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B. S. Rathor

More than one-third of the global population of six billion lives in China and India. A small car project will always be viable considering the prospective market size in the region. India has the necessary engineering skills and facilities to attempt the small car project, even if it requires the pooled resources of a consortium of companies.

A FEW months ago, a news item quoting the head of the Tata empire created a flutter in the auto industry. The Tata group Chairman, Mr Ratan N. Tata, had made public his dream of producing a Rs 1-lakh passenger car for the Indian consumer, a la Henry Ford, although a century later.

Only dreamers create and invent. They put all at stake to realise their dreams. The Tata chief is serious. But the reactions from original equipment manufacturers (OEMs) have been disappointing, to say the least. A few CEOs spoke of the `impossibility' of the project's success. The gap between `challenge' and `impossible' is narrow.

If the task were easy, all and sundry would be in the fray, knowing its huge potential. A difficult project, but the announcement has stirred some excitement and much expectancy in the industry.

No global OEM is interested in putting India on wheels, as Henry Ford did for his country. Such a project will not be part of their business plans and certainly not easy on adding shareholder value.

Globally, auto companies make money from their truck divisions (SUV/MUV) and luxury segments. The vision to make a real "peoples' car" has necessarily to come from organisations that have their roots countrywide and the passion to deliver something unique that will have meaning for the millions who want a car but cannot afford it. Such a project may well transform the face of the economy. Can Mr Ratan Tata and his team do it?

The number of passenger cars at present is around 7,50,000, with an entry price of Rs 2 lakh. In the two-wheeler market of 5,000,000, the high-end models are priced upwards of Rs 50,000. A new car at Rs 1 lakh would thus not only attract many from the scooter and motorcycle segments but also build pressure for reducing two-wheeler prices.

Management guru C. K. Prahalad has, time and again, said that Indian CEOs must look at developing their domestic markets and not just at exports. Very few have taken him seriously though one can now see a distinct thrust on areas that were never on the `strategy radar'. The rural and semi-urban markets, the agro sector and allied areas have a dormant consumer potential that remains to be ignited.

Companies that have evolved their distinctive business model have progressed better than others. Tata Motors, with the Indica and Indigo, has carved out a niche for itself and established itself as a major presence.

Mahindra's Scorpio came after the relationship with Ford lost commercial sense. The entire launch programme for the Scorpio was, predicted sceptics, `destined to fail' even before it took off. However, the Scorpio team, encouraged by the CEO, Mr Anand Mahindra, continued with the project. The results are manifest in the numbers the vehicle has been generating. Scorpio has given the Mahindras a newconviction to carry on.

Both companies mentioned are battling competition from global majors and have leading positions in the market. They have gained higher recognition than many global brands.

The relationship of Hindustan Motors with GM was unequal. Then followed a more sustainable operation with Mitsubishi, and the Lancer. However, HM's real achievement has come from the strategic shift when it converted the lessons from Lancer into a long-term business programme. Its capability and confidence to produce the best engine in India resulted in its ultimate success.

Two-wheelers are a much bigger success story as higher domestic volumes give them business viability. TVS Motors is going places without Suzuki, and so is Bajaj without Yamaha. Hero Honda, despite all talk of the relationship with the Japanese partner, has grown through the vision of Mr Brij Mohan Munjal.

Even Enfield, from the Eicher stable, has done well to leverage the market boom and turned around on its own strengths. There are other success stories of a unique business models without over-dependence on global resources.

Mr Ratan Tata's Rs 1-lakh car project was announced at the Geneva motor show. Analysts say that such a car has to be produced for around Rs 70,000 to enable a `Rs 1 lakh' pricing. Perhaps, a proposal to the government could create new openings and `a special dispensation' based on accruing benefits to the economy.

The success of this project would also trigger a demand growth in several segments of the industry that are an integral part of the total process. It is said that roads follow the cars — as it happened in America when Henry Ford put people on wheels. Can a similar revolution happen in India?

An encouraging aspect is the support of the component industry to Mr Ratan Tata's announcement. Dr Surinder Kapur, Chairman of the Sona group, feels that the programme is definitely achievable. The Indian component industry stands to gain considerably from the success of the project and will, no doubt, be behind the Tatas.

Mr Ratan Tata plans to put his Rs 1-lakh car on Indian roads in five years. That may not sound very aggressive but his caution reflects his commitment. He is as serious about the project as he was about the Indica five years ago. When Mr Ratan Tata announced the Indica project many dismissed it as plain rhetoric. Some even said that Mr Tata was putting his personal objective before his organisation. Some even prophesied that the project would sound the death-knell of the Tata empire. But Mr Ratan Tata decided to face the odds.

