October 31, 1995 | Business Week
Telco inside India's most exciting co.
"We will offer the Indian customer a car which has the size of the Zen, the internal dimensions of an Ambassador and the price of a Maruti 800 - with the running cost of diesel."
"We'll have a car with the Zen's size, the Ambassador's internal dimensions, the price of a Maruti 800 and with the running cost of diesel."
— Ratan Tata, Chairman Telco
Stalemate, the Zen. Lengthwise, the Tata Indica (as it is code-named) actually matches the Zen. The front of the car slopes down more sharply but, like the Zen, the overall design makes a slight bow to the contemporary jelly-bean shape. But that's where the similarities end. The Indica is a much broader car - its rear seat can comfortably accommodate three adults and it has a much larger boot. In keeping with the rougher Indian road conditions, the indica rides higher than Maruti's range of cars or even the DCM-Daewoo Cielo. There's one other difference the Indica is a more powerful car. Its 1.3 litre petrol engine (it will have a diesel option too) delivers more power than a Maruti 800 cc or even a Zen.
Tata has a pithy description for the Indica: "We will offer the Indian customer a car which has the size of the Zen, the internal dimensions of an Ambassador and the price of a Maruti 800 - with the running cost of diesel." The price of a Maruti 800? Yes. Early this year at a Hongkong meeting with fund managers, the Telco chairman went on record to state that his company could build a car for $3,000 (Rs. 93,000). Add 40percent tax (Rs. 40,000), marketing and other selling costs (Rs. 25,000) and assume a margin of Rs. 35,000 on each car and Telco could offer the Indica at under Rs. 2 lakh-roughly the on road price of a Maruti today.
Price will be one of Tata's key positioning parameters. He believes that its price and not the engine capacity which decides the segment in which a car will compete. So, the Indica will be positioned head on against the popular Maruti 800. Consider Tata's sales target for the small car. By 2000, that is, within three years of its launch, Telco expects to sell no fewer than 275,000 cars-more than Maruti Udyog will
Chairman Tata is de-bottlenecking capacities to increase Telco's output
do this year. Of these, at least 235,000 will be small cars. A mid-market estimate of the total car market in 2000 is 700,000. If Telco manages to reach the targets Tata is talking about, then its car market share will be an astonishing 40percent -within three years of production start-up.
Of course, by then Telco also hopes to have a stallemate for the Indica-the mid-sized car. This too will be positioned on the basis of price. But Tata is not forth-coming with details on Telco's mid-sized car yet. "It'll have a powerful engine capable of delivering 140 hp and would be in the BMW 5 series range." BMW 5 series engines range between 2 and 2.5 litres, which could give Tata's mid-sized car an engine displacement which is greater than Hindustan Motors' Countessa (1.8 litre), Maruti's Esteem (1.3 litre), Peugeot's 309 (1.3 litre) DCM - Daewoo's Cielo (1.5 litre) and even General Motors' Opel Astra (1.6 litre). If Tata can price Indica's mid-sized stallemate at less than Rs. 5 lakh - the estimated price of the Peugeot-he may well have another winner. On his part, Tata is targeting a sales figure of only 30,000-40,000 for the mid-sized car.
At the Pimpri plant the excitement is palpable. Even though the two cars are to be launched only in 1997, Telcoites are charged up about what's happening in their company.
Telco's Big Ambitions Ride on Small Cars
Ratan Tata wants to make Telco the first truly Indian car manufacturer. His prototypes are ready; production starts in 1997
A sleek white and silver car cruises down the high-speed stretch of the test track at Telco's plant at Pimpri, near Pune. As it deftly negotiates a curve, there is a familiar figure at the wheel-the 56-year-old-Ratan Tata. For a moment, the car looks like one of the E220s that Mercedes Benz has just begun assembling in a joint venture with Telco. But just as Tata accelerates out of vision you realise it isn't the E220 at all.
