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Will the much hyped Tata’s 1 lakh car fizzle?

* Already two wheeler manufacturers has burnt their hands by lower pricing to increase their market share. Since the steel prices are soaring and other raw material prices are continuously increasing it is necessary to produce a vehicle which will not burn out your topline growth. in fact tata motors itself acknowledge that margin pressures are high for the financial year 2006-2007. The car is expected by the 2^nd half of 2008. The input cost is sure to head northwards and can tata make anything out of the one lakh car evenif sells 80% of expected sales.

* Nowadays even rural customers, one of the main targets of the car are becoming demanding and less forgiving. Existing people’s car Maruti 800’s sales volume has been sliding steadily during the past two years.

* When worlds safest car manufacturer’s like toyota are just launching their products in the 10lakh segment depriving safety system we cannot expect any safety systems in the 1 lakh car. but the question is can the Tata’s one-lakh car($2500) meet the upcoming safety and emissions regulations? India is going to have much stricter emission norms in the near future and india will be forced to enact same in safety side too. Road deaths and poor air quality are both growing problems in India. I believe that tatas can meet the first challenge(emission norms) since the one lakh car will be destined to india and other low cost market not for europe or US( since adding equipment required for safety and emissions control in Western markets would automatically bring the price of the car easily up to $6,000 to $7,000). But if the indian government makes any safety regulation what will be future of the one lakh car. But Tata claims the one lakh car($2500) will even pass a crash test.

* Here is the case of Tata’s ace, which is exported to nepal and srilanka and planned for south africa but certainly not for the developed countries. Although it emits very little carbon dioxide thanks to its tiny engine, meeting other emissions standards and crash regulations would be much harder.

What if Tata 1 lakh car succeeds?

* If Tata’s one lakh car succeeds as Ratan Tata expects no longer a family will be hanging in a bike it will ensure safety of those people. On the other hand as already India is struggling with the infrastructure needs Tata’s one lakh car (and others following) will add insult to India’s injuries and it will also have heavy impact on our environment.

A problem of plenty:

* Can indian which now has 1.3 crore vehicles can bear additional 10lakh cars per year from Tata’s alone(in addition to the tata’s other cars). Based on manufacturers expansion plan it is estimated india will build more than 3.3 million cars in 2010, If Hero group and Bajaj choose Tata’s way this figure will shoot up to incredible levels. According to SIAM (Society of Indian Auto Manufacturers) India is adding 1.4million cars a year as indian car industry and is growing at 20% every year. My very obvious question is Will there be enough buyers? certainly not! India is expected to add only just over 2.3million cars in 2010. Manufacturers may bet on exports but that too is not so promising, india exported only around 2 lakh last year, This means that exports have to grow by over 70 per cent year-on-year for the next three years in order to reach the million mark by 2010. However, the industry has managed an average growth rate of 15% in last three years.

* The end result of this surplus capacity will be intense price war between manufacturers and ultimately their margins will get down. Tata itself will face some serious problems if their 1 lakh car ($2500)succeeds, manufactures who cannot such produce low cost car will put up more products in other segments where Tata now has significant share, ultimately this kind of volume game may swallow the profits of all manufactures. The race will affect every bit of business as much as Henry Ford’s model T did a century ago.

* More the cars, more is the pollution not only due to burning of fuel but also due to the dumping of low quality parts used in the low cost car. Dont be surprised if Sunita Narain of CSE – Centre of Science and Environment who raised concerns on pepsi and coke raise concerns on Tata’s one lakh car.

* More terrible the traffic will be, The country’s poor-quality road network is slowly improving, but it is heavily over-used. With India’s transport arteries already so badly clogged, a boom in sales of low-cost cars could bring about a complete seizure.

* Real estate prices may shoot up as the need for the space(parking) raises and parking charges will become more costlier. The result will be owning a car will become more expensive.

Tata’s first Global launch:

Tata Motors plans to sell one million of its one-lakh cars. Tata’s West Bengal plant for the one-lakh car will have a built-up capacity of 500,000 units on an annual basis; for the remaining 500,000 units, there are plans to set up satellite plants across the country at strategic locations that would make it cost effective to manufacture and sell the car in the shortest time possible. Tata Motors is reported to have talks with Magna a contract manufacturer for making the Rs 1-lakh car($2500) at many satellite manufacturing plants that will be set up for the purpose across the globe. This will reduce the cost significantly but the fit and finish of the car will be a question. We dont have to worry much on this since Magna has been doing already the same for international majors such as GM (Saab convertible), BMW (X3), DaimlerChrysler (G-Wagon, E-class-4WD, Chrysler 300C, Chrysler Voyager, Jeep Grand Cherokee, Jeep Commander). Tata’s one lakh car will be launched in places like Africa, Russia,China, Southeast Asia and in eastern Europe and Latin America. Tata may use its global partner Fiat for selling the car outside india where Tata’s don’t have their subsidiary. In short Tata will wish to sell the car wherever the income levels mirror India’s.

Component suppliers for the one lakh car:

Building a one lakh car isn’t a challenge just for Ratan Tata and his team, but also a formidable task for several small component makers who need to meet stringent cost and quality targets so that the car can be produced for Rs 1 lakh. Tata Motors demanded and got a whopping 20% discount on its rates for the Rs 1-lakh car($2500) from some of its biggest suppliers by betting on volume of the orders. Because of this, component suppliers have been forced to adapt a different strategy for the Tata’s one lakh car. They are innovating new products, setting up dedicated facilities and outsourcing their jobs to keep the production cost as low as possible. For auto components maker like Bosch, it’s an opportunity to work on products they developed over the years but could never sell because of the absence of a market globally. Bosch has tried a new technology for the exhausts by combining metal and plastic. It is expecting costs to come down significantly by using a blend. Bosch is also providing ignition technology for the one lakh car. Lumax Automotive which supplies headlamps is sourcing designs from Taiwan. Shriram Pistons & Rings, which is making engine parts for the car, is setting up a dedicated production line. It is learnt that Shriram is also working on in-house designs to cut costs. Many suppliers are setting up factories near the plant to reduce transport and packaging costs, which usually constitutes about 8-10 per cent of total manufacturing costs.

The NK Minda Group supplies parts such as switches and horns for the Rs 1 lakh small car. Sona steering is supplying steering columns for the tata’s one lakh car. Rico Auto supplies clutch for the car. Other prominent suppliers includes Gabriel Ltd, Kinetic Engineering and Teenco. Also among the suppliers for the tata’s one lakh car are a large number of Tata group companies, including Tata Bearings, Tata Toyo Radiator, Tata Johnson Controls, Tata Yazaki and Tata Ryerson, which ensures Tata a better control on time and time.

The good thing is this car help these suppliers evolve in terms of R&D which they often not used to, they are developing new products specifically for the one lakh car also they are getting a platform to showcase their skills, If the car sells in huge numbers, just like motorcycles did through the 1990s, it would be a windfall for India’s auto parts industry. The success of Tata Motors and all its component suppliers hinges on the number of cars that will hit the road.

Manufacturers who will challenge Tata’s one lakh car…In Tata’s one lakh car – part 3