September 9, 2011 / 12:37 PM / 8 years ago

Tata Motors CEO resigns after less than 2 years

MUMBAI (Reuters) - India’s Tata Motors said late on Friday its group Chief Executive Officer Carl-Peter Forster has resigned with immediate effect, only 18 months after joining the company, which faces slowing growth in its home market.

Carl-Peter Forster, group chief executive officer of Tata Motors, attends a news conference in Mumbai, May 26, 2011. REUTERS/Vivek Prakash/Files

Tata, India’s leading maker of trucks and buses and owner of the luxury Jaguar and Land Rover (JLR) brands, said Forster resigned due to “unavoidable personal circumstances,” but will remain a non-executive member of the Tata Motors board.

Forster’s exit comes as the venerable Tata group continues to search for a successor to Ratan Tata, who is set to a retire soon as chairman of the sprawling conglomerate, whose holdings range from salt and steel to software. That search is taking longer than planned.

“I don’t think Tata Motors is as one-man a company as Apple is, but given the fact that he was an industry veteran and had made some positive changes at JLR it is negative for the company,” said Mads Kaiser, a Silkeborg, Denmark-based portfolio manager at JI India Equity Fund, which owns Tata Motors shares.

Forster succeeded in turning around JLR, with the luxury unit contributing nearly 80 percent of the company’s profit in 2010/11. However, sales of the Nano, launched to much fanfare in March 2009 as the world’s cheapest car, have been disappointing.

Meanwhile, car sales in India fell 10 percent in August, only the second monthly fall in nearly three years, dented by increasing interest rates, higher fuel prices and rising costs.

Demand for cars in the world’s second-fastest growing auto market after China is expected to grow just 10 to 12 percent this fiscal year, down from an earlier forecast of 16 to 18 percent and compared with a robust 30 percent jump in 2010/11.

“This is a bad development. When the overall market condition is so difficult, a change in leadership could have been avoided,” said Vineet Hetamasaria, a sector analyst with brokerage PINC Research.

Last month, Tata Motors posted flat profit in its fiscal first quarter, lagging estimates as higher costs squeezed margins, and said rising interest rates in Asia’s third-largest economy were a matter of concern.

JLR TURNAROUND, NANO WOES

Forster joined Tata in February 2010 after heading General Motors in Europe, with his focus firmly on turning around the loss-making Jaguar-Land Rover unit, which Tata bought from Ford Motor Co in 2008 for $2.3 billion.

The 57-year old Forster, son of a German diplomat and a former BMW executive, had left GM after it scrapped a planned sale of its Opel unit to Canada’s Magna International.

Nano sales slumped in November 2010 to a low of 509 units after media reports of a handful of spontaneous fires, difficulty getting financing to purchase the cars and rising costs that added to the original $2,500 price tag.

A sustained promotion campaign, and improved warranty, distribution and financing options have helped sales recover, but sales are still far below an early target for 200,000 vehicles a year.

“They are not making much money on Nano and it will be a challenge for the new CEO to make some momentum on this front. It’s a very difficult segment for them,” JI India Equity Fund’s Kaiser said.

The carmaker has also not been able to finalise a joint venture in China, the world’s fastest growing auto market, to manufacture JLR models, despite looking for more than a year.

Shares in Tata Motors, which the market values at about $10 billion, ended 3.3 percent lower at 764.90 rupees ahead of the announcement, in a weak Mumbai market. The stock has fallen 41.5 percent in 2011, compared to a nearly 18 percent drop in the broader market.

Reporting by Prashant Mehra and Sumeet Chatterjee; Editing by Aradhana Aravindan and Tony Munroe

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