The Reasons of Tata Motor’s Downfall in Sales, and How to Solve Them, Research Paper Example

Introduction

Tata Motors Company Ltd is among the most prominent players of the premium automobile sector in India, which first opened its doors in 1945 to produce steam locomotives. The organization had grown through mergers and acquisitions, dating from 1954-1869 when it tied up with Daimler-Benz to manufacture vehicles, operating under the name Telco Corporation (Shafiulla, 2016). Rechristened in 2003 as Tata Ltd, also Tata Motors, the company was the most prominent automobile firm in India in the year 2009/2010, with US$ 20 billion worth of consolidated revenue (Bloomberg, 2019). By this time, the company was the leader of every segment concerning the commercial vehicle market and the third top seller of passenger vehicles. The company was also the fourth biggest truck manufacturer worldwide and the global most significant manufacturer of the bus. However, recently, the organization has been registering a drop in sales with the acquisition of JLR in 2008, having a hand in it (Sekar, Gowri, & Ramya, 2018). This paper examines the external and internal environment of Tata JRN to establish the reasons behind the fall of the company’s sales and propose a recovery strategy.

Reasons for Tata Motors Downfall in Sales

Brexit

Brexit is one of the leading factor reasons behind the recent fall of Tata sales. The UK pulled out the European Union (EU), something that significantly impacted the global commercial vehicle market. The issue affected both the export tariffs and free movement of goods and services as well as capital flow within the market. The cost of exporting to the market escalated due to higher tax tariffs, increasing the total cost of production. J LR also hit another bump in the Europe market due to diminishing cash flow has put Tata into financial management woes. A report shows that although the global Auto Industry has generally exhibited fluctuation in revenue due to worldwide slowdown in the sector, Brexit has primarily led to the decline of Tata’s revenue by the fourth quarter (ended in March 2019) recording $12.5 billion. According to the JLR reports of 2018 showed that the company projects that the sales will further drop in 2020 because of Brexit. The organization anticipates a revenue of $34.3 billion in the fiscal year 2019/2020, which will end by the end of March 2020 (Sekar, Gowri, & Ramya, 2018). Comparing the fiscal years ending March 2018 and March 2017, the global sales for Tata’s passenger vehicles dropped by 22 percent while commercial vehicles fell by 48 percent to 25,365 units. Reportedly, no-Brexit deal significantly contributed to this fall (Bloomberg, 2019).

Table 1, Comparison of Tata Motors net income, shareholder equity, and ROE between 2015/2016 and 2016/2017

Industry’s Product Shift

Another cause of the decline in the company’s sales is the industry’s shift on the products both locally and globally. While JRL has been a cash cow for years, the increasing shift of consumers from fossil-fuel automobiles has hit the company’s sales performance in recent years. For example, while by the end of September 2018, the organization had exported 5,250 units of vehicles in different overseas markets, according to the JLR CEO, the company registered only 3,800 units by September 2019, marking a 27.5 percent decline (The Economic Times, 2019). Consumers are shifting their taste toward other eco-friendly. This trend has made the company look for ways to dispose of assets, something that has contributed to financial issues.

Competitors are offering alternative vehicle technology, which is making consumers deviate their consumption from Tata products as they attempt to fit in fashion. There has been a huge push toward EV technology, that is, electric vehicles mainly by Suzuki Motors, which is a Japanese manufacturer of automobiles and the main Tata competitor in both the global sphere and local market. For example, in the 2018 report, Suzuki director argued that the organization would start testing its two-wheeler EV using an electric scooter in the Indian market by 2019. A report by Bloomberg (2019) shows that the organization is waiting for the infrastructure to develop to market the products. Going by this, one can attest that the fear of going out-of-fashion is making some costumers reluctant to buy automobiles as they plan to be consumers of environmentally friendly and fast electric cars.

Figure 1: Decline of Sales Among Automobiles between June 2018 and June 2019 (The Economic Times, 2019).

Quality Perception/Issue and Jaguar Land Rover Impression

JLR is currently struggling with the perception of poor quality/model cars, even in its domestic UK market. According to What Car reliability publication of 2018, among a sample of 25 luxury and large SUVs, four vehicles from JLR featured in the list of five worst cars ( Tata Motors, 2019; The Economic Times, 2019). In addition to this aspect, the organization is testing the new leadership in fixing the quality gap, which calls for time to adapt.  The company, reportedly, operates runs 100 branches/enterprises, making the management hectic.

