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Case Study on -How Tata Motors turned JLR around Mumbai: In the summer of 2007, before Tata Motors

Ltd took over Jaguar Land Rover (JLR), Ratan Tata and Ravi Kant embarked on a trip through the US. Their objective—to gauge whether the legendary British marques still evoked enough passion in the biggest market for the vehicles to justify the acquisition. The Tata group was among those that Ford Motor Co., which owned JLR at the time, had approached earlier in the year to discuss a possible sale. Among the people that chairman Tata and Kant, then managing director of Tata Motors, met were the long-suffering dealers of the two brands. Despite the dismal performance over the past few years, the dealers still kept the faith, the Indians were heartened to learn. A few months later, when Kant did the rounds of dealers in the UK, he met with much the same response— they still believed in the brands. But when the $2.3 billion deal took place the next year, it was quickly apparent that Tata Motors couldn’t have picked a worse time to make an acquisition of this magnitude. The collapse of the mortgage market in the US had set off a financial crisis and anyone who had cash wasn’t in the mood to lend it. Two years and a few months since then, JLR’s contribution has helped Tata Motors post a steep rise in profit in the quarter to 30 September. So how did an Indian company that specialized in cheap small cars, on the one hand, and trucks, on the other, succeed where an iconic auto maker, and others before it, had failed. The top executives at Tata Motors, usually most reticent, opened up for the first time about the JLR story at an exclusive interaction in Bombay House, the Tata group’s headquarters. Those present at the meeting included Carl-Peter Forster, managing director of Tata Motors group, Ralf Speth, chief executive officer of JLR, and a top group executive who was intimately associated with the turnaround saga, but insisted that he remain unnamed as he wasn’t directly associated with the unit any longer. Soon after the acquisition in 2008, Tata Motors found itself saddled with a debt of Rs.21,900 crore, an uncomfortable position for a company that had been virtually debt free. Meanwhile, at the other end of the spectrum, through 2008 and the early part of 2009, Tata Motors was also involved in developing and launching the world’s cheapest car, Nano, a project that was fraught with its own melodramatic ups and downs. But that’s another story (see WEF special supplement). Hard times At JLR, the product wasn’t moving and Bombay House was beginning to feel stretched. Amid talk of the UK government contemplating a bailout of JLR, Tata Motors’ market value plunged toRs 6,503.2 crore, with the stock hitting rock bottom Rs.126.45 on 20 November 2008. The market capitalization was less than what it had paid Ford for JLR. “The global slowdown put the company under tremendous pressure because the management of JLR had just separated from one big organization and was attaching itself to another not-so-big group and they were not yet kind of experienced living independently,” said the Tata executive mentioned above. “We were bleeding. Banks were not giving any money, they were not available, they were closed. And we needed money.” That’s when Ratan Tata came through for Tata Motors, with the parent pumping in capital, driven by the belief that the JLR acquisition was right and would work. While the turnaround, when it took place, came as a surprise, Tata Motors saw it three-four quarters in advance. But before that, in the fiscal ended March 2009, Tata Motors posted its first annual loss in at least seven years after sales at the luxury units plunged amid the global slump. The consolidated net loss was Rs.2,500 crore in the year ended

more fuel-efficient and contemporary models coupled with the revival of demand in the firm’s key markets such as the UK. the company . the US and Europe. Roland Berger. For the next few months. Cash management “A three-tier model was developed. About half the firm’s turnover is dollar-linked while one-fifth is linked to the euro. Ramakrishnan said margins had benefited from favourable currency movements. the extent of the turnaround can be gauged when margins are compared with corresponding quarter of previous year.147 crore rights offer. Margins rose by a whopping 1. The programme also saw the workforce being trimmed since July 2008 by around 11.2. Ramakrishnan. the workforce was trimmed by another 1. Since January. KPMG declined to participate in the story. All proceeds were channelled into Tata Motors to make JLR profitable. The key aims—cash management and checking costs. Despatches of JLR models to dealers globally rose to 115. partner. JLR’s turnaround has been aided by external factors. focusing on new models and refreshing the existing ones. The turnaround Sales are buoyant thanks to the introduction of newer.9% against the dollar and 7.000 at JLR. Around the same time.1. with reviews on a daily basis. A number of management changes.31 March. Munichbased Roland Berger Strategy Consultants was brought in to keep a tab on costs.800 to 16. Tata Motors was able to keep product development plans going. When Roland Berger added up the money that could be saved. a long-term goal that runs until 2014 was drawn up. Tata Motors also embarked on a plan to divest stakes in group companies to raise cash: In September 2008. Crucially. widening by one percentage point to 16. “cash started to be managed on an hour-to-hour basis — what cheque was going out. First.800 crore as unemployment and the financial crisis damped sales in the US and Europe.9% in 30 September 2009-10.000 from a gargantuan workforce of 27.200 crore in the year earlier. which has paid off with the global economy reviving and customers returning to JLR showrooms. reflecting the changed dynamics of the company as sales rose sharply on the back of new product launches and improved market sentiments. the pound has strengthened 4. with 8. The new Jaguar XJ has been especially successful.3% holding in Tata Steel Ltd to holding company Tata Sons Ltd for a total Rs. what cheque was coming in”. including new heads at JLR. Tata Motors turned to consultants KPMG.508 units in the six months to September from 80. In a 9 November earnings call with analysts. 1” as JLR was hemorrhaging money and the company sought outside help. Cash remained “priority No. in the spring of 2009. Then came a mid-term target to contain costs at various levels and the formation of 10-11 cross-functional teams. Finally.000. A team of young managers was put in charge. As JLR didn’t have a cash management system of its own. compared with profit of Rs. The JLR unit made a pretax loss of Rs. which was completed in June this year. the board approved a Rs. The mandate to Roland Berger was simple: make JLR profitable. who spoke to analysts after announcement of the September quarter results. it sold a 1.7% against the euro.485 crore.370 basis points or 13. were made.” said Wolfgang Bernhart. With JLR accounting for more than half of Tata Motors’ business. Bernhart said.6%. The rupee has strengthened against both currencies this year. According to chief financial officer C.252 in the year ago.7% from 2. Automotive Competence Center. Forster said. the company was astonished at how high the figure was. a short-term goal to manage liquidity with the assistance of KPMG was put in place. In November 2008.700 of them having been sold since the model’s launch in mid-May.4. over the first quarter of 2010-11. However. in an approach similar to the one followed in the 2003 restructuring at Tata Motors.