Tata was showing off to visiting Mercedes executives the prototype of one of the new passenger cars that Telco hopes to offer Indian customers in 1997. Kept under wraps for nearly two years, the prototypes of the two cars have now reached the stage where production can be planned. The one Tata drove down the test track was the bigger of the two, which Telco plans to manufacture in relatively small numbers. But the real surprise will come from a small car with which the company plans to storm the Maruti 800 bastion.
For some time now, Telco has been talking about developing a passenger car all by itself-an affordable family car designed for the Indian customer. Many in the auto industry have scoffed at the idea-indeed, many still do. "How," they ask, "can an Indian company design a passenger car without international expertise? Besides, it takes tens of millions of dollars to develop a new car. How can any Indian company afford to do that?
Telco will formally demonstrate how in less than two years. Last month, Business World got a no-photographs preview of the cars-and other new vehicles-at Telco's Pimpri plant. Telco's small car is a hatchback like the Maruti 800 or its major changes were usually related to processes and the enthusiasm was different. Now we are seeing new products rolling out the factory and everyone is excited.
On the sprawling 800 acre campus, that's quite evident. Even before the two cars hit the roads, there are other new vehicles which will roll out of the Pimpri plant. Nearing production is another prototype-the Safari. Based on the Sierra but with more contemporary and 'off-the-road' looks, this is a stylish five-door vehicle with a petrol (and perhaps also a turbo diesel) engine. Then there's a sleek 10 seater van, which like the sierra and the Estate, is built on the 207 Tata mobile chassis. Plus, of course, later this month, Telco's joint venture with Mercedes Benz will roll out E220s assembled at the Pimpri plant.
There could be even more action. At this month's annual general meeting, Tata will show shareholders the new four-wheel drive version of Telco's popular Sumo utility vehicle. In Bombay, Telco's marketing team is talking about yet more new products that could roll out in the near future. Among them are top-of-the-line trucks with air-conditioned driver's cabs, heavy and medium commercial vehicles equipped with power steering and a bullet-proof version of the Estate for VIPs. But all that pales into the background; the most exciting thing happening at Telco is the build-up to the launch of the two cars in 1997.
How truck major Telco has managed to design and develop cars is a story which goes back to the mid-eighties, when it signed up with Honda to manufacture the Accord. The government denied permission, so Telco decided to go it alone. In the late eighties, it began testing various indigenously developed car models. But it was only in 1991 that Telco first attempted to commercially build the Sierra-a utility vehicle described as a cross between a truck and a car. As a starting point it took the basic chassis of the 207 pick-up, the Tata mobile (launched in 1988), and using it as a platform, developed first the Sierra (a two-door diesel personal vehicle) and then the Estate, a four-door extension. Both had initial problems, like very high oil consumption, faulty electricals and suspension problems, most of which have been ironed out today.
But more important, both vehicles have given Telco a taste of what it is like to manufacture personal transport vehicles. Telco is a hugely successful commercial vehicle maker-its trucks command a 70 percent of the domestic market, and it is the leading player in each of the commercial vehicle market's segments, heavy, medium and light. But cars are an altogether different proposition. As a truck maker with dominant market - shares and virtually no competition, Telco has given the market what it wanted to. In cars, it will be trying to take on a market where others - like Maruti, for instance - have the dominant share. The highly customer-driven nature of the car business also makes it very different from, say the truck market. How Telco adapts to meet the needs of the car market will be the key to its success. Tata, in fact, argues that the experience of the Sierra and the Estate has helped Telco. Says he: "We are today much better equipped to address the car market than we were before."
There's a lot more to car making than just designing working prototypes. Unlike trucks, where 10,000 vehicles of a particular model are enough to make a production line viable, cars (especially small cars) are a volume-driven business where the threshold volume could be as high as 100,000 vehicles annually. Even for an integrated manufacturer like Telco, achieving such volumes could pose problems.
