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Having already laid off some 850 JLR employees in November last year, the once ego-boosting acquisition is beginning to seem like the proverbial albatross around Tata’s neck. No, Tata Motors is nowhere near bankruptcy (a la GM and Chrysler) thanks to the backing of the cash rich Tata Group, but inventories are piling up and payments to suppliers are being missed. In a press briefing on February 5, Tata Motors Managing Director, Ravi Kant ruefully accepted that “There could be a delay in payments (to vendors). It is a difficult situation. The whole industry is facing problems.”
Launching the Nano at a time like this has its downsides and upsides for Tata Motors. With the economy worsening, a four-wheeler at the cost of a laptop is sure to catch the imagination of cash strapped consumers. So the runaway success of the Nano is almost a given. Claims Dilip Chenoy, Director General, SIAM, “Nano will pump in additional excitement in the market, creating a new segment for itself.” Also, reports are pouring in that even consumers in Europe and the US are turning to small (read: cheap) cars in these recessionary times and the Nano could become an export cash cow. “The initial response will be vital for the success of Nano and will depend upon the product performance,” points out Jagdish Khattar, former MD of Maruti Suzuki.
But that will be in the long run. For now, Nano is likely to contribute little to escort Tata Motors out of its present financial quagmire. Sure, Ratan Tata has got the Rs.1 lakh costing pat, but the problem is in the wafer-thin margins that the Nano is likely to generate. Obviously, the strategy is to play on huge volumes and high-priced variants to make the Nano a profitable proposition. “Once the new plant gets operational, the company will be looking at coming out with the other variants of Nano – the diesel version and Nano Europa for exports,” says Siddharth Vinayak Patankar, Editor-Auto, NDTV. But that’s the long-term outlook. Given the demand-supply mismatch now (at least till the Sanand plant becomes operational), Nano is not likely to add much to Tata Motors bottomline. Agrees N. K. Dhand, Chairman, Micromatic Grinding Technologies, “The Nano will attain high volumes in a time horizon of at least five years and only then it will prove profitable for Tata Motors.” In the meantime, the company would do well to focus more on the success of its Indica Vista, Ace, Winger and the soon-to-be-launched new Indigo – the quartet can help Tata Motors bounce back in the short term, much better than the Nano ever will!
Clearly, Ratan Tata is putting the burden of his ego on to the profitability of Tata Motors. Unlike other automakers in the country who are planning a slew of new launches in the market to boost falling demand, the launch of the Nano is absolutely not an attempt to fight the slowdown blues; rather it is more about Ratan Tata’s promise to deliver ‘The People’s Car’ within the appointed hour. But to pull off an ambition like the Rs.1 lakh car, you’ve got to have a bit of an ego in the first place. And lest we forget, Ratan Tata is known for his knack of being the turnaround man. He worked his magic with Tata Motors in the 1990s, turning the company around from a loss making venture to a sure-footed, nimble and profitable business. Then it was the dull & staid Indica that turned the tables. If Ratan Tata can just figure out a short term gameplan (minus the Nano) to boost profitability, the much-hyped Nano may well repeat history over the next few years...
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Source : IIPM Editorial, 2009
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