Tata's Rs One lakh car on track

Despite considerable scepticism from the industry, Ratan Tata pushes forward determinedly with his 'people's car'.

15 February 2006
MUMBAI, INDIA

There was considerable skepticism from the automobile industry in India when the Tata's first announced their plans to develop a car priced at only one lakh. The concept of the 'people's car,' as it was called, came under heavy criticism from rivals Hyundai, who said that a car priced that low would find it hard to meet safety and emission norms, as well as from Maruti, who said such a car was not feasible. Calling it close to impossible, they said that if such a car could be developed, it would be 'an unbeatable product.' Clearly, the affordability of such a car would leave the competition miles behind.

What makes the development of a Rs. One lakh car challenging is that it must compromise somewhere, either on safety, or on the frills, or ultimately on price, if it is to become competitive and marketable. Technologically, it seemed close to impossible to sell a car at Rs. One lakh that is affordable, stylish, and meets safety standards. However, the company has pointed out that it is not looking to strip down a traditional car, but rather, "start with a clean sheet of paper for designing and conceptualising this vehicle. It will not be a stripped down version of a car, but there will also be nothing too fanciful about it." In addition, the car would be made such that upgrades would be possible, indicating that add-ons after the car has been sold would be possible.

According to sources, the project (code named Project X3) is aiming to become financially viable by reducing inventory costs to zero or close to zero. The Tatas are aiming to centralize the high-volume parts production, and decentralize the final assembly. Ratan Tata said, in an interview to McKinsey Quarterly, "We're looking at small satellite units, with very low break-even points, where some of the cars could be assembled, sold, and serviced."

With such a breakup Tata Ryerson Ltd. would be looking to enter the auto park. Sandipan Chakravortty, managing director, Tata Ryerson, has said, "We are considering a unit for the new car project where we will provide customised services for the entire steel requirement of the car production line." Although Tata spokespersons have refused to comment, the company is considering 3-4 sites to produce the 'people's car', whose engines and powertrain are being developed in-house. Dharwad the Bangalore-Pune Highway in Karnataka has been shortlisted in order to make best use of India's two large auto component manufacturing hubs. Tata is also in talks with TVS group, Hero group and Kinetic Motor to co-invest in the assembly facilities on other locations.

The Rs. One lakh car is due to be launched in 2008, and sales are being projected in the order of 1 million units by chairman Ratan Tata. Its first engine ('Alpha') is expected to be out in June this year. The engine is likely to be a Euro IV compliant 700cc petrol engine, as a petrol engine will generate less vibrations than a diesel engine, and will also cost less. In addition, the car is being benchmarked with the Maruti 800 which delivers 45 bhp at 6,000 rpm, and the car would require a higher cubic capacity diesel engine to deliver this level of power. The engine is also likely to be at the rear of the car.

Chances of the Tata's cheap car for the masses will depend significantly upon how well it is marketed. Despite its low cost, a completely no-frills and staid car is unlikely to appeal to the status-sensitive Indian consumer. An affordable car that meets safety standards but also looks stylishly adorable is probably Tata's best bet at cornering the market with its 'people's car.'