30 June 2017 07:31:59 IST

Tata, VW split will mark a no-win end

The parting of ways will be a huge setback to the two as well as Skoda

The agreement made big news at the time of its signing during the Geneva Motor Show in March. After all, it was the coming together of two big automotive brands in the form of Tata Motors and Volkswagen where they would explore the possibility of joint product development. Skoda, part of the VW group, was also part of this alliance, which hopefully would do the trick in throwing up cost-effective options for an intensely competitive market such as India.

It now looks as if the entire exercise could be shelved going by media reports, which suggest that Tata Motors’ advanced modular platform (AMP), which is the pivot of the strategy, does not seem a viable option for VW and Skoda. Autocar India, which broke the news, said that both companies had become “increasingly sceptical” about AMP, which was not proving to be the ideal cost-effective solution.

The report added that the duo would have to spend at least ₹1,000 crore to make this platform meet their requirements. Clearly, this was not seen as a financially viable option and it made more sense to localise VW’s own MQB-A platform for India. For the moment, neither Tata Motors nor VW (and Skoda) has officially confirmed that they are shelving the alliance though for all practical purposes it is as good as buried.

“Three underdogs (Tata, VW and Skoda) combining forces to fight the top dog (Maruti) in the Indian market was the crux of the tie-up and on a paper a win-win for all. Now, with the break-up of the alliance, all stand to lose,” says Hormazd Sorabjee, Editor of Autocar India.

In the process, this will be a huge setback for the trio since this joint development initiative would have made a huge difference to their individual car businesses, which desperately needed volumes to stay relevant in this part of the world. It is only in recent times that Tata Motors has got a break of sorts with products like the Tiago after a spate of setbacks beginning with the jinxed Nano project. With the VW group on board, the company would have got some top-class counsel along with the numbers, which would have justified the investment in AMP.

“For Tata it means going solo with the AMP platform and that means bearing the entire burden of the investment needed to develop a family of products,” says Sorabjee. “It also misses out on crucial knowhow from the VW Group. But VW and Skoda have more to lose because without Tata’s platform it has to develop its own for India from scratch. This is a costly and time consuming option that puts the two companies in the danger of missing the bus in the core segments of the Indian market,” he adds.

Lost opportunity

Tata Motors, incidentally, is in the midst of a huge overhaul exercise that has seen a massive restructuring of managerial responsibilities coupled with more recent initiatives like knocking off designations across the board. More importantly, the top priority is putting its bread-and-butter commercial vehicle business back in place given that it has been in free fall mode for many months now. Rebuilding market share in this vital space is critical since it is the big money spinner for the company.

In this backdrop, losing an opportunity to work with the VW group on a common platform may not be perceived as a huge setback in terms of business priorities, at least at this point in time. Yet, it would still be an opportunity lost given that Tata Motors has always been keen on giving a fillip to its passenger car business.

After all, this was the company that first ignited the aspirations of all Indians nearly two decades ago when it launched the Indica. Likewise, the Nano that followed in 2008 may have flopped but it put the country on the global map with its frugal costing structure that won the praise of top global CEOs such as Carlos Ghosn of Renault-Nissan.

Big loss for VW

From VW’s point of view, this will be a big loss too especially in terms of time given that it had earmarked 2019 as the debut of its first car from the joint product development strategy with Tata Motors. Revisiting the MQB-A platform and working all over again on better cost-efficiencies will only delay the process and hardly do any good in boosting its market share (and Skoda’s) in India. It would also be naive to expect a group like VW to solely focus on India when bigger markets such as China have offered far quicker growth prospects.

The leadership team at Germany is, however, keen to revive its India business and leverage this market for other regions such as South Africa, Latin America and the ASEAN region. They have constantly reiterated that emerging markets hold the key to the future and the solution is to get the fix on costs and offer customers a good value-for-money option. An alliance with Tata Motors would have been the best way forward and, now with its imminent shelving, it is back to square one all over again.

Failed alliances

Oddly enough, both companies have not had a great track record in alliances. The bitterness that had set in between VW and Suzuki is only too well known even though it had promised the moon at the time of its formation. India was on VW’s radar then and Suzuki, as market leader with Maruti, would have been the ideal ally to take this growth story forward. Instead, it was only a matter of time before the two fell out and an acrimonious divorce followed in due course.

In the case of Tata Motors, it has had its share of partners since the time the economy opened up to foreign automakers in the mid-1990s. The journey started with Mercedes-Benz followed by an exploratory alliance some years later with Peugeot to bring the 307. Then came the manufacturing and marketing pacts with Fiat, of which a portion still continues with the Italian automaker now on its own in retail. VW is the latest saga that has not worked according to script and it now remains to be seen how Tata Motors reboots its passenger car business.