July 17, 2017 9:20 pm JST

Tata Motors' truck business facing 'crisis situation,' chief says

MUMBAI (NewsRise) - The head of Tata Motors, India's biggest truck maker, appealed to employees to shore up their performance as the company is facing a "crisis situation" amid rising competition from the local units of Volvo and Daimler.

In a letter to employees, Tata Motors Managing Director Guenter Butschek said the performance of the commercial vehicles business is "really worrisome."

Tata Motors, also the owner of Jaguar and Land Rover luxury brands, is grappling with losses at its commercial vehicles division as it ceded market share to Daimler and Volvo who have stepped up investments in truck and bus manufacturing facilities in India in recent years. The Mumbai-based company also saw a churn in senior leadership, even as it let go several of its senior managers amid efforts to cut costs.

In the fiscal year ended in March, Tata Motors' commercial vehicles unit reported a 0.8% increase in sales, while the industry grew about 4%. Between fiscal year 2011 and 2017, Tata Motors' market share in commercial vehicles shrank nearly 10 percentage points to 49%. Smaller rival Ashok Leyland gained eight percentage points during this period.

The sales of commercial vehicles were also hurt by an industry-wide downturn in the aftermath of the government's so-called demonetization that resulted in a sharp squeeze in consumer spending. In November, Indian authorities had banned high-value notes that accounted for 86% of the currency in circulation in a bid to crack down on corruption.

"While there is a range of reasons for the decline (in sales)...the fact of the matter is that we failed when it came to reading the market properly, to responding flexibly to changes and to providing new products -- advanced and white space -- on time," Butschek wrote in his letter. "There is an urgent need for us to arrest this slide."

As part of the plan to turn around the business, Butschek said the immediate priorities are a "rigorous" cost reduction drive across categories, regaining market share, "zero tolerance" to product launch delays and addressing all supply constraint issues.

Butschek said the next three months are "absolutely critical" for Tata Motors and the company's business plan is likely to be "extremely demanding" with stretched targets in terms of sales, market share and financial performance.

"We have set an extremely aggressive and challenging task to improve our bottom line," he said. "This means it will not be business as usual."

Tata Motors appointed Butschek, a former Airbus Group official, as the head of domestic business in January 2016 to stem its falling sales at home. Late last year, Butschek unveiled a plan to overhaul operations which included phasing out some of the unpopular vehicles.

Tata Motors, which also manufactures a range of cars in India, has for long been riding on the success of its British luxury car unit Jaguar Land Rover that accounts for more than half of the Mumbai-based company's revenue and nearly 90% of its operating profit.

According to analysts, Tata Motors' market share in the commercial vehicles category will continue to remain under pressure as high cash burn on research and development in new cars and expiry of certain tax incentives will pressurize its free cash flow.

"The weaker financial position will limit Tata Motors' ability to discount aggressively to regain market share," brokerage Edelweiss Securities said in a report last Monday.

Shares of Tata Motors gained 0.53% in Mumbai trading on Monday, while the benchmark S&P BSE Sensex closed 0.17% higher.

--Dhanya Ann Thoppil

Asia300

Tata Motors Ltd.

India

Market(Ticker): BOM(500570)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 22,152.34M
Shares: 3,395.85M

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