Zest Compact Not Enough to Halt Tata’s Long Decline

MUMBAI – Tata’s new Zest features a modern design, comfortable ride and good driving dynamics and is competitively priced between Rs514,000 to Rs799,000 ($8,430 to $13,100).  But the compact sedan alone is not enough to pull Tata out of a dive from second place among Indian automakers to fourth.

“Tata Motors is going through tough times and any transformation will take time,” Chairman Cyrus Mistry conceded during the annual general meeting in August.

It will take time and more models such as the Zest and forthcoming Bolt hatchback for Tata to recover from a decade’s worth of lost opportunities. The automaker has recorded losses in four of the past eight quarters, Mistry says, noting conditions are going to be tough in 2015, as well.

Tata’s weaknesses include product planning that does not recognize changing markets, dealers’ lack of understanding of what buyers want and low profit margins. Management has given no clear indication it is addressing these issues.

Significant efforts are required to modernize the look, feel and technology of Tata light vehicles. But the automaker has not yet shaped an appropriate marketing strategy – not even for the Zest and Bolt. Plans for new products after those two models are hazy.

It also is crucial to change Tata’s image. Its cars are associated with taxis because they are used so extensively for that purpose, while the legacy of the small, low-cost Nano is that of a poor man’s car.

In 2013, Tata was India’s No.2 automaker with 468,976 light-vehicle deliveries, trailing only Maruti Suzuki and ahead of Mahindra & Mahindra and Hyundai, WardsAuto data shows. Through September, Tata slipped to fourth, surpassed by Hyundai and Mahindra.

Before his sudden death in January, Managing Director Karl Slym had reduced the number of suppliers from 1,400 to 400, drew up plans to cut costs Rs30 billion ($488 million) every year and  was arranging for the redesign of 12 Tata car and utility-vehicle models on the same platform by 2016. No one is pursuing those plans now.

This year’s capital spending has been increased from Rs30 billion to Rs40 billion ($651 million). That will have to be balanced against Tata’s costly Rs737 billion ($12 billion) investment in Corus Steel. The automaker is able to use or sell only 5 million tons of steel and the balance of 15 million tons’ capacity lies idle.

With full-year 2014 sales likely to fall far short of last year’s total, itself about 43% below the 2012 result, Tata again will be propped up by the profitability of its Jaguar Land Rover luxury brands.

Much attention has focused on export markets, particularly Africa, the European Union and Southeast Asia. But in developing countries, taxes on imports of fully assembled vehicles mean local assembly makes more economic sense. But Tata so far has no such plans.

Tata already has lost a decade, and it seems to have no clear strategy for avoiding more losses.