Take Telco's recent experience with the Sumo. When bookings opened late last year, Telco got bookings for an awesome 90,000 vehicles. Subsequently, there were 8-10percent cancellations. But today, after nearly 10 months of going into production, there is still a backlog of 70,000 vehicles. Telco officials say that the company has been able to put just 10,000 vehicles on the road till date, and although capacities have been shifted from making Sierra and Estate models to Sumos, it is unable to meet demand. One reason for that is vendor-related. At the Pimpri plant, rows of semi-finished trucks and Sumos, waiting for outsourced components, is a common sight. Says a Telco official: "The surge in volumes is not being matched by supplies that we can get from vendors."
When Telco begins making cars in even larger volumes, such problems could snowball into production crises. Realising that, Tata is already working towards possible solutions. Telco is setting up a new umbrella outfit -Telco Automobile Components (TACO) - to act as a catalyst for vendor development in India. TACO will match global automotive vendors with Indian players, with the objective of forging joint ventures (JVs); it will also go in for its own JVs with Indian ancillary firms, by taking up equity stakes and offering engineering capabilities. Already, no fewer than 20 global vendors are in discussion with TACO.
At the consumer end, Tata group company Tata Finance, which is already into truck finance and hire-purchase and leasing activities, will enlarge its auto finance business, helping Telco get the large initial production runs for cars, and, therefore, enable it to gain critical mass in the cars business.
For all that, it isn't easy for a truck maker to transform itself into a car making company. As a near-monopoly truck maker, Telco has weaknesses that it must shed if it wants to emerge as a successful player in the car market. Says Tata: Telco is not nimble-footed. We've been reactive rather than proactive and have been giving the market what we want and not what the market wants." He realises that in the highly competitive car market that will emerge in India, Telco will have to change its culture.
So the car project will be part of a separate strategic business unit (SBU) which will have its own executive director with control over the entire gamut of functions-product development, manufacturing, marketing and sales. Says Tata: "It will be like a separate company with its own managing director." Beginning last October, Telco's existing businesses have also been restructured into two SBUs-one for automobiles and the other for construction equipment-with their own executive directors.
Along with these organisational changes, Tata is also attempting to change Telco's public image. A leading advertising agency has begun extensive market research which will finally lead up to a new campaign to change your notions about Telco-from those of a robust truck company to one that is also a more passionate car maker.Telco is also changing its old logo-the familiar T in a circle-in favour of a more contemporary stylised solid T set in a oval outline. It has two options for the new logo at present and will settle for one of them. Tata explains that the logo change was necessitated when Telco began making a mark in the markets of Europe and the US with its trucks: the old T logo was very similar to the logo used by the Spanish sports company Segio Trachinni.
Tata himself feels that Telco has learnt from its experience with products like the Tata mobile pick-up, Sierra, Estate and, more recently, the Sumo. Many of these vehicles faced initial quality problems and Telco had to respond to feedback from the market. Says Tata: "If you take an early pick-up truck or an early Estate or Sierra and take a Sierra today, there are several hundred modifications that have gone into it both in terms of fits and finishes as also in terms of internals. These have in fact been the bridge. We are today better equipped to address the car market than we were before."
Tata can easily cite the company's experience with the 10-seater utility vehicles, Sumo, as a clear example of being better equipped for the car market. developed indigenously in a record 18 months (from conception to commercial production), the Sumo has been a run away success. There's a long waiting list for the vehicle and Telco cannot manufacture enough to meet the demand.
Telco's ability to design and manufacture vehicles like the Sumo and the proposed cars stems also from the fact that it is probably the most integrated player in the automotive industry - it makes most of its own manufacturing equipment and designs its own production facilities. And over the last few years, Telco has strengthened these. At Pimpri, a Rs. 100 crore CAD/CAM facility enables Telco engineers to design vehicles, engine blocks and dies. A digitised link-up to the shopfloor enables the plant to manufacture vital equipment like dies using computerised numerically controlled (CNC) processes.
Four kilometres away from Pimpri, at Telco's machine tools division in Chinchwad, the company's strong engineering abilities are even more dearly demonstrated. In a mammoth air-conditioned shed, Telco engineers are putting several assembly-line robots-yes, robots-through their paces. With technical help from a Japanese company, Telco has already fabricated a few of the robots at Chinchwad and proposes to make around 60 of them in the next year or so. It also plans to revamp 21 robots that came with a Nissan plant which was closed down in Australia before Telco bought it for $20 million.
The Nissan plant, which has been imported a completely dismantled form, is now being installed at a site adjacent to the Pimpri plant. Once it is operational, in the next three or four months, Telco plans to use it to augment its production capacity for Sumos. Subsequently, the reassembled plant will be used for manufacturing cars. The Nissan plant has brought great cost savings for the company: Telco bought the plant for Rs. 60 crore; if it had to set it up by importing new equipment separately, it could have cost over Rs. 200 crore.
Such cost cutting has been a part of the Telco strategy throughout. Much of this has accrued through the conscious strategy of self-reliance conceived by Tata's predecessor and the founder of the Pimpri plant, the late Sumant Moolgaokar. From the beginning Telco has emphasised doing everything on its own and this ranges from manufacturing its own sophisticated CNC machines to using women's co-operatives to assemble digital watches for the dashboards of vehicles like the Sierra and the Estate.
But today, as Telco aims to emerge as a car maker and is seeking world-class engineering capabilities, the strategy of self-reliance has undergone some change. In many areas, Telco has sought outside expertise: at Chinchwad, Telco engineers are fabricating robots with the help of the Japanese firm Nachi; the Pimpri CAD centre, where engineers develop prototype designs, is equipped with completely imported hardware and software packages and hi-tech CAM equipment has been imported for the plants. Even know-how is being imported by Telco today. For instance, the Company has a JV with cummins of the US for an engine manufacturing venture at Jamshedpur.
Some of the outside input is sought through technical tie-ups. For designing the Safari, the two passenger cars and some of the other new vehicles, Telco consulted International Automotive Design (IAD), a small UK-based auto design firm which has to its credit prestigious design assignments like Mazda's Miata and Ford's Scorpio Estate and the Lincoln Town car. Similarly, Telco, which has specialized in diesel engines but never done a petrol engine, engaged Austrian engineering major AVL to help develop petrol-driven engines for its new cars.
But these changes-like going to international experts for know-how or picking up an old Japanese plant to augment capacities-are all consequences of Tata's key strategic vision. Tata wants Telco to be the first truly Indian car manufacturer. And that's why his strategy for an entry into the car market is so different from the other Indian players. When the automobile industry was delicensed by the government, a bevy of Indian companies clambered on to the bandwagon. Without exception every player forged an alliance with international car giants. Eager beavers like Sipani Motors took the easiest route-importing completely knocked down (CKD) kits and assembling foreign cars in India. Others, like Mahindra & Mahindra, Hindustan Motors, Premier Automobiles and DCM opted for more long-term strategies-they went in for JVs with car giants like Ford, General Motors, Peugeot and Deawoo, for plants which would begin with assembly operations but move finally to indigenous manufacture.
Telco isn't an exception to that trend. It has gone in for a JV with Mercedes Benz to make the E220s in India. But the difference is that, while the other JVs are eyeing the mid-sized or the fastest growing small car market in the country, the Telco-Benz venture will produce luxury cars in small numbers. Mecedes Benz India Ltd (MBIL), which has planned an initial annual output of just 10,000 cars for the domestic market, can at best be a fringe player targeting the top segment of the Indian automobile market. The real pay-off for Telco will be in the learning process that come switch a Mercedes Banz partnership.
Ratan Tata, in fact, believes that there is no small foreign car that can be a perfect fit for the average Indian customer. He told BusinessWorld: "A Japanese car does not have the durability for Indian roads. Possibly not even a European car, because they design for a different set of circumstances - they are smaller in size because they are usually owner-driven and not chauffeur-driven.
These cars do not handle the kind of family size that exists for most Indian travellers and yet be economical, fuel-effcient and have the economies that a small car like the Maruti (800) has."
Doing things on its own also brought tremendous cost advantages for Telco. Says Tata: "The total development cost-barring manufacturing the plant and equipment - of the 207 pick-up which became the platform for the Sierra and the Estate was something like Rs. 10 crore." That's a fraction of the development cost in virtually any other country, and any other company.
Despite the high-adrenalin surge to get into the car market., Telco hasn't slowed down on its main business-truck making. In the last couple of years, the company's output has surged dramatically. So much so, that Telco is operating at levels higher than its installed capacity of around 120,000 vehicles (including HCVs, LCVs and the bridge vehicles). Last year (1994-95), Telco's produced 137,760 vehicles. This year company officials conservatively estimate an output of around 180,000 - a jump of over 36percent. It could be even higher. In the first four months of 1995-96 itself, Telco's total output was 47,853 vehicles-a massive 85percent higher than what it produced in the corresponding period last year.
Telco officials explain how the company has been de-bottlenecking its capacities to increase output and how production processes are being upgraded to help increase efficiencies, including the introduction of robots in the assembly lines and CAM techniques. At the same time Telco has embarked on a major capacity expansion, sinking Rs. 1,800 crore in a programme to increase capacities to 200,000 (excluding cars) by 1997. The expansion programme will be helped by the imported Nissan plant which will be used initially for producing more Sumos.
Tata has set major goals for Telco in the next five years. Saya he: "My personal aim is that by the year 2000 we should be a Rs, 20,000 crore company in terms of revenues; we will have an extensive ploughback of investment in plant and machinery; we will be in the passenger car segment in a stronger way than we are today; we will have a higher market share in medium and heavy and then light commercial vehicles, and we will export about 30percent of our goods."
Four years ago, in 1991-92, industry watches had almost given up on Telco. It was a bad year for the automobile industry, but for Telco it was traumatic. The company's vehicle sales nose-dived, its inventories soared and profit after tax dropped-the first decline in years. How things change. Last year, Telco's net profit soared to Rs. 318.95 crore, more than three times the previous year's level. Today almost every fund manager recommends Telco to clients. Foreign institutional investors are enamoured of the scrip not only because Telco's performance has been good but also because of the nature of the business the company is in. Telco's dominant position (see chart) I truck making isn't threatened by any foreign player; its engineering skills are highly rated, and its profitability is linked to industrial production which is growing at a good clip. Says BZW (Barclays Bank's investment banking division) senior investment analyst Narender Nagpal: "The best thing about the Telco story is that it isn't dependent on any industry's business cycle; it's a play on the economy as a whole."
A lot will, however, depend on how Telco's car project goes. Some competitors in the car industry are downright sceptical about Telco's small car project. Says the CEO of an Indian car company: "You can't put into the market something which looks and works like a car and expect it to do well. To do well, a small car must be designed to international standards-it has to be global in its performance, looks an interiors." Critics feel that even the Sierra, Sumo and Estate are overrated. "Whatever cars Telco has brought out so far do not remotely resemble a state-of-the-art automobile," says an auto industry bigwig.
Some users of the company's personal transport vehicles like the Estate and Sierra would tend to agree. The Delhi-based owner of an Estate bought in November 1994 complains of the poor overall quality level of his vehicle. "It has done just 20,000 km and already there are problems. The suspension has had to be redone and there are problems with the gear box and the clutch." Irked by these, the owner-and expatriate working in India-is planning to ask Telco to extend the vehicle's warranty period.
Yet there are those who don't underestimate Telco's ability. Says Mahindra & Mahindra's deputy managing director Anand Mahindra, who is implementing his own car project in partnership with US giant Ford: "If anybody can make a completely indigenous passenger car with some pretense to world class standards, it is Telco. And that's because of its long-term efforts and commitment over the years towards building strong engineering capabilities." But even observers like Mahindra point out that the rapid changes in the international auto industry-particularly in respect of environment and safety specifications - can pose a major challenge to Telco.
