Tata Motors Bets on New Sedan to Revive Weak India Sales

Tata Motors Ltd will launch a passenger car this month, its first new offering in four years, in a bid to regain market share and plug losses in its domestic business, which was also hard hit by the slowing economy.

The car, called Zest, is a compact sedan built on a new platform and, in a departure from previous models, boasts user-friendly features such as touch-screen control panels.

Tata Motors' domestic business has posted losses in four of the last eight quarters and Ranjit Yadav, head of passenger vehicles, said the Zest was key to the automaker's revamped domestic strategy.

"The Zest is the first step and an important proof point of what we want to do with our passenger vehicle business," Yadav told Reuters. "We have taken some hard calls in the last 12 to 18 months to set right our fundamentals."

Tata Motors, India's biggest automaker by revenue, dominates the trucks and buses segment, but its passenger cars have failed to lure customers away from local rival Maruti Suzuki India Ltd and foreign competitors including Hyundai Motor Co and Honda Motor Co.

Tata's domestic car sales fell 39 per cent year-on-year in the year that ended on March 31 and its market share also dropped to 4.2 per cent at end-June from 10.2 per cent two years ago, industry data showed.

Lack of a product pipeline, an image that its cars are not cool because they are used as taxis and the legacy of its ultra-cheap Nano, perceived as a poor man's car, has put Tata Motors out of favour with buyers.

In the past, the automaker has relied on its trucks and buses, as well as on the strong sales at its luxury unit Jaguar Land Rover, to offset the weak performance at home.

But with trucks and buses sales declining as India's economy battles the longest spell of below 5 per cent growth in quarter of a century, Tata Motors has now shifted its focus to cars.

It also wants to capitalise on any improvement in the economy under the new government of Prime Minister Narendra Modi, executives say. Car sales in India, expected to be the world's third-largest car market by 2018, are likely to rise this year after posting a decline for two consecutive years.

Investors, however, say it won't be easy for Tata Motors to convince buyers of the merits of its passenger cars after being largely absent from that market for so long.

"It will be more of a challenge for Tata because it is in very different segments," said Walter Rossini, a Milan-based portfolio manager for Gestielle India, which manages Indian stocks including Tata Motors shares. "For them it would help to focus more on their commercial vehicle business in India and luxury international business."

Some analysts said Tata has taken a well-calculated risk by launching a compact sedan because of the popularity of smaller, fuel-efficient vehicles. Deepesh Rathore, analyst at Emerging Markets Automotive Advisors, however, said the company still had to change its image, adding: "It will not happen in a hurry."

As part of its new strategy, Tata Motors plans to launch two new vehicles every year until 2020. The Zest will be followed by the Bolt hatchback later this year, said Yadav.

($1 = 60.0650 Indian Rupees)

Copyright: Thomson Reuters 2014