Overheads at KTM to be cut by over 50%, Bajaj targets white-collar rationalisation

Bajaj Auto is planning major cost cuts at Austrian motorcycle maker KTM, with overheads expected to be reduced by more than 50% as part of a broader restructuring, company MD Rajiv Bajaj told CNBC-TV18. The move will largely focus on rationalising white-collar staff, while protecting jobs for blue-collar employees involved in production.

“This is really low-hanging fruit. We observe an opportunity to reduce overheads by more than 50%, including R&D, marketing, operations, and general administration,” Bajaj said. “Interestingly, of the 4,000 people currently employed, only about 1,000 are blue-collar; 3,000 are white-collar, which is perplexing because the blue-collar employees make the motorcycles.”

Bajaj said future volume shifts will impact blue-collar staff only lightly, with the main rationalisation focused on white-collar employees, whose costs are significantly higher. He cited the management overhead and bureaucracy at KTM as areas that require urgent attention, adding, “It reminds me of Mark Zuckerberg's words about managers managing managers managing managers who manage the people who do the work.”

The cost-cutting plans come as Bajaj Auto is poised to take control of KTM. The Indian company, which already owns just under 50% of KTM, proposed an 800 million euro rescue plan following the Austrian brand’s financial troubles in November 2024. Bajaj has already invested 200 million euros and secured a 566 million euro loan. European Commission approval for the takeover is expected soon.

Bajaj also discussed steps to stabilise KTM’s operations, including a revamp of the management team. “This is a problem not caused by 99% of KTM employees. This is a problem of the erstwhile top management, and most of them are gone,” he said. Bajaj added that a new team has been put in place, combining long-serving KTM employees with new leadership, including a new CFO and CHRO.

On the sales front, Bajaj said KTM India is performing strongly. Domestic sales are up about 70% year on year, aided by the GST reduction and the launch of new products such as the Duke 160. Exports have also normalised, and Bajaj said US sales will continue despite a 50% tariff, with most of the cost absorbed by the company. “Despite this, we will be exporting at an EBITDA higher than our blended corporate EBITDA. That’s the power of the cost competitiveness of the Indian supply chain,” he said.

Bajaj attributed KTM’s financial woes to a combination of operational, strategic, and governance issues, which he described as three types of corporate greed. Overproduction, expansion into unrelated businesses such as electric bicycles, and governance lapses, he said, contributed to the Austrian brand’s sudden downfall.

With cost rationalisation and a renewed focus on the brand, Bajaj Auto aims to restore confidence among customers, dealers, suppliers, and shareholders, many of whom have been impacted by KTM’s previous troubles.

Below is the verbatim transcript of the interview.

Q: Let me begin by asking you about the timeline for permissions and approvals from the European Commission. What are you expecting?

Bajaj: Exactly in line with what you said. As you know, our investment went in on 23rd May, and a series of approvals was required after that. As we stand, all the approvals related to mergers and acquisitions are already in, and those that were to come in terms of foreign investment approvals, I believe, are also through. We are now waiting for the key approval from the takeover commission. We understand that this may be forthcoming in November. We hope it will be positive, which means that after almost an 18-year association in which we have been a minority partner, we would become a 76% shareholder in KTM AG, and from being an observer, we would take charge.

Q: What, in your view, led to such a sudden and sharp downfall for the KTM brand? This was a pillar of Bajaj Auto's premiumisation strategy. What, according to you, led to such severe financial constraints?

Bajaj: We were all taken by surprise, most of the industry was quite shocked at how rapidly this developed. My mind goes back almost 30 years to what my first management guru, Dr John Wallace, told me, which was simply this: the single biggest reason for corporate demise is corporate greed. I have really witnessed this play out at KTM over the last 12 months in particular. Broadly, I would say there were three types of greed.

First, operational greed, best exemplified by what happened in the last couple of years when KTM Austria kept producing and overproducing, even though the spike in demand post-COVID had declined. As a result, KTM distributors and dealers worldwide were carrying over a year's worth of inventory, which was preposterous, frankly speaking.