Owing to the poor quality perceptions of consumers across the globe concerning Tata products, the global sales for the firm in all passenger wholesale automobiles have fallen by 14 percent in 2017/2018 from 2016/2017 to 61,387 units (Tata Motors, 2019; Abale & Ingale, 2018). The Jaguar and Land Rover wholesale figures were 53,090 units, which included 4,671 units of CJLR. CJLR is a joint venture involving Cherry and JLR Automobiles (Palepu & Srinivasan, 2017). Land Rover, which is an SUV manufacturer, sold 39,290 vehicles with Jaguar, the sedan maker is selling 13.801 vehicles.

Global Recession of 2008

Reportedly, the company was performing well until 2008 when the global economy experienced a downtown. At this time, the company was forced to find ways of disposing of its assets due to reduced flow of cash, putting the business in financial woes. The acquisition of JLR also came after the economic slump, and it also augmented the company’s sales as hitherto seen. A study shows that Tata Group bought JLR for $2.3 billion in 2008, something that is greatly attributed to the loss of three quarters in a raw (Abale & Ingale, 2018).

Figure 2: Performance of Tata Motors by Segment in 2019

Recommendations or Solution Proposals

Although some of the causes of Tata’s sales drop are out of the company’s direct control because they are from the external market, the company can still blend multiple recovery mechanisms to solve their problem of sales drop and return to the success days. This paper prepossesses the following steps:

Increase the quality of their products, particularly luxury cars and SUVs, which JLR produces: JLR deal has also incremented the sales woes for Tata Motors in that JLR has reportedly offered some poor quality products, lowering the image of the corporation (Tata Motors, 2019). To address this, the organization may invest in research and development to help in improving the quality of their products.

Embrace the new technology to meet evolving consumer needs: One of the main problems affecting Tata’s sales is the change of consumption toward environment-friendly cars, with emerging technologies like biogas, electric, and solar-powered engines. The organization may slowly schedule resources and restructure and redesign its goods to use EV and solar technology in making vehicles and engines. The quality improvement may also include adding more features in the design, a higher gearbox, and power steering to enhance performance and increase fuel efficiency (Johnson, Christensen, & Kagermann, 2018). This way, the company will compete favorably with technologically-adept competitors like Suzuki.

Launch a multi-core digital campaign to reinstate the Tata’s and JLR’s brand image: The organization should consider formulating effective communication techniques to design new advertisements emphasizing on the positioning strategy supported by Becker-Ritterspach and Bruche (2017). The organization can re-proposition their vehicles as durable and reliable and re-position it as a family and eco-friendly cars.

Summary and Conclusion

Tata Motors has been experiencing sales drop in both India and the outside market. For instance, between 2016/2017 and 2017/ 2018 year, the company registered a 48% sales drop, from 69,990 to 36,375 (The Economic Times, 2019). Brexit, the UK exit from the UE trading bloc, has contributed to these as it led to an increase in export tariffs and bureaucratic obstacles. Additionally, there as a bad perception of the Tata Motor products, partly contributed by JLR products, which have occasionally featured among the wore SUV and luxury automobiles. This makes consumers globally go for competitor products, like Suzuki vehicles.

Additionally, consumption in the automobile industry is shifting toward environmentally friendly, with customers avoiding fossil fuel-powered vehicles for innovating ones. With the infrastructure of electric vehicle and solar-powered automobiles expected to grow, some people are committed to purchasing these in the new future. Adding more features to their products, investing in research and technology, and conducting social media campaign to re-position the brand would help to solve Tata Motors problems.

References

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Becker-Ritterspach, F., & Bruche, G. (2017). Capability creation and internationalization with business group embeddedness–the case of Tata Motors in passenger cars. European Management Journal, 30(3), 232-247.

Bloomberg. (2019). Jaguar Land Rover woes add to challenges for the Tata Group. Retrieved from https://www.thehindubusinessline.com/companies/jaguar-land-rover-woes-add-to-challenges-for-tata-group/article27203035.ece#

Johnson, M. W., Christensen, C. M., & Kagermann, H. (2018). Reinventing your business model. Harvard business review, 86(12), 57-68.

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The Economic Times. (2019). Tata Motors sales down 48% in September at 36,376 units. Retrieved from //economictimes.indiatimes.com/articleshow/71395349.cms?from=mdr&utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst