The Hindu Business Line : A turning point for the car industry

Mumbai, March 22 One man did not join the sceptics when Mr Ratan Tata made public his intention to manufacture a people’s car costing Rs 1-lakh. Mr Carlos Ghosn, Chief Executive Officer of Renault and Nissan, sat up and took notice even while the likes of Mr Osamu Suzuki, the patriarch of Suzuki Motor Corporation, scoffed at the initiative.

Nissan turnaround tycoon realised that Mr Tata meant business and that this car had the potential to succeed across key parts of the world. He also knew that Indians were second to none when it came to his now famously-coined term “frugal engineering”.

The Renault CEO realised there was little time to be lost. It was important for his company to think on similar lines and bring to India a car costing $2,500 — the dollar ballpark for a Rs 1 lakh vehicle. The Indian partner had to be someone who shared a similar vision and with a track record in cost-control.

This is what eventually led to the meeting with Mr Rajiv Bajaj, Managing Director of Bajaj Auto, and the formation of a three-way alliance among the two-wheeler company, and Renault and Nissan for the ULC (ultra low cost) car project.

The ultra low cost car

Quite unlike Tata Motors, with domain expertise in cars and commercial vehicles, Bajaj Auto is mainly a motorcycle manufacturer with a profitable three-wheeler business. It has evolved a competitive cost-structure at its plants, which to Mr Ghosn meant the ULC car battle was already half won. With their global competence in car manufacturing, Renault and Nissan would be the ideal pillars of support for this project. The car is scheduled to be launched in 2011 by which time the Nano will have completed a two-year run on Indian roads. What will the ULC car offer that the Nano will not by then, experts ask.

MILEAGE, THE KEY

Bajaj Auto and its allies believe that mileage will be the most important factor in determining the relevance, and possibly success, of its offering. Initial tests have been encouraging with reports of over 30 km to a litre. And if the price tag is kept at around Rs 1.5 lakh (on-road) for the basic version, sources say this combination of mileage and price will be enough to draw customers.

It is clear, therefore, that India’s automobile landscape will change dramatically with the Nano and the ULC car that will follow. Little wonder, therefore, that the “low-cost car” mantra is now being chanted like never before. Almost every carmaker wants in, though most insist that it would be impossible to match the price level set by Tata Motors and challenged by Bajaj Auto.

Suzuki is the world’s most prominent name when it comes to small cars and its Indian arm, Maruti Suzuki, is the clear leader in the compact car segment here. The company has maintained that it is not “going to do a Nano” in terms of price. But not too many people are buying the story.

“Maruti will gauge market reaction to the Nano and see if it is going to eat into some of its products, largely the 800 and the Alto. Should that happen, the company will offer a stripped-down version of either model to retain its position,” a top automobile executive, who did not wish to be named, told Business Line.

Hyundai Motor India has gone on record that it is looking at a low-cost car but at a price point above the Nano. Much is reportedly happening at the company’s R&D centre in Hyderabad for this vehicle tipped to be launched in 2011-12.

Sources say Hyundai can manufacture a car under Rs 2 lakh considering the competitive cost structure it has achieved at the Chennai plant. “The global hub for the Atos Prime shifted from Korea to India over four years ago and now the Click (Getz) line is to follow suit. This is all because of cost efficiencies in Chennai; they are more than adequate to roll out a low-cost car,” they add.

Other car makers such as Toyota, Honda and Volkswagen with operations in India are developing their own low-cost cars in the price range of Rs 3.5 lakh and above.

Honda’s next car in India, after the Jazz, is a world small car that will also have production bases in Thailand and Brazil. However, the company has not indicated that this will be a low-cost model, in line with its premium carmaker image. “Honda will position this car in the Rs 3.5-lakh price range where there will be an appreciable gap with the Jazz and, going upwards, the City,” ancillary suppliers say.

Similarly, its compatriot, Toyota is gearing up for the 2010-11 launch of the 800 L global small car in India. This model will also be made in Brazil, China and Russia given the growing prominence of the BRIC economies. Toyota is categorical about steering clear of the low-cost space and the 800 L could be priced upwards of Rs 5 lakh.

Volkswagen too

According to sources, Volkswagen and its group company, Skoda, could also “spring a surprise or two” with low-cost cars that will roll out of a common platform towards end-2011. “However, these will not be in the Nano or the ULC car price range but more towards Rs 3 lakh,” they said.

Even before its debut the Nano has heralded the low-cost car revolution across the globe. “It is a tribute to Tata Motors for showing the rest of the world what cost-efficiencies are all about. And this is even more creditable for a company that has been making cars for just over a decade,” a top official of an automotive company said.