For the moment, the man behind the big change at Telco appears to be ready for any challenge. Described by his colleagues as someone who is near-fanatical about cars, Tata spends a large part of his time during his Pimpri visits in the ground floor of one of the buildings. This is the hub of the car project. Here in a closely-guarded, limited-access room are two models of the prototype cars and a CAD workstation manned by graduates of the National Institute of Design. Tata shuttles between driving the prototypes on the test track and huddling together with his team of designers and engineers discussing modifications. Will he be able to make Telco India's General Motors?
TELCO is almost certainly the Tata company that is closest to group supreme Ratan Tata's heart. One of the reasons for that is the 56-year-old chairman's passion for automobiles. Senior Telco executives say Tata has an almost boyish enthusiasm for cars. Today, at the Telco factory near Pune, Tata is trying to translate that passion into action. Under his leadership, Telco has already indigenously developed two prototype passenger car models and plans to launch them in the next couple of years. In an interview with BusinessWorld, Tata spoke about his plans and what they will mean for Telco. Excerpts:
Can you spell out where exactly you are trying to take Telco?
Telco is the dominant player, if you like, in the commercial vehicle field. It had, on an average, 70percent market share in the medium and heavy commercial vehicle segment and 30-35percent through the years in the light commercial vehicle (LCV) area. Although we had a small dip in 1993-94, we have in the LCV area grown there to a high of 59percent. In heavies, we have grown to 72percent.
Telco has been in the mode of protecting its market share. I have endeavoured to change that into aggressively increasing its market share. We have been saying we are doing well if we maintain our market shares. Now we would like to increase our market share in all segments. We would like to strengthen our position as an integrated manufacturer with our own capability of product development, to become the lowest cost manufacturer in the Indian industry.
Thirdly, we would like to enter the field of passenger cars. Here again Telco will benchmark itself against international players, not against its past history. We are going to look at our costs and our margins on the same basis as the best do in that field and we will also keep on trying to measure ourselves against that. We are obviously not going to get there tomorrow, but our moves will be these kinds of moves rather than small deltas of improvement.
Where does Telco see itself five years from now?
My personal aim would be that by the year 2000 we should be a Rs. 20,000 crore company in terms of revenues. We will have an extensive plough-back of investment in plant and machinery; we will be in the passenger car segment in a stronger way than we are today; we will have a higher marketshare in medium and heavy vehicles and LCVs; we will export about 30percent of our goods.
Do you see cars becoming bigger than trucks in Telco's business?
I think by the year 2000 we will be looking at something like 200,000 trucks and about 275,000 in cars. The truck business will probably still be bigger.
How big do you see the market for cars by then?
I see a 1 million market with about 600,000-700,000 at the very low-end and 300,000 in the upper-end.
Are you betting on petrol or diesel, or on both?
Both. We have the capability for both.
All this is not counting the joint venture with Mercedes?
This is Telco. Revenues of Rs. 20,000 crore do not include the joint venture (JV); exports do not include the JV. And the reason I am talking of exports is that I think that is the best calibrator of your international competitiveness. Last year, we exported about 12percent of our output. Our intention will be to penetrate the more developed markets rather than the developing markets so that there will be a change in our complexion of exports. Today if you look at the map of the world and put pins at the places where our vehicles are exported, you will find the pins all over the world.
Most of them would be south of the Equator?
No, no, all over the world. South of the Equator, western hemisphere, Latin America, eastern Europe... And more recently France, the UK... but those pins may represent 10 vehicles exported in a particular year. I would like to see fewer pins but meaningful exports in those areas where you can make investments and distribution to get a presence in that market, rather than just have somebody in Peru buy 50 vehicles and then for the next five years buy nothing. You cannot stand by that an support those vehicles in any meaningful way.
So I think customer satisfaction and customer support, spare parts, etc. are going to be the key elements. It is easy to become a number one player but it is difficult to remain number one. So, we will have to fight with a view to remain number one.
If you were to tell Maruti that the only real competition they are going to have is from Telco, they say: "But they don't have a car." What is your answer to that?
