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Consulting|Technology|International business

Tata’s 1 lac car

with 12 comments

Update: The Tata 1 lac car has been successfully launched by none other than the legendary Ratan Tata – https://ecofin.wordpress.com/2008/01/10/the-tatas-1-lac-car-the-nano-officially-lauched/ 

Ratan Tata (http://en.wikipedia.org/wiki/Ratan_Tata) is known for his innovative style and doing something different – be it flying an F16 at the age of 70 or making big buys in foreign markets (think Corus-Tata Steel deal or the much anticipated buyout of Ford’s UK gems – Jaguar and Rover) or making an ambitious Rs. 1 lac car in the Indian market!

What makes him so special is the fact that he can dream and achieve those dreams! I have been an admirer of this charismatic, soft spoken approach of the man who is at the helm of affairs in the Tata empire – post JRD (http://en.wikipedia.org/wiki/J._R._D._Tata)

Ratan Tata is one of the few businessmen in India who thinks big and is professional enough to make a difference. His vision addresses the needs and wants of the phrase “bottom of the pyramid” as quoted by C K Prahalad.

So, where does this Rs. 1 lac car fit in the Tata Motors strategy?

We need to think deep with numbers and analyze the economic rationale (yes, that is the punchline of this blog!) to see where and to whom would this Rs. 1 lac car make a real difference.

Lets look at the segmentation in the Indian automobile market.

We have 2 wheelers primarily dominated by old proven players such as the Hero group (http://www.herogroup.com/) and Bajaj auto group (http://www.bajajngp.com/).

These were traditionally addressing the needs of the middle and the lower middle class segment in the Indian society. As families grew larger, disposable income increased, these middle income groups found a need to go for something more versatile and opted for the then Rs. 2 lac Maruthi Suzuki 800 car (that has been pioneering the entry level market since the last 3 decades in a row now). In fact, segmentation in that group begins with Segment A and the Maruthi Suzuki 800 dominates that segment.

However, we still find people with a family of 4 who cannot afford a Rs. 2 lac no frills car and therefore opt for a riskier (in the current Indian landscape) two-wheeler to seat their family every day for their commute. This is the effective need of the bottom of the pyramid – addressing the needs of these masses. Rural India is no different – 70% of the Indian populace resides in the rural landscape and though they have their own rich and the affluent, they do have the section of their society who still rely on the conventional two-wheeler to address their transport needs. So, we are talking big numbers in terms of a potential market for the Tata 1 lac car. If successful, it could easily be in the range of selling close to a few tens of millions of cars and would break all records previously held by Maruthi Suzuki 800 when it ruled the roost.

Of course, this depends on their product first proving itself in the Indian market and for it to mature to the Indian conditions. After all, reliability, dependability, mileage, confort, safety, drivability etc. play a big role in the car buyer’s shopping list!

So, what does this $2200 car or Rs. 1 lac car exactly look like? While there are no official pictures that have been released (its a closely guarded secret and I will make no attempt at spoofing some random picture and showing it off like it is the Tata Rs. 1 lac car), its basic particulars are known and have been spoken of by Tata before:

– The car will seat 4-5 passengers.

– The car will have CVT (continuously variable transmission)and therefore, no gear selection

– The car will have 4 doors.

– The car will have a rear engine that initially will be bearing the work of a Delphi electronic engine management system (imported technology).

– The car design itself is based on IDEA’s design (IDEA is an Italian designing company that worked with the Tata’s even for the Indica).

In other words, the Tata’s are talking of a car and not some spruced up autorickshaw with three-wheels or some converted two-wheeler! This is good news.

Now, how do the Tata’s manage this?

Suppliers would be squeezed for margins – there is no doubt about this fact! The only way for them to make do is to increase volumes so they can exploit economies of scale.

Tata’s have asked their suppliers to be ready to supply for a million units in the first year of launch (predicted to be sometime in late 2008).

Is this doable?

Japanese Suzuki’s boss says no. French Renault-Japanese Nissan’s boss says it is doable to go in for a sub $3000 car and is eying the market closely by forging an alliance with Bajaj Auto (its a blue ocean as of today and there are no competitors but the key is not in supernormal profits but in volume sales to generate the required numbers  to match revenue targets).

What does this do for the BoP (bottom of the pyramid). You remember that little child precariously hanging off the two-wheeler cuddled between what its parents think is a safe slot between them? This car will address needs of that market.

Is the infrastructure robust enough to handle this many numbers of cars on the roads?

No. I am candid about this. Our Indian infrastructure is always going to lag behind any of these developments. Be it Singur or NHAI or the multi-decade Metro rail project or the Devanahalli airport/NICE corridor at Bangalore – we have to live with our corrupt politicians and a pathetic bureaucracy. 

Social reforms take ages (if not ever) to seep into this corrupt political system. Unless we cleanse our political system of this politics, we cannot expect any infrastructure developments to keep pace with the rate of progress of the country.

What about emission safety norms and environmental concerns?

It has to be seen if the Tata’s will conform to the emission requirement norms of Bharat II or Euro III or other important safety norms.

Overall, I am confident this car will alleviate the trouble of commute of the mass-market. It will address the safety requirements during commute of this market. Its an ambitious project. But like we all know, unless the infrastructure keeps up with pace of developments of products relying on that infrastructure, be prepared to leave your house at 6 AM to reach your office at 9 AM once this car hits the roads! That will be the time you would need to factor in given the volume of cars that are anticipated to hit the road once it is released!

Update #1: The latest update is that this project might get delayed but Ratan Tata says they will enhance their productivity to stick to the original schedule.

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12 Responses

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  1. It is inovative discovery by Tata Motor for the low income group
    & cvt technology make it more inovative for the first time in the car technology.

    Satyajit Nayak

    August 2, 2007 at 2:59 pm

  2. It is a inovative discovery by Tata Motor for the low income group
    & cvt technology make it more inovative for the first time in the car technology.

    Satyajit Nayak

    August 2, 2007 at 3:00 pm

  3. its a very creative thought on the part of tata motors but at the same time tata has to think of the possibility of such a low priced 4wheeler. they have to produce a car with the price range of Rs. 70000/- to be priced for Rs 1 lac. do think its really possible. i am wondering if they are going to launch this car in the mid 2008 why the havnt published the prospect look of the car. they havnt have disclosed any specifications of the car. is they just making news???

    zafeer

    August 20, 2007 at 11:33 am

  4. Many people are doubtful of the price tag of 1 lacs.

    Lets see what happens.

    Arobindo

    November 15, 2007 at 3:48 pm

  5. In gasoline engines used new mechanism for gas distribution to changing phases of intake. This has increased their power and torque significantly raisedin the area of low and medium speed…

    Smit

    December 2, 2007 at 7:27 am

  6. It will cost around 1.4 lacs.
    Imaging what will happen to the traffic once this car launches in india :-/

    whoami

    January 5, 2008 at 6:44 pm

  7. […] A link to an older post on the same topic can be got here: https://ecofin.wordpress.com/2007/07/29/tatas-1-lac-car/ […]

  8. This is a provude of India

    DIPAK GANDHARVA

    January 10, 2008 at 2:53 pm

  9. tata will be market king in automobile soon

    prince kumar appu

    October 5, 2008 at 8:30 pm

  10. tata has made everyone proud

    prince kumar appu

    October 5, 2008 at 8:31 pm

  11. Great Blog!……There’s always something here to make me laugh…Keep doing what ya do 🙂

    Tsquare

    March 6, 2010 at 3:01 am


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