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Tata Motors mulls vehicle financing, hopes to overcome launch delays

Tata Motors mulls vehicle financing, hopes to overcome launch delays
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First Published: Fri, May 30 2008. 12 19 AM IST

Eye on market: Tata Motors managing director Ravi Kant says some investors are not interested in voting rights, but only in return on money, while there are others who are interested in both. (Ashesh
Eye on market: Tata Motors managing director Ravi Kant says some investors are not interested in voting rights, but only in return on money, while there are others who are interested in both. (Ashesh
Updated: Fri, May 30 2008. 12 19 AM IST
Mumbai: Ravi Kant, 63, managing director of Tata Motors Ltd, is always battling it out. In 2001, he had to find ways to make the company climb out of steep losses and, then, for the past four years, he has been in the public eye over questions about making the world’s cheapest car, the Tata Nano. While Tata Motors no longer makes losses, and the January launch of the small car has silenced critics, Kant has his task cut out—amid soaring raw material costs, an industry-wide slowdown and ballooning ambition to become an automotive player to reckon with. In March, his firm agreed to purchase UK-based Land Rover and Jaguar for $2.3 billion (Rs9,844 crore now) and, on Wednesday, it said it would have to go for rights offers to mop up money for funding the buyout.
Kant spoke to Mint on the tough times ahead in the short term and his bullishness on the long term. Edited excerpts:
In 2001, Tata Motors had faced a similar crisis as it does now. Do you think it is time to reinvent the company?
Absolutely, it is time to reinvent because the expectations and projections you are having for external environment have undergone tremendous change. I don’t think in anybody’s wildest imagination one would have thought that this would be the situation.
Unfortunately, all of this is coming together... So nobody could have forecast that, first of all, (that) these things will happen, much less what is the magnitude of these things, and even less that they will all come together. So it is a very highly improbable situation which has arisen—on one side, (there is) the kind of increase in input prices, more specifically of steel, since it forms the bulk (of a car), unprecedented hike in price of oil, and...the kind of contraction in the availability of vehicle finance. On one side, there is a contraction in demand, mainly due to that, and, on the other side, we have (high) input prices. The automobile industry is being squeezed.
How are you going to overcome these challenges?
Eye on market: Tata Motors managing director Ravi Kant says some investors are not interested in voting rights, but only in return on money, while there are others who are interested in both. (Ashesh Shah / Mint)
As far as finance is concerned, you know Tata Motors has its own financing company. Therefore, we will be surely putting a lot of emphasis on that and expand its operations because, for us, this is business. For banks and NBFCs (non-banking finance companies), it is (auto financing) one of the options.
Let us take suppliers. So will we say that we will abandon the partnership approach and throw away the suppliers? We can’t. In fact, in this hour of crisis, the idea is to tap together, to work together and see how you can pass this difficult period. So you are not alone. It is hurting the whole group of industries. So, we are looking at our own vehicle finance.
The other is, we are surely coming out with new products and variants. Yes, there have been some delays, especially in passenger cars last year, which has impacted our position in the market, but I think all of them will come out this year. In commercial vehicles, most of them were launched towards the end of last year, so we could not get the full impact. This year, we will have the full impact. Through that, we hope that we are able to have more exciting things for the marketplace. Therefore, the benefit that somebody else got last year, we hope that benefit will come to us, and along with that have more products on CNG, LPG (compressed natural gas and liquefied petroleum gas as fuels) and things like that.
We will also tighten our belt during this time of crisis. We are trying to do that. We had never abandoned our belt-tightening approach since the last time (in 2001), but yes, this time it has to be even more. There is no question of that.
(Then), expand the network and become even more service-oriented towards the customers. The crisis time is for everybody, including the customers. I think we need to associate more closely with customers. We need to look at his problems. And we feel that in time of crisis, it is actually the time to recreate ourselves and recreate relationships.
During the last crisis, you brought back break-even capacity to one-third from two-thirds. Going forward, what will be capacity utilizations that will break even for the plants?
