Tata Motors, the Indian Multinational Automotive company of the Tata group has hired McKinsey & Co. to reorganize their Commercial Vehicle business. The global management firm is expected to increase the automotive agency’s profitability without making any changes to their market shares.
Tata Motors is the country’s largest CV producer and supplier in the country. But the company experienced weak performance in terms of bottom line in the past 2 years due to a discount war with competitors. Therefore, the company hired McKinsey & Co. for a year long basis to help them overcome their financial backlogs.
More about the drop in Tata Motors’ profitability
Tata Motors saw successful growth in the share market this year as the Commercial vehicle shares grew from 42.4 % (FY21) to 44.9 % (FY22). However, the company’s profitability fell by fifty points in FY22.
The competitors in turn experienced high volume growths and expanded margins despite the headwinds. For instance, the automotive maker’s rival truck maker Ashok Leyland managed to achieve a volume growth of 27 % and delivered a 4.58% margin. While Ashoke Leyland saw a profit before tax of Rs. 542 crores, Tata Motors on the other hand suffered a loss before tax valuing at Rs. 100 crores in FY22.
The reasons why their Commercial Vehicles aren’t as successful
Experts have pointed out that the high- cost structures, poor sales predictions and improper sales variance are the reason why the Tata CVs do not uphold the same price power as they did in the past.
“It’s a classical conflict between funding market share growth and driving profitability, the CV business unit is unable to leverage technology or product superiority to command profitable selling prices and instead is relying on active discounting to retain or grow share, which is proving unsustainable.” – The ET Sources.
Other experts have also stated how a company tends to face ‘relative inertia’ when it follows outdated and frail “go to market” strategies.
As a result, the company is losing money on their sales and is experiencing a fall in shares, while its competitors are achieving high profits. The average selling price of an Ashok Leyland CV is approximately Rs. 2 Lakhs more than that of Tata Motors, i.e., Rs. 16.89 Lakhs.
What are the proposals and goals setup by McKinsey to help Tata Motors regain its profitability?
The McKinsey & Company is a well- known global management consulting firm that was founded in 1926. This management consultancy with the highest revenue in its field was hired by Tata Motors to help increase their poor profitability status. The McKinsey firm plans to develop a comprehensive strategy to deal with pricing, margins, sizing, business expansion (national and international), structuring, etc. that would help increase the sales of their CVs and increase their share prices.
As per sources, McKinsey has started analyzing some of the top companies worldwide including their client’s rivals to understand where can Tata Motors improve. The consultancy firm’s team accompanied by Girish Wagh (Executive Director) has also begun to meet up with dealers. These meetings focus on explaining Tata Motors’ sales mandates and action plans to dealers using presentations in order to increase CV sales.
The McKinsey & Company’s goals focus extensively on the boosting of operating finances, restructuring costs of manpower, increasing profit margins, improving the product portfolio and sales, and a lot more. The reputed consultancy believes that the solution to uplifting their client company’s profitability is revamping of it’s current production methods and marketing strategies to instill a more profitable sales and marketing technique.
With the Tata group holding an apparent monopoly in several field of business, it is not an unrealistic possibility that Tata Motors will soon recover from its current financial backlog. McKinsey & Co. seems to be a fruitful decision made by the automotive maker so far as the consultancy seem to be confident about taking Tata Motors to greater heights.