Talking Business | Industry

With Nexon in the market, we are obviously a talking point at the dinner table: Guenter Butschek

Guenter Butschek, CEO and MD, Tata Motors at the launch of Tata Intra compact truck in Chennai on Wednesday ( May 22, 2019   | Photo Credit: Bijoy Ghosh

Tata Motors’ CEO Guenter Butschek completed three years with the company this February. In an interview, he elaborates on his strategy for the company when he came in and its execution. On challenges, he says the combination of headwinds is ‘unprecedented.’ Excerpts:

How has the past year been?

We have reached break-even for EBIT. It’s the first milestone. There is still some way to go to EBIT (earnings before interest and tax)- and PBT (profit before tax)-positive. But it’s all lined up because we have done our homework right, as far as our cost position is concerned.

And, we have improved public perception; we are being considered by more customers as we move from 70% addressable target to 90% addressable target.

On the PV (passenger vehicle) side, we are positive on the way forward. We have been gaining across all market segments. We have marginally gained overall, basically maintaining market share. If you take EBITDA as a reference, we believe we are the most profitable CV manufacturer in India. If you take the fourth quarter, we saw an extremely difficult market condition in PVs as well as CVs (commercial vehicles). The CV market has been in a highly muted demand condition for five consecutive months. In particular, medium and heavy duty trucks — especially cargo and in the later phase, construction vehicles also — got impacted for different reasons but largely because of the increased axle load (IAL) norms. The IAL gave vehicles now in the park a 20% increase in capacity. Demand for this new capacity was not there, so freight rates dropped negatively, impacting the mood of the fleet owners/operators and of even the private retail buyers. At the same time, there has been an overall slowdown in the economy.

How have you handled market volatility?

Volatility is determined by three factors: the market as such, the competition, and the regulatory environment, such as the axle load norms of last year.

The turnaround has helped make us less vulnerable to the volatility.

In Q4, we have seen some deterioration but we have maintained the turnaround storyline in broad terms. And, we have been able to maintain the overall success for the fiscal year.

Surely, this market is not going to be less volatile going forward. The severe competition, for example in PVs, will become more severe. Because, when we were expecting fewer players in the market, there are going to be more players in the coming 12 to 18 months.

On the CV side, we need to get out of the current situation. We got hit by this muted demand while at the same time the pipeline was loaded with a certain stock level.

Also, our market success seems to be determined on wholesale. But the wholesale is not the reality of the market environment. Retail is, because this is the metal that is moved to and operated by the customer. The rest is a question of financial strength and working capital available with the dealers or the OEM. Increase in stock triggered a severe competition as on discounting and pricing. It had a huge negative impact on what we call the market operating price

Do you engage in discounting?

We do not engage in discounting but you cannot completely get away from it because some customers are important to you and if you get challenged on it here and there you need to give something in order to retain this customer or to get one other contract. Are we the ones driving this? I can tell you for sure, ‘no’.

We have actually walked away from one or the other deal when we found it unacceptable, because we have the responsibility as the market leader to make sure that we don’t structurally damage our future.

Customers get spoilt by a period of high discounts and this is one unproductive action, where the coin is going to drop on us as an industry. We can take it to a certain level but not beyond. At some point, we need to start crawling backwards to protect profitability of the industry, which is one of the economic engines for the country. We form 49% of the manufacturing GDP of India.

How do you avoid discounting happens all the time. Who is to blame?

The industry must aim to get to a reasonable stock level. Because, in a high interest rate environment and with a liquidity crunch on us, the development of stock aligned to market realities is an urgent need. It is limiting our dealers and limiting our own capability.

Is there is going to be a rush for BS IV vehicles ahead of the deadline?

That is what we assume. It would be best if the rush starts in Q3 and not in the last couple of weeks (before deadline). Normally, we run our planning on a monthly basis with a 6-12 month forecast. A 12- month forecast is currently meaningless, six months is questionable, ‘next week’ is credible.

That means we need to take a closer view, but at the same time, we must understand our own flexibility and that of the supply chain with regard to deadlines.