These things have happened, unfortunately, coincidentally many times. As you know, we have put up a big plan for the expansion of our existing facilities. We are building four new greenfield sites. So yes, we will have the burden. So we have to see how I can increase capacity utilizations. So if I don’t do that, I am having those fixed costs. So that can have two advantages. One is to use my fixed costs and the other is to strengthen our position in the market.
As you said, input costs are affecting the whole industry, including your vendors. In what ways are you helping them? Have you revisited their contracts?
We are in it together. That I would like to clarify, and we are talking about long-term negotiations. It is not a question of that we only protect ourselves and abandon them. No. So we have to see in what way we are going to share the pain. And, as I said, at a time of crisis that is even more important than at the time of growth.
That would mean that you would give vendors price increases, but this would marginalize your ways to cut costs. How are you going to balance this?
As I said, it can’t just be one-sided. So we have to make sure that we protect everybody’s interests.
What about the review of pension funds of Jaguar and Land Rover, since the UK unions are known to be tough to negotiate?
The next review is in April 2009. We have talked to them. Tough, fine. But, I think, at the end, people have to be reasonable. Everybody has to be reasonable.
Land Rover also supplies to the defence forces of many countries. Do you think this could be an opportunity?
There could be many hidden treasures there. We have to discover them. I don’t know. At least let us get hold of the company first. Let us start looking at the company...certainly, we will find something. There will be both pluses and minuses. It will be a continuous process. On the other side, they have never faced the challenges of CO2 (the new carbon dioxide emission norms that the European Union is proposing). So there are both pluses and minuses. We have to see.
We believe the Tata group had tried issuing differential voting rights back in the 1990s. The Securities and Exchange Board of India has passed the buck to the Company Law Board in one of the cases. Why have you taken this route for the Land Rover-Jaguar financing?
Well, we have taken advice from experts. We believe that it is a doable approach, and we have gone ahead. I think there is some merit in that, since there are different types of investors. Some investors are not interested in voting rights, but only in return on money, while there are others who are interested in both voting and returns. I think this caters to different types of investors.
The Singur constituency in West Bengal has gone to Mamata Banerjee, who is opposed to the Tata Nano plant, during the recent civic polls. Is there a Plan B?
There is no Plan B. If you are asking me whether I will create another Singur somewhere else, my answer to that is no. Surely, Singur will not be the only plant eventually. It (a second plant) is not going to happen tomorrow. Also, a lot of work has gone into Singur. I think you need to appreciate that (he showed these correspondents the latest status report of Singur and photos of the press and paint shops). I don’t think anybody has any idea that so much work has already happened. So we are working on it. There are challenges, no doubt, but we are working on it irrespective...
What is your long-term outlook? What are the factors favouring the industry in the long term?
There are a lot of factors. Number one is the urbanization of minds. The communication revolution is making a quick change in consumers’ minds. The quick change is that urbanization mindset is happening even with a person who is living in the rural areas. Earlier, it was only confined to urban areas. Now, it is immaterial. Your place of living has nothing to do with your mindset. I think this is a revolutionary change that is happening in the country. The second thing is that there are more younger people in India, which means there is a greater desire. A younger person wants to do (things) faster than the older generation.
The third is that discretionary income is going dramatically up, because once you have taken care of your basic needs, then whatever extra income that comes becomes discretionary.
Finally, the fourth part is road network and, more importantly, the rural network which is coming up... I am young, I am 23 years old. So I want to make it happen fast... And, finally, the road is connected... so I can go to a new movie theatre there. I can take my family. I will marry and take my wife for a dinner outside. So it is the basic things that a human being desires. I can send my children to a better school 50km away.
And we have got into that. That is why we have made this huge investment. That is why we are expanding our plants. That is why we are building four major greenfield plants. That is why we have made major efforts in all our vehicles. That is why we are building the world’s largest bus manufacturing plant in Dharwad, because the need for people to travel will become tremendous. No question of that. So if one person was going to a nearby town 30km away, now, he will go on three-four occasions. So that one visit has become 10 visits. So you need buses, you need this thing, you need Nano.
ammar.m@livemint.com
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First Published: Fri, May 30 2008. 12 19 AM IST