Tata's big (small) ambitions

Last week, Ford confirmed it was "committed to focused negotiations at a more detailed level" with India's largest car maker about the sale of its UK-based luxury brands Jaguar and Land Rover.

This week, Ratan Tata will "reveal the scale of his automotive ambitions," says Ray Hutton in The Times, when he unveils his long-awaited, super cheap "people's car” at the New Delhi auto show.

Tata's "one lakh” ($US2500) concept is a small, four-seater hatchback, aimed at Indian and neighbouring markets, where it will slot in above motorcycles and three-wheelers. The price is about half that of the cheapest new car on the Indian market.
And while Tata has started the ball rolling, it's not the only car maker thinking small.

The auto industry is looking to emerging markets for growth, with many companies gearing up to build cars that can be sold at rock-bottom prices – in both developing countries and more established markets, say David Welch and Nandini Lakshman in BusinessWeek.

Toyota and Volkswagen's Skoda subsidiary are planning small cars for India. Suzuki says it will soon cut the price of its cheapest model in India.

And over at Renault-Nissan, chairman Carlos Ghosn is inspired. Early to the low-cost party, Ghosn "paid Ratan Tata and his concept the ultimate accolade by stating firmly that established car makers would have to learn new ways to do business,” says Adil Jal Darukhanawala in The Economic Times. And the most significant of them all, said Ghosn, was what Tata Motors intends to offer.

"The challenge,” declared Ghosn, "is to build a low-cost car that makes money.”

Easier said than done. Many auto executives say it's almost impossible to build a car at the price Tata has set, says Darukhanawala. Engineering and labour costs are too high for established players, and few are interested in a car that generates the slim margins Tata is likely to earn.

Then there is the issue of getting the stripped-down cars past regulators in developed countries, not to mention convincing consumers to buy them.

To succeed, says Nick Reilly, General Motors' (GM) chief for Asia, "it has to be more attractive than a used car that sells for the same price.”

So how does Tata do it? All will be revealed at the New Delhi show, but word is that the car maker has kept costs down by keeping it very simple.

The "one lakh" has a steel chassis and plastic body panels, is powered by a 660cc two-cylinder engine and features a dashboard with little more than a speedometer, fuel gauge, and oil light.

The car will also lack basics like reclining seats, a radio, and power steering, say Welch and Lakshman. The ride, meanwhile, "could be a tad rough,” with a rear suspension design that "dates back decades.”

Tata will also forgo such standard safety features as antilock brakes, air bags, and support beams that protect passengers in a crash. "It's safer than putting four people on a scooter, but that's it," says Sandy Munro, president of Michigan consulting firm Munro & Associates, which has advised Tata on manufacturing the car.

Tata's real advantage could be in development costs. India's engineers are paid about one third of what their Detroit counterparts earn, according to GM, which could shave about 20 per cent off the cost of engineering a top-selling model. Factory hands in Mumbai, meanwhile, earn just $1.20 an hour – even less than workers in China.

As for selling the car, Tata intends to focus initially on India and other developing markets, where it could cut into the expansion plans of the industry's leaders. And while Tata's budget offering wouldn't cut it in the West, it could, however, put pressure on the world's biggest car makers to compete.

Meanwhile, there is nothing stopping Ratan Tata from building a car that would meet US or European specifications and sell for about $6,000 – still a bargain in either market, say Welch and Lakshman.

Tata falls for the attraction of opposites, Joe Leahy, Bernard Simon and Amy Yee, Financial Times

Tata wants Ford man for Jaguar-Land Rover, Ray Hutton, The Times

My other car is a Tata, David Welch and Nandini Lakshman, BusinessWeek

The wide world of the small car, Adil Jal Darukhanawala, The Economic Times