Hindustan Motors' Struggle for Survival
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THE TURNAROUND EFFORTS - PHASE II
When its attempts to reorganize its operations did not
pay off, HM decided to look beyond its existing product portfolio to come
out of its problems. As per McKinsey's recommendations, the company explored
the global auto components business in 2000 and established a unit at Indore
to assemble engines and gearboxes.
Analysts said that this was a wise move because HM with its expertise, could
easily become a component supplier for both domestic and global car majors.
HM's executive director Sarker Narayanan said, “We are open to such
opportunities. It brings in extra cash and it's an inexpensive way to
upgrade our skills by working with different customers.”
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. |
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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. HM had invested Rs
2.5 million in the software and Rs 0.1 million on each kiosk. Customers
could pick and choose the car color, the interior, accessories and the
wheels, and take delivery within three weeks.
HM made this facility available on the Internet also, becoming the first
carmaker to offer such a service to its customers in India. The company
planned to install 16 such computer kiosks at its dealers'premises across
the country by the end of fiscal 2001-02. According to company sources,
after the launch of the service, Lancer's market share had gone up by 4%.
In November 2001, HM announced its plans to emerge as a major player in the
engine manufacturing business for other companies. The company was awaiting
the outcome of its bid to make the engines for Ford's Ikon. With the second
phase of the restructuring efforts in place, HM hoped to improve its growth
in the automotive division and offset the losses from the passenger car
segment.
THE ROAD AHEAD
EXHIBIT II - HINDUSTAN MOTORS - SALES BREAK-UP
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