Second, what I would call strategic greed. Companies often get into businesses they have no business getting into. In the case of KTM Austria, the best example was getting into the bicycle business, specifically the electric bicycle business. When there is no synergy in major operational areas such as R&D, supply chain, marketing, sales, and distribution, it is irresponsible to venture into a business that may appear adjacent but has no real synergy with your core business.

These two factors combined to take KTM to insolvency in a matter of months. Now, you might say that Bajaj was part of it, and I would concede that yes, we were also part of what went wrong, but as a minority partner, we could not prevent this. And I can share that we did our best to resist it, so much so that it led eventually to the third kind of greed, which I may call governance greed, where certain decisions were taken either without our knowledge, without our information, or sometimes without following due process.

We are quite shocked at what has been revealed to us over the last 12 months since we got involved in this process. I must clarify, we are not yet in charge; we don't have takeover permission yet. But as an observer, this is what we have come to understand. To summarise, leaning on the words of my other management guru, Jack Trout, the stock market can become a temple of greed. This is what happened here. In the pursuit of valuations, some options were pursued that should not have been pursued, and when you link stock market price to company performance and company performance to top management remuneration, this is how things can go horribly wrong.

Q: And you had warned them about this, would you say?

Bajaj: Well, this is something that has happened over years. From time to time, whenever we were aware of some of these issues, we took them up. If I were to enumerate all the minor and major issues, we would be speaking for the next hour or two. But as a minority partner, there was only so much that we could do.

Q: When we speak about restructuring and management restructuring, are we going to see major changes in KTM going forward? Would you begin with management restructuring?

Bajaj: Yes, absolutely. This is a problem not caused by 99% of KTM employees. This is a problem of the erstwhile top management of KTM, and most of them are gone. What we have now in place is a wonderful new team that I personally feel very confident about. The entire team is already in place, barring one vacancy, which will be filled in the coming months. It’s a combination of some of our older colleagues, who are still very passionate and committed to KTM, particularly in areas like product planning, R&D, and legal, and some outstanding new colleagues, led by our new CFO and new CHRO. We have a great team in place.

Q: Just to ask for an update on KTM sales in India, the GST impact on KTM off-take, and exports from India—what will be the US tariff impact, according to you?

Bajaj: KTM India sales are growing very well. Domestic sales are up about 70% year on year. Half the credit goes to the excellent GST reduction by the government, very well timed, and the other half goes to the introduction of new products, particularly the new Duke 160, which is flying off the shelves. Domestic sales of what we make in India are at an all-time high. I think this month we will finish at the highest ever in our 18-year association.

Exports have also normalised. Regarding the US, sales will continue uninterrupted in volume terms for the products we supply out of India. Yes, we are hit by a 50% tariff, but we have absorbed most of it, with a small portion passed on to the consumer. Despite this, we will be exporting at an EBITDA higher than our blended corporate EBITDA. That’s the power of the cost competitiveness of the Indian supply chain.

Q: Last time we spoke, you had said European manufacturing is dead. Any further developments in re-engineering the KTM supply chain and optimising costs?

Bajaj: That previous interview made me famous in all of Europe. Many people from the KTM system told me they had seen the interview. I find it amusing because the previous KTM management had been presenting over the last 10 years that European manufacturing is dead, wages are too high, working hours too few, energy costs high, and European politics challenging. They eventually moved half the production volume to India. Now, restructuring the supply chain and moving more things to lower-cost regions outside Europe is certainly the way forward.

Q: What reduction are we going to see in headcount and overheads at KTM? Have you set targets?

Bajaj: This is really low-hanging fruit. We observe an opportunity to reduce overheads by more than 50%, including R&D, marketing (including racing), operations, and general administration. The previous management has already reduced headcount from 6,000 to 4,000, which is still considered too high. Interestingly, of these 4,000, only about 1,000 are blue-collar; 3,000 are white-collar, which is perplexing because the blue-collar employees make the motorcycles. Future volume shifts will impact blue-collar employees relatively lightly; the issue will be with expensive white-collar headcount. It reminds me of Mark Zuckerberg's words about managers managing managers managing managers who manage the people who do the work. The management overhead and bureaucracy in this otherwise excellent organisation were astonishing.Read about our editorial guidelines and ethics policy