“I have a great respect for what Mahindra & Mahindra has been able to do. I also have a certain degree of sadness and shame that we have let that happen.”

This is what Ratan Tata had to say recently about his company’s passenger vehicle business losing out in the numbers game to Mahindra & Mahindra. An observation that prompted its Chairman & Managing Director Anand Mahindra to tweet that this was an “extraordinarily humble and generous” comment which he was taking “as a pat on the back from a big brother.”

The underlying message from Tata to his colleagues at the annual general meeting cannot be ignored. Tata Motors really had no business losing the race when it was consistently ahead for so many years. It was also equally clear that Ratan Tata’s successor, Cyrus Mistry, would need to set this right as one of his top priorities.

Naturally, the comment led to speculation over the ‘uneasy relationship’ prevailing between Tata Motors and M&M. While this was delectable fodder for the gossip circles, it misses the bigger picture. It was something that was waiting to happen when Tata Motors gradually began ceding ground in its utility-vehicles business some years ago. Observers say this was inevitable as the focus shifted completely to cars and, more specifically, the Nano.

Different working cultures may have also resulted in M&M getting the lead. “The Tatas are gigantic and this leads to obvious issues in the decision-making process. M&M is perhaps more nimble-footed in comparison. Both Anand and Ratan also have their own working styles,” says an industry associate familiar with both companies.

Nano-driven lessons

There is no question that it was Ratan Tata who sowed the seeds for his company’s dynamic entry into cars. Right from the Indica to the Nano, coupled with the audacious bid for Jaguar Land Rover, the Chairman of the Tata Group truly showed what entrepreneurship was all about. He faced flak for the JLR acquisition but the same critics have now had to eat their words as it has ended up being the lifeline of the company’s passenger vehicle business.

This, in turn, throws up questions about setbacks in the form of the Indica and Nano. The latter, in fact, caught the imagination of the world when Tata first made it known that he was working on a Rs 1-lakh people’s car. While the sceptics scoffed, there were top guns such as Carlos Ghosn, the Renault-Nissan CEO, who sat up and took notice.

The Nano may not have realised its potential but it showed the rest of the automotive world what frugal engineering was all about. Global ancillary suppliers involved in the project are now taking the Nano lessons to other countries which are now focusing on low-cost cars.

This is the only way ahead as high fuel prices and a global slowdown have come as a grim wake-up call to the automobile industry.

Tata has also stood his ground in tough times, be it during JLR or Corus which were expensive buyouts. The months following the JLR acquisition were almost nightmarish with a wobbly world economy, difficult access to credit and a workforce that could turn volatile any minute. Right through these tough times, Tata took all criticism in his stride and finally had the last laugh.

This is eventually what entrepreneurship is all about — the ability to take risks with the knowledge that the reward could take time coming. The Indica and Nano may not have set the sales charts afire but have been significant from the viewpoint of setting up a cost-effective base for manufacturing cars. But the bigger question remains to be answered. Has Tata Motors lost the plot in its passenger vehicle business? Will it constantly depend on JLR for survival?

M&M route to growth

To answer this, it is time to rewind a bit to the M&M story when the company decided to break off with Ford in its car alliance and focus on its core business of manufacturing sport-utility vehicles.

This was the beginning of Project IDAM (Integrated Design and Manufacture) in the late-1990s which would lead to the birth of its flagship vehicle, the Scorpio.

From M&M’s point of view, this was a make-or-break initiative. It had earmarked a substantial Rs 600 crore for IDAM and it was, therefore, imperative that it succeeded. It was also the reason to break away from Ford and focus on SUVs.

Within M&M, a new team was bubbling with hope and enthusiasm after the rousing reception to the Scorpio. They had also worked on a relatively low-profile, but more successful (numbers-wise), Bolero which preceded the Scorpio.

With its focus on SUVs paying off, M&M now decided to expand its portfolio as a transport solutions provider and made a re-entry into cars with Renault and later snapped up Kinetic’s two-wheeler business. It also announced entry into commercial vehicles through a tie-up with Navistar of the US and, in the component space, established an entity called Systech.

Locked in combat

Tata Motors, in the meantime, had launched sedans and had taken its car journey one step further by joining hands with Fiat for joint manufacture and retail. Both Tata Motors and M&M then found themselves in a race to pick up Jaguar Land Rover during 2007-08.

The industry grapevine was then working overtime with talks of ‘two rivals in a do-or-die battle’.

Both M&M and Tata Motors deserve kudos for proving that Indian automakers can more than hold their own against top global counterparts. They have also shown what frugal engineering is all about. Both have made big-ticket global acquisitions (JLR and SsangYong Motor for M&M) and are now poised to grow further this decade.

For the moment, though, M&M has the edge in the passenger vehicle business with its SUV strategy working like a charm even as rivals are entering the space. It has little to show in its two-wheeler business while the rechristened Logan, Verito, is doing reasonably well in the entry sedan segment.

Tata Motors, on the other hand, needs the big volumes which the Nano has the potential to generate. A diesel version may make all the difference, given the way the market is tilted towards the fuel.

The company also needs to revisit its SUV strategy and check out what needs to be done. Tata’s message at the AGM was clear and, perhaps, reflected his own disappointment over a flawed strategy more than just losing out to M&M.

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