Indian carmaker Tata Motors (a part of the Tata conglomerate) has for some time held out the possibility of developing a very low-cost car (codenamed X1) that would be within the purchasing reach of a large section of India's population that is currently on two wheels. Tata Group leader Ratan Tata has made it something of a personal project. But what sort of vehicle would it be and where are we now? Deepesh Rathore and Tilak Swarup report. 

Developing economies are often faced with the problem of finding affordable solutions to the personal mobility question. India is no different. To date, questions on a 'passenger car for the people' have mostly been answered by the Suzuki Maruti 800.  The evergreen Maruti 800 - based on the early 80s Suzuki Alto - has been in the market for the last twenty one years, and has been the market leader for most of this period. The lowest priced car in India - priced at around INR 200,000 (€3700) - has been Maruti's bread earner for a long time and has been an almost iconic symbol of the Indian passenger car industry for a long time. It has an emotional status in India that is not unlike, say, the Volkswagen Beetle.

The gap between two and four wheels
India is an interesting case as far as the personal mobility market goes. The lowest priced passenger car - Maruti 800 - sells at around INR 200,000 while the most expensive volume motorcycles retail at around INR 55,000 (the best selling models being offered with a sticker price of around INR 40,000). This leaves a huge gap of more than INR 150,000 between the two modes of transport, a gap that has been looked at with interest by many companies but filled by none. A utilitarian vehicle with a potential price of INR 100,000 -125,000, capable of carrying 3-4 passengers and offering weather protection is a logical choice to fill this gap.

The gap between fuel efficiencies
There is also a fuel efficiency issue to consider between cars and bikes. While a typical Indian bike delivers around 80kpl, the best that a car does is 18kpl, with most of the models having fuel efficiencies in the range of 9-14kpl. This leaves a huge gap that may be filled by a vehicle carrying up to four passengers and offering a fuel efficiency of 40-45kpl.

The gap between demand and supply
Passenger car penetration in India stands at about 6.5 cars per 1000 people. That is a figure even lower than that of neighbouring Pakistan and Sri Lanka. While the desire for cars may be there, high car prices in India keep cars out of reach of the vast majority of the Indian population. While the USA entry level car's price is worth around six months of the average individual income in the USA, the lowest priced car in India is roughly equivalent to 18 months of the average household income. Couple this with high mortgage costs, high fuel costs and poor condition roads and it is not too difficult to understand the low penetration levels of passenger cars in India.

Taking these problems into account, a solution seems to be a passenger car which may seat 3-4 people, cost half the price of the current cheapest car (the Maruti 800) and have approximately twice the fuel efficiency.

Not a company to shy away from challenges (remember they designed the competent Indica sub-compact when all they used to make were crude trucks), the Tata Group has set out to design exactly that. The dream of Tata - actually the dream of the group's leader, Ratan Tata - is to design and manufacture a car that will cost just INR 100,000 (€ 1,900), making it perhaps the cheapest passenger car anywhere in the world.

The brief
When designing a cheaper line-up of models, designers are often tempted to use the 'scalpel method' and remove non-essential and luxury items from existing architectures. However, this approach has been avoided on developing the Tata 'budget car'. For one, there was no existing platform to play around with. The Ratan Tata dream concept was of a car too low priced for Tata's own Indica platform and of a solution that could only be found through a start-from-scratch method. The project called for new materials and new production methods. At the same time it also called for a new business plan.

However, the leader of the Tata Group made it clear to his designers at the start of the project itself that the budget car will not compromise on safety, comfort and weather protection. The engineers have probably never had it so tough!

The story so far
Tata's staunchest competitors - Maruti and Hyundai - did not take Ratan Tata and his dream low-cost car too seriously. However, Tata did find a potentially powerful supporting voice in the form of L K Advani, the Indian Home Minister who in his inaugural speech at the Auto Expo in 2004 suggested to the Indian automotive industry the need for a 'budget car'.

However, the Indian government was only good for words at that time and no other incentive was offered to the Tata group for going ahead with such a car for the masses. (And if Mr Tata is so keen on it, won't he develop it anyway, without government support?) Things haven't changed much since, although the present finance minister P Chidambram has hinted at reducing the duty on small cars. Such a move will not benefit the Tata budget car only, of course, as it will likely be effective on all small cars in the market.

