Tata Motors to create independent production hubs
The Economic Times — January 16, 2008

After the Nano, it's time for more innovative engineering at Tata Motors. The country's largest vehicle maker, which stirred the auto world last week with its cheapest car ever, is now planning to reorganise its manufacturing operation through different hubs, a clear departure from the established manufacturing model at the 75-year-old company.

The Mumbai-based truck and car maker plans to come out with independent production hubs that will focus on making different vehicles at different locations, instead of the earlier integrated facility where it had the commercial vehicle and passenger vehicle production lines in the same unit.

It is in line with the philosophy that Tata Motors plans to shift its Ace unit from Pune to Rudrapur in Uttarakhand while new generational vehicles, including SUVs (sports utility vehicles), would be made in Pune. The shifting will free up over 5 acres in Pune that will be used to ramp up production of Sumo, Safari and Indica, sources said.

However, a Tata Motors spokesperson, when contacted, said the company adopts a flexible approach at all its units while concentrating on certain product categories in specific plants. The Dharwad unit in Karnataka makes buses while the Lucknow facility is used for trucks and buses.

The company's oldest unit at Jamshedpur is for heavy trucks while the new location of Rudrapur makes Ace and Magic, the sub-tonne light commercial vehicles. The Pune unit makes cars and passenger vehicles. Although Tata Motors had initially planned to roll out the Nano from Singur, this plan is reportedly being reworked to Pantnagar in Uttarakhand. Tata Motors has planned a capacity of 2.25 lakh units for Ace, the sub-one-tonne truck, while the existing capacity in Pune is just around 60,000 units a year.

The move to create independent production hubs for each of its product is mainly to leverage economies of scale, skills and expertise, and to facilitate rapid expansion of all businesses under one roof. Such a move would also streamline Tata Motors' quality, reliability and ensure specialisation of skills and expertise given its involvement in commercial vehicles, utility vehicles and cars, said sources.

According to analysts, specific manufacturing hubs give scale benefits for common overheads and also help in expansion of product lines. "While the vendor base could be rationalised with such a model, it also kept logistic costs under control," said Ashutosh Goel of Edelweiss Securities. Incidentally, lower priced and lower margin products such as Ace and Nano are being manufactured from Singur, Rudrapur and Pantnagar, as these locations give tax benefits.

The creation of independent hubs has been in the pipeline for some time now, but was delayed due to union issues. Tata Motors had recently benched some employees at its Pune unit after it decided to cut down production due to lower sales. Rising rates have forced many to postpone their purchases. According to a recent report by Mumbai-based Enam Securities, the medium and heavy commercial vehicle segment will continue to witness subdued growth due to the "increase in lending rates and tight availability of finance. We expect H2 of FY08 to register better growth compared to H1 of FY08".