Is the supply chain ready for this kind of thing?

It is ready. We have all our suppliers engaged with us. In our supplier conference last year, we paid strong attention to this particular subject. You can always miss something - not because we don’t talk to one supplier but possibly because he didn’t talk to a sub-supplier; or for an imported item, if the lead time is longer than initially expected. So, the devil is in the detail but without getting into the detail, this transition is an extremely difficult and risky one.

So, we have tasked ourselves to do regular, short cycle reviews, and then start taking predictions into what we see for the future.

What is your investment in the changeover to BS VI?

The BS VI transition is the single largest investment that Tata Motors has ever made. Last year, more than ₹1,200 crore funded the transition.

The only solace is that you won’t be the only one in the market facing this.

We aren’t. The other variable in this whole play, is who is going to play and how. At the end of the day you don’t like to miss an opportunity.

If we were in a strong market right now, all of these discussions would be much easier and predictable.

Has your turnaround strategy helped change your image as a stodgy CV manufacturer that couldn’t produce trendy cars?

When I came in three years ago, all the attributes attached to the PV business were not too encouraging. And it was all reflected on the product portfolio, all the references that were made.… ‘the service quality is not up there, your dealer network does not meet the requirements, your products don’t meet requirements...’ And, I have been consistently asked whether I had ever seen a product that is expected to be in the market for 18, 19, 20 years. For new launches at the time, a report to the board said our products didn’t look new and it appeared that only a facelift had been given.

The question was, where were the products that had the power to lead Tata Motors into the future? And then we came out with the Tiago, the Hexa and then the Nexon. We have seen significant change in perception. We also had no pricing power, and we had very little cost reduction opportunities. It was a Catch-22 situation.If those products alone were available to build the future it was going to be extremely difficult. The turnaround included a rigorous cost reduction exercise, with each component seeing a value-add or value-engineering.

In Pune, we have a tear-down factory. It is a place where vehicles are literally torn down. We take out components from our vehicles and those of others, compare the cost and the design and see what the cost learnings are. As a result, we saw volumes rise. Moving in step was our production volume.

When I joined, the expectation was that the Tiago would do 3,500 units per month. Now we are consistently selling 8,000-9,000 units a month without investing in capacity addition but through efficiency enhancements.

I was told when I joined 3 years ago that we are not a talking point at the dinner table, at least not for the younger generation. Now with the Nexon in the market, we are obviously a talking point at the dinner table.

If you take the range of products presented in Geneva, where we had not scheduled a single interview with any international journalists, but the whole morning, i was only surrounded by the British, German, French, Dutch, Italian and other European media asking to know when we would launch our products for the European market. Their connection was that if an Indian player comes to Geneva, then the intention was to go into Europe. We did not intend to. We only wanted to benchmark ourselves in the global context, to make sure that although these are indigenised products, we provide global quality for the Indian market, engineered and produced in India. This was, for us, a kind of benchmarking exercise.

What has been the response to the Harrier?

Incredible. We now have a two-month order book despite more than doubling our capacity. in the meanwhile.

What is the outlook for the Nano?

We don’t usually comment on the future of certain products. But, look at the larger picture. We have two architectures. We have to look at which product we are going to carry into the future – is it the Hexa, the Nexon…?

Any other kind of product that is put on the table, we have to evaluate the value added against its capability to meet future requirements in terms of emissions. But even more concerns stem from the changes in the safety regulatory environment. Lots of products across the industry will not meet the requirements without major changes to the products.

So, do I take my bet on a product where a huge investment is required because of the higher cost, accompanied by low volume in the market as these products have seen their best days behind them? I would then need to invest more, thus reducing our contribution margin. Some products will come to the end of their lifecycle. We will take a call as these products reach the end of their lifecycle in some or the other market.

Because an investment in these architectures would not have been a profitable proposition. This is something I can’t defend in front my shareholders. So, you have to take out the product that does not contribute. You have to make the right choice, not for sentiment but for business.

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Printable version | Sep 12, 2021 9:52:46 AM |

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