Tata Motors, Volkswagen tie-up, why Volkswagen when Tata owns Jaguar Land Rover? - The Financial Express

Tata Motors, Volkswagen tie-up, why Volkswagen when Tata owns Jaguar Land Rover?

The possible tie-up between Tata Motors and Volkswagen holds a lot more at stake than just finding synergies. Here's how it might hold the key to future for both companies.

By: | Updated: February 24, 2017 12:49 PM
Tata and Volkswagen will jointly developing vehicles for the Indian market Tata and Volkswagen could jointly develop low-cost vehicles for the Indian market

Tata and Volkswagen are looking at jointly developing vehicles for the Indian market and are already in advanced stages of talks. The talks may be firmed up at the Geneva Motor Show in the month of March, claims a report by Bloomberg. The report also claims that there is no certainty for the deal to go through and the talks are right now open-ended. While it is a regular practice in today's age for carmakers to explore synergies in order to lower the rapidly increasing vehicles development costs, this deal is very interesting and possibly has a lot at stake.

An example of such an agreement that helped cut costs for two brands is the Renault and Nissan alliance. To put things in perspective, the Kwid was very well kitted but still, Renault managed to keep the pricing competitive. In fact, the Kwid was responsible for placing the French car maker on the mass-market map in the Indian passenger car market. Similarly, the deal proved immensely beneficial for Nissan in keeping its pricing low and hence Datsun redi-Go too went on to become a best-seller for Nissan.

Why not JLR but Volkswagen?

The first thing to question about this deal is the rationale behind this deal between a global giant and a domestic giant. The answer lies in the problem area for both that turns out to be their passenger car sales in India. While both companies are struggling in the local market for completely different reasons, there's a lot more to this deal than it seems on the surface. Synergies in this deal point specifically to technology related issues and Tata Motors already owns Jaguar Land Rover (JLR), which is at par with the global competition in the luxury segment. So what is this technology that even JLR doesn't have access to but Volkswagen does?

Tata Motors' Futuro to be unveiled at the 87th Geneva Motor Show in March, 2017.Tata Motors' Futuro to be unveiled at the 87th Geneva Motor Show in March, 2017.

The answer lies in the rapidly shortening product lifecycles of vehicles today, primarily due to the influx of smart devices and growing importance of connectivity, which requires constant updates. With Tata Motors struggling with its passenger car division since years, the company now finally seems to get some firm footing to rise. However, a few successful models cannot propel the company's journey into the horizon. Knowing that, Tata Motors recently announced to cut down its platforms from the present six to just two, one of which will be the Advanced Modular Platform (AMP). JLR operates in the premium space only and hence it's expertise on modular platforms is restricted to that space only. Plus, the company has never tried making a low-cost car so it has no know-how on the subject at all, which is precisely what Tata Motors needs.

In simple words, modular platforms are flexible platforms, which allow vehicles of various body styles and sizes to made on the same platform, resulting in the critical parts being common. This not only saves a huge amount of money since there are lesser parts to develop, it also allows the company to develop vehicles faster, which is crucial for success today. However, the thing about modular platforms is that they're complex to design and expensive too. Tata Motors, being one of the youngest companies in the global car scene doesn't have the required technical know-how for the same.

Flexible areas of the MQB platform showcased in the picture aboveFlexible areas of the MQB platform showcased in the picture above

This is where Volkswagen, one of the masters of making modular platforms comes into the picture. With platforms such as the MQB, Volkswagen is today selling cars with same underpinnings through different brands. So you could end up buying a Skoda, Volkswagen or even an Audi, based on the same platform and with the same engines too. It's a win-win situation for the consumer and the company as the consumer gets more features and newer models quickly at a lesser price and the company is happy meeting consumer demands on time.

What's in it for Volkswagen?

So what is in it for a global giant resting on a mountain of technology that filed more than 6,000 patents in 2015 alone? The answer once again lies in the problem area of Volkswagen, which is the absence of a small car. With its cheapest model starting at a price of more than Rs 5.5 lakh, Volkswagen loses out on the largest volume segment in the country. Moreover, there's not much the company can do since they do not have a platform, which can spawn cars cheap enough to cater to the segment under rs 4 lakh or so. This is where Tata Motors comes in with its experience of making small cars, the jewel in its crown being the Nano, which the world was surprised with. That the Nano never really took off is a different story but from a technical perspective the car was a massive statement from an Indian company and made popular the term 'frugal manufacturing'.

With Tata and Volkswagen joining hands, the duo may be able to develop a modular platform for low-cost cars and crossovers, that will go a long way in helping both companies improve their sales. Developing such a platform is critical for both companies as both have been struggling for long to achieve their desired goals. The deal is a bit more important for Volkswagen since the world's largest carmaker commands only about 2 percent of market share in India, a figure the board rooms in Wolfsburg, Germany, won't be too amused with. Moreover, it doesn't have a platform for the kind of low-cost cars India demands. The company earlier considered the Up platform for India but later shelved the plan due to it turning out to be too expensive. Developing an entirely new platform will entail massive investments, increasing the risk for a company already grappling with the diesel emission scandal and hefty penalties.

While this tie-up is being discussed, it's imperative for both companies to go ahead with the larger plan discussed in this story. In present circumstances, though, both companies seem fit to fulfil each other's requirements. With the market getting more competitive by the day, Tata and Volkswagen need to act quickly in order to make it big in the future. Even if this deal doesn't go through, both companies will need to ensure they find a similar partner soon enough because the competition is quickly coming to terms with a modular platform-based product roadmap and as history suggests, catching up isn't always an easy task in the Indian automotive market.

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