It is a make-or-break year for Tata Motors' passenger car business. The company is undergoing a makeover after having steadily lost market share to rivals over the years.
Tata Motors is now the country’s fifth-largest car maker, from the third largest a decade ago. The diminishing number of new Tata-badged cars on the roads has begun to shake the confidence of even diehard fans.
Tata Motors has had some recent success with the newly launched Zest compact sedan and Bolt hatchback. The two models have begun to draw customers back to showrooms. This momentum has also been carried forward by the new automatic Nano.
Tata Motors is now trying to consolidate initial gains by expanding its distribution network. The company has a smaller presence in the hinterland than rivals Maruti Suzuki and Mahindra & Mahindra. In Bihar, four cities account for more than half of Tata Motors’ dealerships and the company has no presence in 22 of the state’s 37 districts.
The company wants to triple its sales outlets to nearly 1,500 in three years. It is also investing in a doorstep service in areas where outlets may not be viable.
But will a bigger retail footprint convince buyers to choose Tata cars? “A presence on the ground gives confidence to a customer — if anything goes wrong with the vehicle, there is somebody to resolve the issue,” says Mayank Pareek, president, Tata Motors passenger vehicle business. “Quite a few foreign car makers failed to make a mark, because they shied away from investing in sales and distribution,” he adds.
Analysts are, however, sceptical. “A wider distribution network alone will not make much of a difference. They have to fundamentally change the way they were conducting the passenger car business,” says Navin Matta, head automobile analyst at HDFC Securities. He wants the Tatas to run the division like a consumer goods company, with a greater focus on branding and marketing, product differentiation, and customer experience.
“When the going was good and customers were still buying our vehicles, we took our eye off the ball. When the slowdown hit, we were scrambling for answers,” says an executive with a Mumbai-based Tata Motors dealership. “We have made a good beginning with the Zest and the Bolt, but we need to improve product quality and after-sales service to sustain the momentum,” he adds.
Tata Motors sells more than 10,000 cars a month. This translates into monthly sales of 20 cars for a typical Tata dealership. In comparison, Maruti Suzuki’s 1,700-odd dealers sell around 60 cars a month on average. Hyundai’s 430 dealers are busier with monthly sales of 85 cars on average.
“Tata is a strong and trusted brand in rural India, but the company has limited presence in Tier-III and Tier-IV cities. A greater presence in the hinterland will surely help it sell more cars,” says Jinesh Gandhi, auto research analyst at Motilal Oswal Financial Services.
Pareek agrees. “We have not been able to tap the growth opportunity in rural areas. Car ownership is less than two per 1,000 people in rural areas, a fraction of the ratio in urban India. Most villages are now connected with roads and purchasing power has gone up substantially in the past decade, creating conditions for a sharp uptick in demand," he says.
According to estimates, the national car ownership ratio is around 15 per 1,000.
The rural market accounts for 20 per cent of Tata Motors’ sales against 35 per cent for Maruti Suzuki. Pareek wants to take it much higher by tapping into non-farm households in rural areas — those with government jobs or non-farm businesses.
An expansion in dealerships has also been necessitated by a change in the company’s product positioning. Tata Motors was earlier buyer-agnostic, now it is selective. The Zest and the Bolt are being sold to individual buyers and fleet operators are being pushed to the older Indica, Indigo, and Sumo. The divide will widen once the Kite hatchback and the Glade compact sedan are launched later this year.
Tata Motors needs a newer set of consumers for its old warhorses as there are no plans to phase them out. “Even older products can be relevant and exciting for many consumers. Some of the country’s top-selling models are nearly two decades old,” says Pareek.
The company wants to push the Indica and Indigo range to value-conscious customers in rural and semi-urban areas, rather than kill them to make way for a new generation of cars. Its helps that both models have a large third-party sales and service network that keeps cost of ownership low.
Expectations are high, but nobody expects a quick turnaround in Tata Motors’ fortunes. "Getting back market share in not easy. An elephant will take time to start sprinting like a cheetah," adds Rathore.