Ratan Tata’s $2.3B Gamble | How Tata Turned JLR Into a Billion-Dollar Comeback — Transcript

The experience I had with Jaguar Land Rover when we bought it. My friends sort of distance themselves from me by saying, "How stupid could you be to buy this?" >> The year is 1999 and the state of Tata Motors is an absolute disaster. >> [music] >> Indian motor company Tata with those ugly belching agricultural machines that seem to use elephant dung for fuel. >> Early versions of the Indica that sounded like trucks.

>> Experts believed the car would be a total disaster. >> The first car Tata Indica is a massive failure. The press is going wild. The stock price is already crashing due to a recession and Ratan Tata in a desperate move to save his company takes a flight to America because Ratan Tata wanted to sell the passenger car division to Ford Motors. >> Tata's Indica was not a success at first, so Ratan Tata considered selling the auto business. >> Now, back then Ford was the most dominating name in the world. They were printing so much money that they made 22 billion dollars in profit and they were on a shopping spree where they bought the iconic Aston Martin in 1987, they bought Jaguar in 1990, Volvo in 1999, and even Land Rover in 2000. But when Ratan Tata made the pitch, instead of politely declining the offer, the executives crossed their line and said, >> "If you didn't know anything about passenger cars, [music] why did you start this business?

We are doing you a favor by buying your car division." >> [music] >> Now, Ratan Tata, being the polite man that he was, he walked out, flew back to Mumbai, and canceled the deal. And while the Americans mistook his humbleness for weakness, little did they know that nine years later Ratan Tata would come back and do them a favor. As it turns out, in nine years the [music] tables started to turn. Ratan Tata took another flight. This time he came to America as a buyer to buy Jaguar Land Rover from Ford [music] for 1.5 billion pounds.

>> When Jaguar and Land Rover got acquired, and that was far more emotional and far more visible, some concern that Ford had made and not been able to make a profit with them. So, what was this Indian company that had no experience in the premium car segment do with such a company? >> And this is where the world got to witness the greatest [music] turnaround in automobile history. Under Ford, JLR was doing so bad that Jaguar alone was bleeding with 388 million pounds in losses in 2006. But the Tata's did such a wonderful job that in the next 7 years, the same company was printing money with 1.675 billion pounds in profits.

>> [music] >> The question is, how did Tata Motors go from being a struggling company to buying Jaguar Land Rover? What did Ratan Tata understand about Jaguar and Land Rover that Ford never understood? And what are the business lessons that we need to learn from this iconic comeback of Jaguar Land Rover? Now, before we move ahead, there is one financial decision that most of us know is important, but somehow we still keep postponing it. And that is getting the right insurance. And the reason is pretty simple. We track every rupee that we invest, and when we are unsure, we speak to an expert. So, why should insurance be any different? With so many plans and options in the market, it always helps to speak to someone who understands the situation and guides you without unnecessarily pushing a policy.

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>> [music] >> This is a story that dates back to 1998 when Ratan Tata set out to launch India's first fully indigenous passenger car under Tata Motors. Now, this was a very risky move because in the 1990s, Hyundai had already entered India with 31 years of automobile experience. >> [music] >> Suzuki was already manufacturing with its joint venture in India. And Tata Motors was a truck maker with absolutely zero experience in hatchback [music] cars. And yet, Ratan Tata invested 1,700 crores to build India's first homegrown hatchback. They called [music] it Tata Indica.

This car was supposed to be iconic because it had the space of an Ambassador, the size of a Zen, and the price [music] tag of a Maruti 800. The emotional high across the country was so impeccable >> [music] >> that within just 8 days, 115,000 Indians booked it and handed over their hard-earned savings to book the Tata Indica. And [music] it felt like a massive national victory. But you know what? This dream crashed into a concrete wall. As soon as the Indicas hit the roads, national pride turned into public humiliation.

>> [music] >> Engine started overheating during summer, gearbox got jammed, power windows stopped working, and the cabin vibrated so violently that mechanics mockingly called it a Duster on wheels. This is the reason why Ratan Tata decided to sell Tata Motors passenger division to Ford Motors. And that is when the humiliating meeting happened in America. Now, the moment his plane landed in Mumbai, Ratan Tata canceled all sale discussions. [music] He moved his desk directly onto the factory floor, recalled 45,000 broken Indicas at Tata's own expense, replaced 42 flawed parts, and completely re-engineered the car from the ground up. And then, after some tireless work on the product, [music] Tata Motors launched Indica version 2. And this product was an unbelievable success.