The proposed design from Tata engineers that has evolved so far through various press reports involves a car with seating capacity for 2-4 people, a very small boot area, powered by a twin cylinder engine mated to a CVT transmission or a simple four-speed manual transmission. While newspapers and other publications have gone ahead and commented on the design of the cars, there have also been market rumours of a plastic bodied contraption with curtains for doors for the base model. However, this rumoured design is a bit contrary to Ratan Tata's earlier brief of comfort and weather protection. Also, Indian customers have a dislike for plastic in car bodies.

Tata has been in talks with various suppliers for the development and production of components for the budget car. While a high percentage of components will be developed and manufactured in-house by TACO (Tata Auto Components - the Tata Group's automotive component arm), the group has been looking at co-development with other component majors as well, including some in China. For engine development, Tata Group has in the past approached suppliers like Lifan of China. With the price bias in India in favour of diesel, it is likely that the budget car will be fitted with a twin cylinder diesel engine of about 0.5-litre displacement. However CRDi technology may make it a bit expensive though Tata Group will be pushing for high volumes to get unit costs down.

The big business idea
Talking of volumes, the group has already hinted at making one million budget cars every year. For a market where the total automotive sales were about one million units in 2004, this looks like a hugely ambitious number, even for 2008 when the car is planned for launch. At the same time, the company's Pune facility (capacity 225,000 per annum) will be inadequate to manufacture this number.

Tata has decided on a different business plan as far as the budget car is considered. The company is planning to assemble the car at several locations so that the car may be transported cheaply across the country. At the same time the engine and transmission assembly will be centralized. In view of the requirement for future assembly plants for the budget car, Tata Motors has been scouting around for land for putting up the assembly plants in various industrial zones. 

However, Tata has not come up with anything revolutionary in terms of a business plan for profitably developing and manufacturing such a cheap car. The company's approach to the project has been to plausibly develop a machine to fit within Ratan Tata's directive of a car that will retail at INR 100,000.

Tata, and the Indian quadricycle story
The dimensions of the Tata car make it suspiciously similar to European quadricycles. While many manufacturers like TVS, Bajaj Tempo, Piaggio and (obviously) Tata Motors have been trying to push forward special regulations and rules for quadricycles, such moves have been delayed and opposed by Maruti, Hyundai and others who fear the market impact that the budget car/quadricycle could have. Without specific quadricycle regulations Tata will find it difficult to get special tax benefits for the project and the budget car may have to face the same tax burden as other cars significantly putting a pressure on margins.

What will the competition do?
As of today, various senior executives of Tata Motors have claimed that the budget car development is in advanced stages and prototypes are rolling at the Tata plant in Pimpri, in western India. If Tata succeeds in pricing the car at INR 100,000 or anywhere near that point, the company will be creating history of sorts. At the same time it will be creating a severe headache for competitors. The worst affected will be Maruti which has often played the volume and price card for market success. The Maruti 800 currently sells at about INR 220,000, about 120% more expensive than the proposed budget car. Thanks to high amortization levels, Maruti is likely to be capable of reducing the price of the 800 to about INR 140,000, if not less. But doing that will affectively wipe out the profit margins from one of Maruti's best selling models.

Meanwhile other carmakers may not be as adversely affected by the budget car and some may even benefit from the launch of such a model. For instance carmakers like Honda and Hyundai may benefit from an entry-level car, as more customers will try to convert from two wheelers to four wheels, marking more potential customers for expensive cars.

However the Tata Group has already benefited significantly from the INR 100,000 car project. Not only has the group's engineering department gained in experience through such a challenging project, but also the company has attracted a number of new talents from some of the best institutions in India. At the same time, the Tata Group has received more editorial coverage thanks to the budget car than ever before. Already the budget car has become something of an automotive intellect teaser with numerous organizations, enthusiast magazines and corporate organizing competitions, for budding automotive design talent to come up with solutions to the Indian personal transportation problem.

Deepesh Rathore / Tilak Swarup

Exchange rates (at 28/11/05):
1 US dollar = 45.9 Indian Rupees (INR)
1 EUR = 53.8 Indian Rupees (INR)

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