Hindustan Motors' Struggle for Survival

<< Previous

The Turnaround Efforts - Phase I Contd...

The division bench directed that the matter be referred to the Industrial Tribunal. In July 1999, the Industrial Tribunal dismissed the company's proposal. HM again filed a writ petition against the Tribunal's order in the division bench of Calcutta High Court and the division bench upheld the Tribunal's order. In response to the division bench's order, HM moved the Supreme Court in July 1999⁷. During all this time, productivity at the plant suffered considerably, which added to company's woes.

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. 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.

Next >>

---

7] After another VRS, which closed in July 2001, the Uttarpara plan workforce had come down to 9,200. The plant, suffering a loss of Rs. 70 million per month had stopped functioning on two weekdays. In August 2001, HM was asked by the State Government to submit a comprehensive plan for reviving the plant. The situation at the plant continued to be grim even in late 2001.