Tata Motors asks McKinsey to drive profitability of vehicle business

21 August 2022 Consultancy.in 2 min. read

Automotive giant Tata Motors has brought McKinsey & Company on board with the aim of lifting the profitability of its commercial vehicle business.

Despite being the market leader in India’s commercial vehicle segment, holding a 45% share of the domestic market, Tata Motors currently underperforms its industry peers when it comes to margins and profitability.

According to industry analysts, Tata Motors has over the past years systematically been relying on active discounting to retain or grow share, which is shaving off its profits. Having posted a loss before taxes of Rs 100 crore in financial year 2022, the strategy is proving unsustainable.

Tata Motors asks McKinsey to drive profitability of vehicle business

In addition, experts point out that Tata Motors faces a relatively high cost structure and dated ‘go to market’ approach, which is exacerbating the profit gap it faces vis a vis its main rivals.

With the help of McKinsey & Company – one of the globe’s most renowned strategic consulting firms – Tata Motors now wants to build and execute a plan to boost profitability, without taking a hit in market share.

McKinsey’s mandate includes revamping the commercial strategy of the commercial vehicle business, and features a complete plan to tackle pricing, margins, and go-to-market approach. The consultants will also scrutinise the cost structure, exploring how present methods of manufacturing, procurement and capacity management can be further optimised.

To gain insight in key opportunities, McKinsey will benchmark Tata Motors against some of the best performing automotive companies around the globe, including homegrown rivals that are enjoying higher profitability metrics.

Commenting on the project, a spokesperson of Tata Motors said, “Like most progressive organisations, we engage with external consultants and experts as and when needed to bring in new knowledge and perspectives that help accelerate our pursuit of excellence.”

According to reporting by Economic Times, McKinsey staff have already started working on the analysis, and connected with deal and account groups to clarify pricing and profitability objectives.

McKinsey’s engagement is said to last one year. Financial terms and conditions have not been disclosed.