The British factories of Jaguar Land Rover (JLR) stand cold and idle this New
Year, stilled by a sharp slump in car sales and waiting for British
government ministers to decide on a request by Tata Motors, its Indian
owner, for a loan to tide the operations over the worst of the recession.
In Pune, western India, Tata Motors’ main plant on the sub-continent, the
scene could not be more different. In 30C heat workers toil to produce cars
– small, lightweight vehicles ideal for the Indian market, not the large,
four-wheel drives and luxury saloons made by their British colleagues.
Like most of Tata’s plants, Pune exudes confidence and, compared with the
madding streets outside, relative calm. Like JLR, however, Tata’s Indian
operations have been hit by a fall in sales, particularly in commercial
vehicles where the company first made its name.
A rights issue earlier this year, done in part to pay for the $2.3 billion
(£1.6 billion) JLR acquisition in June, was a damp squib. This year the
company’s share price (it is listed in Mumbai and New York) has dropped 77%.
Tata Motors has also struggled with its plans to produce what has been dubbed
the new “People’s Car” – the Nano. A new factory being built near Kolkata
has been abandoned after a wave of protests from locals. A new site is being
sought.
Senior managers at Tata Motors say the sharp differences in the British and
Indian operations and markets mean there is little prospect of technology –
or jobs – being transferred between them.
The idea has dogged public coverage of the talks on the JLR loan, with some
voicing concerns that by providing funding for JLR the British government is
simply supporting Tata. There are fears that, rather than securing jobs in
the West Midlands and Merseyside, production will be transferred to India
and that Land Rover’s four-wheel-drive technology will be adopted for Tata’s
own products.
Ravi Kant, managing director of Tata Motors and a member of JLR’s board, said
there was no intention of closer integration of the British and Indian
marques.
Speaking at the Tata Group headquarters in Mumbai shortly before the terrorist
attack at the nearby (Tata-owned) Taj Mahal Palace Hotel, he said: “JLR is a
100% subsidiary of Tata Motors but we will keep its management independent.
“We see ourselves as facilitators. A team from JLR came to India and another
from Tata Motors went to England to talk about manufacturing, purchasing and
other aspects of the business and to see how they could help each other. One
outcome was Tata’s IT company setting up a new IT system for JLR. Another
was to devise a plan to sell Jaguars and Land Rovers in India.
“Tata has 60 years’ experience in the commercial-vehicle business.
We understand the cycles of the auto market and that the amplitude of those
cycles changes from time to time. It is unfortunate that we encountered this
difficult [economic] situation very soon after our acquisition, but we are
positive that we will come through it.”
Kant discounts the idea of Land Rover providing the technology to replace
Tata’s ageing four-wheel-drive vehicles: “You can't transplant the DNA in
that way,” he said.
In India, Tata is concentrating on a car at the opposite end of the spectrum
to Jaguar and Land Rover: the Nano. Billed as the world’s cheapest new car
with a pretax price of 1 lakh (100,000) rupees (£1,250), the Nano was
supposed to start production in October in a new factory in Singur, West
Bengal. But local opposition to the building, on what was agricultural land,
turned violent and Tata decided to uproot the complete operation and
reinstall it in another new facility at Sanand in Gujarat.
The Nano is intended to get Indians off motorcycles – which too often carry a
whole family – and on to four wheels. It is a very simple four-seat,
four-door car with a 600cc petrol engine. Tata already has thousands of
orders and hopes to start deliveries in the spring.
Tata has no plan to export the Nano to western markets. Although the Sanand
plant has room for expansion to make 500,000 cars a year, Kant is sure that
local demand will exceed supply for years to come.
As India’s first truly indigenous carmaker, Tata might have been expected to
spearhead the drive to export Indian-made cars. It started making the Indica
– a car the size of a Ford Fiesta – in 1999 at Pune. The Indica has recently
been updated as a new model called Vista.
But Tata is still smarting from the experience of supplying the original
Indica for sale in Britain as the CityRover in the dying days of MG Rover.
It was neither well-made nor well-priced. Now Tata is moving cautiously with
exports.
Kant said: “We are not very ambitious for European sales. The Indica is
already sold in Italy and Spain and we are looking at Poland, but have no
immediate plans to expand to other countries. Europe is very brand-conscious
and it would take a lot of investment to build the brand. We have to be
prudent in today’s times.”
Instead, Tata bought established brands – Jaguar and Land Rover.
At home, Tata’s focus on small cars is matched by its rivals. Its big
competitor, Maruti Suzuki, was established in the early 1980s by India’s
socialist government to build an Indian “people’s car”. At that time Indian
car production was only 40,000 a year and they were elderly hand-me-down
European designs like the Hindustan Ambassador (1950s Morris Oxford) and the
Premier Padmini (Fiat 1100).
Sanjay Gandhi, son of Prime Minister Indira Gandi, led the Maruti project and
sought an established car company as a collaborator. He settled on Suzuki,
then, as now, a small-car specialist in Japan, which took a 26% share of the
new state company. Sanjay Gandi died in an air crash before the first car –
a version of a Suzuki minicar – was produced in 1982.
Maruti Suzuki’s annual production reached 765,000 in 2007. The company has the
lion’s share of the Indian car market (54.8%). It was privatized in 2002
when Suzuki took a 54.2% controlling share. Today, the Indian company is
Suzuki’s largest overseas subsidiary, contributing 30% of total production
volume and 34% of its profits.
Suzuki has invested $2 billion in expanding production in India with the aim,
by 2010, of reaching 1.2m cars a year, 200,000 of which will be exported.
Its Manesar plant, on the outskirts of Delhi, is the sole source of Suzuki’s
global small car: the Alto.
Experts estimate that labour is one-sixth to one-eighth of the cost in western
Europe and Japan. A line worker at Maruti Suzuki earns 20,000 rupees a month
(£3,000 a year) for a six-day, 48-hour week. Wage rates at component
suppliers are lower.
But low labour costs are not the only consideration. Shinzo Nakanishi, the
company’s managing director, explained: “We decided to make the Alto – the
entry model of the Suzuki range – in India rather than Hungary or China
because of the expected demand from the Indian domestic market.
“Maruti Suzuki wants to maintain its dominant share of the Indian market,
which is expected to rise from 1.5m to 2m by 2010. We have expanded our
facilities here and deal with more than 200 suppliers of locally made parts.
The cost of those components was a big factor in our decision.”
Industry watchers say car companies increasingly favour India over China
because they are able to exercise management control in a way that is not
possible in the 50:50 ventures with the Chinese.
Although Tata Motors is standing back from the scramble to export, its
managing director understands the reasons for India’s emergence as a world
source of inexpensive cars. “It is a natural evolution, a manifestation of
the expanding Indian market and Indian talent,” said Kant. “There is a base
of engineers and technical people here. India has a great strength in
information technology and today there is a close relationship between IT
and car development. Low-cost manufacturing is an inherent advantage of this
country. Put these together and you can reduce development and production
costs substantially.”
