of negative publicity will be hard to change, even if the car is given a major overhaul and improved greatly.
One of the issues that is taking place in Tata motors external environment is competition from other car companies trying to enter the small car market. There are other companies who are trying to make cars that will compete with the Nano. These companies are not vying to make the cheapest car, but are trying to overtake the small car market. This means they offer better safety features as well as more luxury items in their vehicles. There costs are higher, but they are targeting mildly different markets. While this may not appeal specifically to the Indian demographic due to higher costs, it does appeal to most of the worldwide market. This makes the race to corner the small car market one that is moving very quickly. For instance, in 2012 the Bajaj RE60 was launched in India. The RE60 was a similar price to the Nano, but had more luxuries (Dimension Today n.p.).
TaTa motors existing line of commercial vehicles is declining in sales. Commercial sales have only dropped by 2% between 2013 and 2014, and they dropped by over 20% between 2012 and 2014. This decline is significant in view of the fact that TaTa motors is planning to make major changes in try to increase its commercial vehicle division. This includes a significant investment. While this may be a wise investment, it needs to be thought out. If declining commercial vehicle sales is going to become a norm, then they need to reconsider their ideas.
The Indian economy has been in an economic downturn, with the value of the rupee decreasing. In 1990 the rupee was worth USD $0.06, while in 2013 it was worth $0.016 (Economicshelp.org n.p.). In 2013 inflation was 11.24% (Economicshelp.org n.p). This has caused a rise in cost of goods in India, which in turn affects all Indian businesses. Tata is not immune from the impact that this economic downturn has taken. From the cost to creating its cars, to the fact that less Indians have the ability to purchase them, there is no doubt that economics have had a high impact upon TaTa Motors.
While the economic downturn has taken its toll, it is not the only economical issue which Tata faces. Tata’s profits have not been consistently increasing, but instead have been more up and down. A healthy business consistently increases each year. As can be seen in Chart 1, yearly profits have not been consistently growing. There was some growth between 2012 (13,516.50) and 2014 (13,991), but it is minimal and 2013 showed a large drop in profits (9892.60).
The first recommendation I would make is to figure out a better way to market the Nano’s. It is unethical to continue marketing a car with serious known safety issues. The general idea is great, but it falls short of what the target market is looking for. I would suggest making a change to the marketing of the Nano. If they want to continue to market the Nano to the Indian market they need to do some marketing research and find out what the target market feels is important. If they are interested in upgrading from their scooters, and are going to pay a high amount for a car, they may want to pay extra for different features since they are already upgrading. For instance, are their certain safety features they want in a car? Are there luxury items they would want like a CD player, air conditioning, or leather seats? It may be necessary to do focus groups in the various areas which Tata wants to market and make different Nano’s that are customized for their areas. Although they have already poured a lot of funds into the Nano’s creation, it would take minimum investments to increase the sales. With working capital of 3489.2 (in ten million rupees), they can handle putting a little bit more into the Nano.
It also would be beneficial to use the competitive pressure in the small car market as motivation. They could look at the cars the competition are creating, and where their sales are succeeding or failing. Incorporate some of their successful ideas into the Nano. One of the ways in which other car manufacturers are succeeding with their small cars is that they did not skimp. The Nano needs to consider adding in things like hubcaps, trim, a better interior, air conditioning and a stereo system. While none of these needs to be state of the art, they do need exist on the Nano. People may need an affordable car, but they do not want to drive a car that looks cheap. If the safety concerns are addresses and the cars are made to fit customer expectations then sales of the Nano should increase.
It may also be a good idea to look at Japanese Kei cars, the luxuries they offer, and the way they are marketed. While the target market is slightly different, there are similarities in the needs for mini cars in both markets. Many Japanese Kei cars cost around US$10,000, which is more than the target price for the Nano’s, but that does not mean that the information that could be learned from the Japanese marketing of the cars could not be beneficial (Takahashi n.p.). The reason it could be beneficial is that, while sales of normal vehicles are declining, the sales of Kei cars are increasing (Takahashi n.p.). This means the design and the luxuries offered are very popular among the Japanese. These designs and ideas may be able to positively influence the Nano and its prospects.