I thought I have just answered that.
But you have not got a car as yet.
I know we don't have a car as yet.
How far away are you from the car?
I think by 1997-98 we will have a car.
Done indigenously by yourself?
Yes. We feel we will have a car that will meet the needs of the Indian market. A car designed for India rather than an adapted car used in India. A car that we believe will meet the needs of the Indian public. It will be a somewhat larger car than the Maruti in dimensions.
Why? Because it will have more space and will be for larger families?
But how would you design a car for Indian conditions? For dust, or fuel consumption or what?
I am talking dimensionally. A Japanese car does not have the durability for Indian roads. Possibly not even a European car, because they design for a different set of circumstances. They are smaller in size because they are usually owner driven and not chauffeur-driven. They do not handle the kind of family size that exists for most Indian travellers and yet it must be economical, fuel-efficient, must have the economies that a small car like Maruti has.
You will have the problems of body weight and engine power.
And you still believe you have the design and engineering capability.
Telco has essentially been a truck company. And the culture of a truck company is different from that of a car company.
So you are asking a truck company to become a car company, or to make a smaller truck which is what you have done so far.
As I have always said, in the last three years the Sierra has set up bridges. We are going to use vehicles like the Sierra and the Estate as that bridge to get better fits and finishes; to be concerned about the customer; to be more responsive to the needs of the marketplace. Along with several other things which are not discernible from the standpoint of an outsider..... for instance, changes in the distribution structure. The whole approach is how to deal with the customer when there is a problem. And there have been problem. If you take an early pick-up truck or you take an early Estate or Sierra and take a Sierra today, there are something like several hundred modifications that have gone into it, both in terms of fits and finishes as also in terms of internals. These have, in fact, been that bridge. We are today much better equipped to address the Indian car market than we were before.
Even then, in specific areas we will seek inputs because there are still some changes that need to be done. It will be our design but we will seek inputs from elsewhere where we need them-be it in engineering packaging or some of the design elements-again to meet international standards. But it is our design. The basic car has been designed for Indian conditions. And we feel we have an edge there because there is no car today abroad that is quite designed for these conditions. So the challenge is to produce a car with these physical parameters at the price of the small car that is available in India.
Your big advantage will most probably be your cost. That is what was shown in the LCV game. Will that be the real advantage in cars as well?
Could be.... You don't attribute anything else to our success in the LCV market? Just cost? We do not have a product? As it happens, we're not priced lower than anybody else.
Didn't you under-cut the Japanese through your lower costs?
No, no. If you are going to say that we did not increase our price when the yen went up.... we didn't. Surely, don't bang us for that. We have increased prices also. But it is not cost alone that does it. The Japanese LCV manufacturers had very high spare parts cost, availability, a whole host of things. Plus, in a truck particularly, durability is an issue.
What will be the design cost of a car done by Telco?
The total development cost.... that is, barring manufacturing plant and equipment.... I am not answering your question, I am going to answer it in another way.. that we spent on the 207 pick-up which became the platform for the Sierra and the Estate, is something like Rs. 10 crore. This includes all the development time, the tooling.... everything excepting the production equipment that may have been set up for it.
Yes, we have a great plus there.
Telco's whole culture is to do things on its own. When you are dealing with a wide variety of models and limited production numbers, and the kind of market that there was, that culture may have been all right. But today when you are looking at a competitive market and high-volume business like cars, doesn't Telco have to go out of its mould of saying "We will do it ourselves", and get into partnerships and call for outside help, and be more integrated with the world?
If Telco did look inwards, it was a reflection more of those times when we had to be self-sufficient. I think the foundations on which the Sumo was created are today one of the springboards that Telco has. In other words, enormous investments were made for internal capability. We did not have to develop these in order to undertake model changes. The only question you might have is, we did it at what cost? In other words, for the investment we made. But the capability was there. Today we have gone outside to enhance our engines which we never did before. We have gone outside for help in designing the follow-on of our Sierra 5-door vehicle which we did with IAD of the UK. We did it in India but we did it with their involvement. We would go outside, as I said, for engineering packaging and a whole series of other issues. We have sought more help from outside than we ever did.