The environment was not enabling, economic slowdown worsened by the global recession had shrunk the automotive numbers. Global players had brought in fierce competition. The political situation was not encouraging. Economic policy-makers were sitting on crucial matters and protection to industry was losing ground.

The timing was bad. Telco (as Tata Motors wans then known) was going through a rough patch, and so were several Tata group companies. As much as Rs 1,700 crore was put into the Indica — about the same as Ford invested in its Ikon project. For Ford, this money was marginal. For Tata, it was make or break.

Finally, the car was showcased at the Auto Expo 2000 and, a few months later, introduced in the market. Billed as India's first indigenous car, it drew tremendous patronage. The Tata marketing team went on a overdrive. The initial bookings broke all expectations with long waitlists. One had not anticipated that, as most models were available off the shelf. Then the trouble began. Initial quality hiccups put a question mark on the Indica's future that the competition fully exploited. Many felt the Indica was a dead duck.

Tata Motors' finances were under pressure. Orders were getting cancelled but not to the extent of causing undue concern. All this time, the Tata passenger car team worked with a focus and energy rarely seen. Only insiders know the mammoth challenge that was being tackled quietly and firmly. Many had written off the Indica and dismissed Mr Ratan Tata's dream of making an `India car'.

At last, the sun shone through the dark clouds. Problems were slowly overcome. Indica came out afresh, the new avatar bearing the V2 tag. The pending customer commitments were fulfilled. Complaints were addressed. V2 volumes soared to occupy the top tier in its segment, facing a tough challenge from Maruti and Santro.

The Tata Motors morale got a boost and there was improved market demand. Today, Tata Motors and Indica are firmly positioned, and recent reports mention Indigo as the leader of the `C' segment, dominated by the global players as Hyundai, Ford, GM, Honda, Lancer, Fiat and Skoda. This was icing on the cake for the company which may not have expected such huge volumes for the Indigo.

Another daring and strategic step Tata Motors has taken is to build economies of sustainable scale through `niche alliances'. One hopes its tie-up with Rover, UK, will benefit both companies and put India on the global map. The current plan is to export 100,000 cars in five years to the UK, commencing October 2003.

Only time will tell how Mr Ratan Tata pursues and achieves the challenge of making a new car that can be priced around Rs 1 lakh. But if one goes by the public utterances of the Tata Motors senior management, one gets the impression that preparatory work has already begun.

Perhaps, this will be Mr Ratan Tata's last big task before he relinquishes executive authority. Having seen the transformation of the Indica dream into reality one can expect the unexpected from the company.

The world auto industry has been flat in the recent past. Most global players have no interest in small cars, but have a fancy for luxury and sports vehicles. Even a third or fourth car in a family, which could be the closest to a small car, is one with a 1.6 litre engine, and a price tag of over $8,000. And here we are talking about a $2,000 vehicle. Mr Ratan Tata has triggered the imagination of many an Indian auto compatriot. Developing countries such as India may find it difficult to produce and compete with the rest of the world in high-end models. But can they do it in small cars — that the less affluent can afford?

More than one-third of the global population of six billion lives in China and India — both developing nations. A small car project will always be viable considering the prospective market size in the region. Today, the annual size of the global car market is around 50 million units, of which the Asian numbers, excluding Japan and Korea, may be under three million. A car in the $2,000-3,000 range has the potential to open up these markets and build volumes.

India has the engineering skills and facilities to attempt `Project India Small Car'. The China axis can be utilised to build synergies. Niche tie-ups with low-cost economies can consolidate trade relationships and expand the market. A lot of talk is making the rounds about the kind of technology levels India should adopt. While a longer-term goal is to reach the highest benchmarks, the immediate objective is to adopt appropriate technology that meets the needs of the target market.

In the first stage, the product strategy of a Rs 1-lakh car has to focus on the domestic market and then look at CKD exports to allow local value addition by importers.

The resources needed for such a project will be substantial, both in terms of money and people. Indian companies may have to pool their resources and form a consortium to work on the engineering and development. If such partnerships can work among global companies that are bitter rivals in the market, why cannot it happen in India?

The new project will have to derive the resources of leading two-wheeler companies, component suppliers and interested OEMs. Such an approach can radically transform the face of the Indian auto industry. The task is gigantic, and the terrain arduous. If one man can make an Indica, an alliance can certainly attempt the Rs 1-lakh car project.

(The author is Regional Director, Quorum-ITP World Wide, industry advisor and analyst. He can be reached at anil_rathor@vsnl.net)

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