V2 became the fastest-selling hatchback in Indian history, crossing a sale of 100,000 units in less than 18 months. >> The Indica V2, it's got more space, more style, better safety, and gives more mileage than any other car in its class. >> [music] >> The Tata Indica set milestones consistently over the years, transforming the face of the nation's automobile industry. >> And what unfolded over the next decade was a complete reversal of human fate. >> [music] >> While Tata Motors went from $110 million in losses to $504 million in profit in 2008, Ford went on to buy Aston Martin, Jaguar Land Rover, and Volvo, and failed miserably at building all four brands.

So, they went from $22 billion in profit in 1998 to $14.7 billion in loss. So, this time, Ford was bleeding, and they were desperate to sell Jaguar Land Rover. And this is where Ratan Tata took another flight, but this time, not to sell, but to buy a company from Ford. That is how, in June 2008, Tata Motors acquired Jaguar Land Rover in an all-cash deal of 1.15 billion pounds. Now, mind you, Ford was doing so badly that Jaguar alone was bleeding with 388 million pounds in losses in 2006. But, you know what? In the next 5 years, the Tatas turned JLR into one of the most profitable cash machines in the world with 1.675 [music] billion pounds in profit in 2013. The question is, when BMW couldn't fix Land Rover, when Ford couldn't fix them, what did the Tatas do so special that they turned a bleeding company into a cash machine?

Well, the answer is surprisingly simple. The biggest mistake that Ford made was that they tried to change the soul of Jaguar and Land Rover. Let me explain. Think about it. When you buy luxury cars, you don't just buy a car, you are buying into the experience and identity of the brand. For example, when you buy a Mercedes, you are buying into an iconic car that says that you have made it in life. Mercedes represents the luxury and reassurance of German engineering. When you buy a Rolls Royce, you are buying into the extraordinary craftsmanship and personalization with materials, colors, and details that have been specially commissioned for you and you only. When you buy a Ferrari, you are buying into the racing heritage and story of Enzo Ferrari and his obsession with performance and racing. Similarly, when people were buying a Jaguar, they were buying the elegance of a British luxury car with the heart of a sports car. Jaguar was famously known to have grace, space, and pace in the same car.

And when people were buying a Land Rover, they bought into the idea of exploration and off-roading, which is why they paid a premium for their all-terrain engineering. So, do you realize the engineering, design, craftsmanship, and heritage must make the premium feel believable. But, you know what Ford did? Ford said, "Identity is fine, baba, but we need to make money." They wanted Jaguar to quickly produce a compact executive car to go against Audi and BMW. And they'd already set a target to sell 100,000 units a year. So, Ford treated Jaguar as an efficiency project, and they used Ford's Mondeo's engineering architecture beneath the body of the Jaguar. Now, their business logic was pretty simple. Reuse engineering of existing car, reduce development cost, reach more buyers at low cost, and hence increase sales and profit. And you know what was the consequence of this terrible efficiency decision? Look at this. This is Ford Mondeo and this is Jaguar.

Do you realize it looks like somebody put a Jaguar logo on a Ford facelift? It's almost like Maruti Suzuki acquiring Mercedes and making [music] an E-Class with the Ciaz platform. My question is, even if this car is available at a 30% [music] discount, would you ever buy it? Not at all. And Ford did this to all brands. So, Jaguar S-Type in 1999 shared its platform [music] with the Lincoln LS and Ford Thunderbird. Lincolns used Jaguar's V8, Aston Martin used Volvo's keys, >> [music] >> and even the Discovery 3 used a Jaguar derived V8. So, every brand borrowed from other brands and no brand remained special or exclusive. This is the reason why Jaguar was never profitable under Ford. [music] And even though Land Rover was profitable, they sold it to the Tatas because Ford [music] was bleeding with 12.6 billion dollars in losses in 2006 and they desperately needed cash to save their own company. And here's where everybody thought that the [music] Tatas will turn the JLR brand around and it'll be a big ego boost for India.

But guess what? The Tatas bought JLR in June 2008 and by September, the market blessed them with the worst recession of the decade. >> 2008 was a tumultuous year for the economy. >> Jaguar Land Rover owner Tata Motors has reported a bigger than expected [music] quarterly >> losses. India right now is in the middle of one of the worst auto sector slowdowns. >> This is the reason why, not so surprisingly, JLR's sale fell by 32% they lost 280 million pounds in their [music] first 10 months and the impact of this recession was so bad that in FY 2009, Tata Motors fell from a profit of 2,200 crores to a loss of 2,500 crores.