But your machines and production equipment are still made internally?
Now we mandate that they sell 20percent of those machines in the market. So they are on call also to be competitive.
An important change worth mentioning is that from the end of October we changed the entire organisational structure in Telco because it was a classical functional organisation. So we created two strategic businesses groups-automobile and construction equipment-and we put them under the charge of executive directors who have under their control, for the first time, the entire gamut of functions-product development, manufacturing, marketing and sales. So they really have become little managing directors of a company.
For the car activity, it has been announced inside the company and to the board that when we get the critical mass for cars, we will have a third business unit where the culture will have to be different from what they have today.
That will be a separate campus?
Even to day we are putting our efforts in a high volume plant. We are putting it, not integrated with the present plant, but in the new line which is adjacent to that. You might say it is a new campus. Half of that is going to be with the present one; half of it is going to be a new plant.
And you have started investment on plant and equipment?
Yes. In fact, much of the investment will have taken place before this year is out. It will be used to enhance the production of Sumos.
The Sumo is believed to be a big success....
Yes, (sarcastically) on price again, and cost. If we strip it down, sure that is what Sumo is. Our intention is to get into a high volume mode by using Sumos in the first round. By the time 1997 comes, we will be ready to transfer it to cars.
So we will have a new organisation which will be a third business unit for passenger cars, where the culture will be entirely different. This has been expressed to everybody-and there will be no surprises-that there will be a separate management, maybe drawn from the existing management, but everyone now accepts that there will have to be inputs in production and approach that will be different from what we have today.
We will have yet another business unit, which has also been announced, and the factory automation unit will really be a machine tool division or an electronics division or production engineering division and it will be really a solution-based company which is doing factory automation work.
The CAD/CAM centre where you have a Rs. 60 crore facility?
We have a Rs. 100 crore CAD/CAM facility. This is basically to find automation solutions to prices control, automatic lines, robots... the works, for a manufacturing unit. We feel that we have a capability which we always used ourselves and we will spin it out into a separate unit in the Company and it will work both for us and for the outside world.
People say cars is really a passion business and very often it is not a very profitable business. Do you see it that way?
Margins are going to be low. You see, we are running our truck business on that basis. We are a volume-driven company. We should become a margin-driven company. The car business will have to be a volume-driven activity. The margins are very low and we have to make money on those margins. It is often said in the car industry - it is fashion or passion as the case might be - that you are dealing with a commodity which people like or don't like. If they like it, they buy it. If they don't like it, they don't. If you look at the world around you, there is a band in the middle where you can't tell one me-too from the other. And then you have the outstanding products which sell.
If you are a little innovative or a little bit of a gambler, and you make a product which is either ahead of its time or has an evolutionary design, or has features that work into a person's perception, then you have an acceptable product. Not that it really embodies any of what I have just said, but if you take the Sierra and the Estate, when they started everybody had a question as to what would happen. Today we have surpassed the Countess and others in this area.
And you could ask, why a station-wagon? It is much more expensive than the Countess. So cost is not an issue, price is not an issue.
It is safer on an Indian street?
But why? Because basically we provided a vehicle which met some of the requirements and had a lot of convenient features and functions which were not at that time offered to the Indian public. Similarly, the Tata Sierra was considered a two-door vehicle... then why was it made? It created a cult of its own.
All I am trying to say is that when you do that, even if you are not producing a licensed product, you can in fact conceptualise a product which you feel the customer wants. I think on that basis we will continue to have that advantage which somebody else does not have.
If I were today with Renault and wanted a nice exciting product in another area which Renault did not build, I would have a problem. Similarly, today if you are with a company that is in one segment and not in another, you have a problem. Or you have a plethora of joint ventures, licensing agreements etc. We have the advantage of being a totally flexible company.