Hindustan Motors' Struggle for Survival

The Turnaround Efforts – Phase II Contd...

In order to use its design and engineering skills to enter new businesses, HM entered into an agreement with Mahindra & Mahindra (M&M) for developing petrol engine for M&M vehicles. The company also tied up with GM to market the entire range of transmission equipment manufactured by Allison Automatics (a company owned by GM). HM then overhauled its distribution system in order to become more market-friendly and dealer-friendly (HM was accused of offering very few dealer incentives and poor after-sales services). In 1999, the company unveiled a new distribution strategy, wherein dealers were divided into three tiers – red, blue, and green depending on their location and performance records.

While the red-tier catered to the metros for selling and servicing Lancers, the blue-tier catered to the semi-urban areas for Contessas and Ambassadors and the green-tier catered to the rural markets for Trekkers.

HM also decided to explore the overseas markets for its products and began by exporting around 150 RTVs to Bangladesh in 2001. The company also managed to secure an export order for 300 petrol engines from a UK-based company, in addition to the 1,800 engines already supplied.

In February 2001, HM sold its earthmoving equipment manufacturing division to a wholly-owned Indian subsidiary of Caterpillar Inc. for Rs 3.3 billion.

After the deal, HM was able to bring down its high interest debts from Rs 255.5 million in the first quarter of the 1999-00 to Rs 156.9 million in the corresponding quarter of the 2000-01 fiscal. The company used this money to repay debts worth Rs 2.25 billion from its long-term borrowings of Rs 6.2 billion. This helped reduce the gross loss in 2000-01 to Rs 152.2 million from Rs 255.5 million in the corresponding quarter of 1999-00.

The remaining sum of Rs1.05 billion after the repayment of debt from the sale was used for working capital requirements and automotive business. HM continued its customer relations enhancement initiatives with the launch of the 'click and customize' service for Lancer customers in September 2001. The company set up kiosks in six cities (New Delhi, Bangalore, Chennai, Hyderabad, Chandigarh and Pune) that had computed terminals displaying the features of the petrol and diesel versions of the Lancer.

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Case Details

Case Code : BSTR021
Themes: Turnaround Strategy
Case Length : 10 Pages
Period : 1998-2002
Organization : Hindustan Motors
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Automobile & Automotive

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