So again, the press went crazy, the stock price collapsed at 77% and everybody started to question the leadership of Ratan Tata. Now, do you realize at this time the Tatas had a choice. They could have turned this into a fire sale, they could have sold off JLR just like Ford did, or they could have cut cost, cut R&D, share cheap parts, and [music] shrink the brand into survival mode. But, you know what they did? The Tatas did something that no ordinary company would ever do. They decided to infuse another 1 billion pounds into JLR even while they were bleeding losses [music] in a recession.

The question is, why? Well, that is because Ratan Tata understood that great entrepreneurs never make long-term decisions to fix a short-term problem. And in the car business, the cars you sell in 2012 are decided in 2009. >> [music] >> So, if you cut R&D during a recession, you will survive the recession, but 5 years later your showroom will be full of old cars that nobody wants. So, they said, "No matter what happens, we will never sell the soul of the company and we will keep investing in R&D so that we can produce game-changing products."

So, instead of wasting time into cost-cutting, [music] they found five gaps in the market. Number one, they realized that not everyone attracted to Range Rover wanted a large SUV. So, they launched Range Rover Evoque, which offered a smaller car without compromising on the Range Rover philosophy. This product was such a big hit that they had more than 18,000 advanced orders and sold over 108,000 vehicles in 2012. The best part was 80% of these buyers had never bought a Range Rover. Secondly, they launched the new Range Rover with an aluminum body [music] that saved them 420 kg in weight and also improved performance and efficiency. Thirdly, they launched Discovery Sport for a family that normally needs five seats, but occasionally needs two more. So, instead of just making a bigger car, they achieved better space utility. Then, they launched Jaguar XE, which was a smaller car without a compromise in character. And again, the sales exploded by 25% in just 1 year. And lastly, JLR launched the F-Type, which was a two-seat sports car explicitly focused on performance, agility, and driver

connection. So, do you realize the strategy wasn't just to launch more cars? It was to give different customers different reasons to choose JLR. At the same time, they also kept the core philosophy of the brand alive. And because of this incredible and bold step, as the Tatas envisioned, as the world economy recovered, everybody started spending, the US Federal Reserve cut interest rates, banks started lending, companies started hiring, and people started buying cars. And when they started buying cars, JLR was ready with its incredible product mix. Look at this. In FY10, JLR's revenue stood at just 6.5 billion pounds. But by FY15, their revenue shot up to 21.87 billion pounds, and their profit shot up by 50 times, from 51 million pounds to 2.61 billion pounds in FY15. That is how JLR made the most epic comeback in corporate history under the legendary Tata Group.

And this story >> [music] >> teaches us three very, very important lessons. Lesson number one, never, ever sell the soul of your company. So, if you're a brand, sit down with your team and articulate what you stand for. For example, The Whole Truth [music] stands for unadulterated food. Go Zero stands for zero sugar. And Nappa Dori stands for contemporary Indian design. [music] And everything these brands do reflect what they stand for. But in case of Ford, and even Apple for that matter before Steve Jobs, [music] they tried to sell the soul of a legendary company and almost ended up killing it. Lesson number two, never make a bad long-term decision to fix a short-term disaster.

In this case, the Tatas saw the recession as a short-term problem, but cutting R&D was a long-term decision that they refused to take. So, to cut corners, had they cut back on R&D even after recession, JLR would have been an absolute disaster. >> [music] >> And the best example of the same in our life is distress hiring. As a founder, I'm 100% sure that whenever you hired someone during a company crisis, that person turn out to be terrible. And whenever you hire people during a calm, normal time, that person somehow turns out to be a great hire. Why? Because during a crisis, we make a bad long-term decision to fix a short-term disaster.

So, whatever risk you want to take, please take them when revenue is peaking and profits are peaking and not when everything is falling. And you will see that those bets will pay off in ways that you cannot even imagine. And lastly, always remember, efficiency is the enemy of premium. And think about it. If you take a $1 million Ferrari and a $1 million truck to a party, what would make you look rich? The truck or the Ferrari? Obviously, the Ferrari, right? But why? Well, that is because a truck is efficient. It actually has the capacity to pay you back. But a two-seater Ferrari with no trunk is inefficient, which basically says you have a million dollars to spend on something that doesn't give anything back. That explains why Charles and Keith bags are more useful than Louis Vuitton bags and why Hermes Birkins are so impractical. And that is what the Tatas understood about JLR, the brand.

This is the story of the most epic comeback in automobile history. That's all from my side for today, guys. If you learned something valuable, please make sure to hit the like button to support our work. And for more such insightful business and political case studies, please subscribe to our channel. Thank you so much for watching. I will see you in the next one. Bye-bye. >> [music]