While Speth says it is time to enjoy the fruit of the investment made in 2007-08. making the acquisition fit with Tata’s strategy of developing low-cost cars for emerging markets won’t be easy. JLR had very good automobile plants. Jaguar cars had already started moving up the ranks of the annual JD Power customer satisfaction rankings. Ultimately. both were still “great brands”. “We had this meeting (in late 2007) with the union. there seem to be limited operational synergies between JLR and Tata Motors’ remaining passenger car business.” said Kale.302. this is more of a standalone turnaround of JLR until now. We didn’t have too much hope.5. it boiled to down to this: JLR had a good engineering base and “a very passionate and committed group of people wanting to create new products. The debtto-equity ratio is down to 1. careful not to appear complacent. It was eyeball-to-eyeball. there was a crop of great new models in the pipeline. who works with some Tata group companies “On the face of it. Unite joint general secretary) were asking very tough questions.” said the Tata executive cited above.” said Prashant Kale. Dave (Osborne. Tata Motors began a nine-month due diligence process.posted a 100-fold jump in profit in the three months to 30 September.728-7.573. among them the Jaguar XJ and XF and the upcoming Land Rover. Besides that.” said the Tata executive.” Union backing One of the early endorsements that Tata Motors got was from the unions. the group will stress on entrepreneurial spirit. “So if you put it all together.5 times at the end of 31 December 2009. sincere. How Tata Motors is able to leverage those synergies would be interesting. says seeds “are being sown to be reaped in 2014. While Jaguar had a mixed reputation. Second. a very difficult one for three hours. we have a recipe for success. given the difference in the primary segments they cater to and the underlying value chain or business models of the two. though they gave the firm a grilling. There were five key issues that persuaded Tata Motors to go ahead. and honest.15 at close on 10 November on the Bombay Stock Exchange.” The union leaders told the media after the meeting that their preference was for the Indian company. “But somewhere in my heart I felt the meeting had gone well.160 crore) into JLR in the next three-four years for product development. Third was the steadfastness of the dealers despite losses over the past four-five years. “But to me. The share has risen to a respectable Rs. That’s high but comfortable given surging volumes. While Tata Motors seems to have done all the right things up until now. “What else can you ask for? At least there was no doubt in Mr Tata’s mind and my mind that we should go for it with a single-minded focus and we went for it. Unite’s lead negotiator for the car industry) and Tony (Woodley.” Forster is of the view that more than synergy. technology upgradation .6 times at the consolidated level from from 4.08 crore ($18 billion).” Tata Motors plans to pump £800 million-1 billion (Rs. Ford had pumped in a great deal of cash to improve quality and it was just a matter of time before this made a difference. Forster says. taking market capitalization toRs. Forster.79. When he got a positive answer. which convinced Tata Motors that JLR was on the cusp of change. We came out very transparent. The first real contact between Tata and Ford took place in early 2007 when Ratan Tata got “an informal brief” on JLR. Tata asked Kant and other senior Tata Motors executives if the acquisition made sense.1. “Tata has done a good job in a difficult period. professor of strategy at the Jones School of Management at the Texas-based Rice University.

India.” Speth said. which contributes two-thirds of Tata Motors’ consolidated revenue. Speth said. JLR is setting up manufacturing assembly units in India and China. Since the Tata Motors acquisition. The Freelander. Speth expects China to account for 16% of the company’s total sales over the next few years. adding that this will allow the company to reduce prices by 35%. he said. These nations account for 31% of sales and the company wants to raise that to 37%. the cheapest of the sports utility vehicles from the Land Rover stable. will start rolling out from the old Tata-Mercedes assembly plant near Pune next year. With an eye to the future. the markets touted as the fastest growing in the world. up 12% from the year earlier. JLR has been looking at the Bric (Brazil. “We can rethink our aspirations in China (a market with a size of 17 million cars) through this JV. The UK subsidiary. JLR made a cash profit of £351.and capital expenditure needs.9 million. making the vehicles more competitive. has been generating a cash profit for the last four quarters. In the three months to September. JLR is also in advanced negotiations to set up a joint venture in China. China) nations with greater interest. Russia. .