Tata Unveils First New Model Since 2010 – the zest

Tata Unveils First New Model Since 2010 - the zest

By Santanu Choudhury

Tata Motors Ltd. unveiled its first new car model in four years Tuesday, illustrating the company’s struggle to succeed at home even as its Jaguar and Land Rover brands flourish around the world.

The $7,500 Tata Zest compact—its first new car since 2010—is aimed at India’s growing middle class, which in recent years has shunned Tata cars in favor of the latest from Suzuki Motor Corp., Hyundai Motor Co. and Honda Motor Co.

One reason for Tata’s slump, analysts say, is the unpopularity of the company’s $2,000 Nano—a stripped-down car launched in 2009 that failed to catch on with aspirational Indian consumers.

With big global names like Hyundai, Honda and Ford Motor Co. regularly launching new models to woo customers on Tata’s home turf, Tata’s market share has dwindled to 8% from about 17% over the past decade.

“We have been a little slow in product introduction,” Ranjit Yadav, president of Tata Motor’s passenger vehicle business, said in a recent interview. “So, we have a little bit of catch up to do every year.”

At stake is Tata’s share of one of the world’s largest car markets. More than 2.5 million cars were sold in India in 2013. By 2020, the country is expected to become the third-largest auto market in the world after China and the U.S.

“It is crucial for a company to constantly have new products…as any product nowadays doesn’t last for more than one or two years,” said Abdul Majeed, a partner at Price Waterhouse, an Indian arm of PricewaterhouseCoopers.

Tata Motors’ big bet on the Nano, dubbed the world’s cheapest-ever mass-produced car, may have distracted it from developing new products, some analysts said.

Developing the car was a marathon that required the attention of most of the company’s engineers for years. Manufacturing proved to be another headache, when local politics effectively forced the company to move its factory from one state to another.

Then, after the Nano hit the roads, sales were unimpressive and the company had to tweak the way the car was produced, delivered, financed and advertised. Sales of the Nano plunged 61% in India in the financial year that ended on March 31 from the previous fiscal year.

“Tata Motors has become cautious with its Indian business after the failure of the Nano,” said one Mumbai-based analyst tracking the industry who didn’t want to be named.

Tata Motors has often been outgunned and slow to the draw in launching new passenger cars because it is a relatively new entrant into the market, analysts say. While it has produced trucks since the 1950s, it wasn’t until the 1990s that it started making cars.

It can take three to five years to completely design a new car and start selling it, so the big global names like Honda and Hyundai have an advantage. Not only do they have more models being developed at any one time, but in the Indian market they can just launch a car that hasn’t landed in India yet and it still gets that new-car spurt in sales.

“A multinational company that has a large inventory can launch more vehicles in a shorter period of time than an Indian company,” said Deep Mukherjee, senior director of corporate ratings at India Ratings & Research, which is part of Fitch Ratings Inc.

Big, global auto makers also have more money and expertise to throw at a project. Tata has yet to succeed at selling many of its Indian cars outside of India. Mahindra & Mahindra Ltd., another Indian auto manufacturer, has tried to speed up the process by building a research center in Detroit so it can tap experienced U.S. engineers. Tata Motors said it used engineers at its research centers in India, the U.K., Italy and South Korea to develop the Zest.

One of the reasons Tata decided to purchase the Jaguar and Land Rover brands from Ford for $2.3 billion in 2008 was to help it better understand the process of developing and selling cars around the world. Today the luxury-car brands have made Tata one of India’s most profitable companies as their sales have taken off even as Tata’s local sales have deflated.

Analysts say the new-product-development process at Tata may have also been slowed by a shake-up in management. The company had to accommodate a new chairman as Cyrus Mistry took over after the retirement of Tata Group Chairman Ratan Tata in 2012. Meanwhile, Tata Motors’ managing director, Karl Slym, died in January. The former General Motors Co. executive was leading an effort to overhaul the company’s stable of vehicles.

Tata’s Mr. Yadav said the company plans to introduce two new models each year for the next six years. At the news conference in Mumbai on Tuesday, Mr. Yadav said he didn’t want to discuss the reason it took four years to get to the latest launch.

“We are focused on looking forward,” he said. “I’m not here to talk about the past.”