While Tata is trying to make changes to its commercial vehicle division, it may be beneficial to instead look at its light truck division. Every time they create a new light truck, it sells well. This would indicate a niche for light trucks that needs to be filled. If they concentrated on light trucks for now, they could always increase their commercial business at a time when it would be more likely to succeed, such as when construction on roads picks up in India again.
Another reason to concentrate on light trucks is the fact that light truck sales in the United States have grown every year since 2009 (Statista n.p.). This is probably in response to rising gas prices and the economic downturn. Light truck sales have probably increased in other countries for similar reasons. This is a market that will continue to increase, as gas prices are staying high, and people are becoming more aware of their environmental impact. It would also be a minimal investment to continue to manufacture the light trucks, or increase light truck output.
The Jaguar and Land Rover brands both are high sellers. Their sales were phenomenal and carried Tata motors in 2014.. Their brand names are already ones which are household, and therefore marketing is easy. By concentrating on continuing to deliver these products, and maintain the quality which is expected of them, sales should at least remain steady. It may be beneficial to consider making a mini car under one of these brands and ensuring it meets the United States and English standards for vehicles. A luxury brand mini car would appeal to many people in these areas, and they have the money to spend on a vehicle made by Jaguar or Land Rover. This could fill a unique niche market, the target group of which has money to spend.
The first item that should be concentrated on is continuing to increase Jaguar and Land Rover sales. This will include using the marketing department and possibly building further plants. Building a new plant may cost the company some, but will have lasting benefits. By spending a couple of years concentrating on increasing this already profitable portion of the business, it should put Tata motors in a competitive advantage over their key rivals. Considering operating margins for the Jaguar and Land Rover increased from 15.8% in 2013 to 20.3% in 2014, a continued climb in operating margins will help to keep Tata motors afloat while they implement more of the action plan to help recover the Indian portion of the company (Reuters India n.p.).
The next part of the plan is to do a competitor analysis on companies selling small cars. The failure of the Nano is partially responsible for operating margins in the Indian portion of the company falling from -2.3% to -2.8% from 2013 to 2014. The amount of money that has been spent on the Nano needs to be recouped in order for the company to survive. This makes a competitor analysis necessary. What are they offering in their small cars that is more appealing? Also, a competitor analysis is a relatively inexpensive way to begin to fix the Nano issue, and should only take 3-4 months.
In conjunction with the competitor analysis, marketing research in the form of questioning current Nano owners could be beneficial. Again, this could be done with minimal investment by mailing questionnaires that could be mailed back. By doing this, Tata motors could determine what they should add to the Nano’s and how much more people would be willing to pay for these extras. This should take a similar amount of time as the competitor analysis.
This information can be used to craft a new strategy on how to change the Nano and increase sales. If implemented properly, Tata motors could surpass its key competitors in small car sales and become a top small car manufacturer. This could realistically happen within two years. The first year would be necessary to manufacture Nano’s and get public opinion to change about them. If this happens, then year two should see a sharp increase in sales.
Tata motors got off track from its mission and vision statements. They were willing to take their eyes off being excellent and create a product that is mediocre in order to have the competitive edge entering into the small car market. While this was a mistake on their part, and sales have been nowhere near what they projected, it is not an issue which is insurmountable. By making a change to their marketing plan and improving the car they can still recover their investment and gain their place in the small car market.
With the wonderful assets they have in their acquisition of Land Rover and Jaguar, Tata motors has the opportunity to take well-known brands and continue to increase their sales. They can advantage of exploiting the brands to their benefit, giving them more capital to continue innovation.
Although Tata motors has been losing its foothold in the car market, its situation is not irredeemable. It will take work and perseverance to once again be in the top of the market, but the company is no stranger to this kind of work to achieve its goals. They may have to consider a different corporate strategy than what they have been using, but the company has a lot of potential for growth and diversification.
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