The Hindu Business Line : Speeding speculation on the Rs 1-lakh car

The Rs 1-lakh car has captured the imagination of the world’s biggest automobile manufacturers. Very little is known about what shape automakers will give their dream cars. And pricing the car at that level will be real a challenge.

The Indian automotive industry’s decades old stellar performer the Maruti 800 has been slipping the last couple of years, surrendering the No 1 position in monthly sales to the Alto.

But what many of us may not know is that it has probably continued to hold on to the No 1 slot in terms of being the cheapest car to be produced.

M800, a benchmark

For years, the Maruti 800 was considered the cheapest car ever produced worldwide. It was the benchmark for manufacturers who dreamt of making a sub-$5,000 car. With almost 24 years of manufacturing history behind it, the Maruti 800 is probably currently cheaper to produce than it ever was.

Depreciated facilities, economies of scale for both the carmaker and the vendors involved with the Maruti 800, would be contributing to keeping the costs low for this car despite the slide in its appeal among potential small-car buyers.

The M800’s reign at the top of the ultra-cheap, mini-car market (A-segment) could be challenged by the potential entry of at least two cars within the next two to three years. Mr Ratan Tata’s dream project to build a Rs 1lakh car and now Mr Carlos Ghosn’s ambition to emulate that with a sub-$3,000 mini-car could be the competitors in the entry-level mini-car segment.

Points to ponder

Now, there are two points to consider when we look at the possibility of a roadworthy mini being manufactured and sold for Rs 1 lakh or close to that price. That kind of pricing may not be possible, unless most of the levies imposed on small cars are waived.

With Central and State levies still accounting for about 30 per cent of a small car price, the power to enable vehicle manufacturers to come up with segment-defying pricing would actually seem to vest with the Government.

The massive size of the potential market is too simplistic a reason to attempt to price a mini-car below the psychological threshold of Rs 1 lakh. But if we assume that the companies involved in making the Rs 1-lakh car use traditional methods of manufacture and distribution, that they want to make a decent profit, and that the end-product meet all safety standards and is roadworthy by law, then the possibility of it being priced anywhere near Rs 1 lakh is next to impossible.

Second, many of us forget that the Maruti 800 has for very many years cost very close to Rs 1 lakh to manufacture. Before including the levies or at the point of leaving the assembly line, the M800 even now possibly costs around the same to produce.

It is but natural that the M800 has been and will continue to be a benchmark for manufacturers looking to make a car in this price segment. A point that is worth mentioning here is also that Maruti’s schedule for a progressive upgradation during the last five years has elevated the M800 from being a big compromise for two-wheeler buyers looking to upgrade to a car, to one that is very close to being a regular small car. Over the years, Maruti replaced the old M800’s bias-ply tyres with radials, the old model’s leaf-spring suspension with coil springs and gas shock absorbers, changed over to a collapsible steering column, opted for front disc brakes instead of drum brakes and even redesigned the car to include new clear-lens lamps and halogen bulbs.

Maruti’s Managing Director and CEO, Mr Jagdish Khattar, has said that the company is not planning to join the fray with a Rs 1 lakh car of its own. But, hypothetically, if Maruti were to design a new mini-car on the M800 platform and strip it of all the more modern bits, and use instead the more traditional, cheaper components even while meeting all the legal and safety requirements, then we will truly have a fight of global proportions.

Only Tata Motors and Maruti Udyog will really have the pricing power to be capable of manufacturing a Rs 1-lakh car.

Those in the race

Mr Ratan Tata had talked about his dream project a few years ago, but interest in the unfolding story is peaking now after some details about the mini-car have trickled out and even as Tata Motors’ attempts at setting up a greenfield plant at Singur in West Bengal continues to be mired in controversy.

The whole topic just got even more interesting after Mr Carlos Ghosn, President and CEO of Renault and Nissan, said that he would also want to look at the possibility of ‘truly competing in India’ by developing a sub-$3,000 car.

While Mr Tata and Mr Ghosn are frequently in the news, making statements or being referred to about their Rs 1-lakh car plans, one other company that is probably keen on making its own attempt is Bajaj Auto. The company’s Managing Director, Mr Rajiv Bajaj, has said that it would experiment with the possibility of developing an entry-level car, which will borrow extensively from Bajaj’s expertise in the two-wheeler space. He has compared the proposed Bajaj mini-car with the Pulsar in terms of ingenuity and exclusivity.

Meanwhile, in trying to cut costs, big component manufacturers have also spoken about collaborating with carmakers that are planning a Rs 1-lakh car to possibly integrate two-wheeler technologies for parts such as the engine and suspension.

Much to be known

A lot still remains unknown about the Rs 1-lakh cars of these companies, that is, will they be full-fledged small cars as we know them, will they redefine what can be called a car, will they be a two-wheeler at heart and be exempt from taxes?

Tata Motors, it would seem, has the most well-defined plan. The M800’s sales volume has been sliding steadily during the past two years. A big reason for the fall is the small price differential between the M800 and the Suzuki Alto. Maruti will have little to lose if it uses the same platform for developing a new mini-car to take on the Tata ‘Minica’.

The Rs 1-lakh car has captured the imagination of the world’s biggest automobile manufacturers. It will have the power to redefine the average Indian’s personal mobility needs. Pricing the car at that level will be a dream.

Mr Ratan Tata has often remarked that the Rs 1-lakh mark is an internal benchmark for the manufacturing cost of the car. Even if the car can be priced below Rs 1.5 lakh, it would still be a great achievement.

For now, the only vehicle available for Rs 1.2 lakh has three wheels — the ubiquitous Bajaj autorickshaw.

A peek at people’s car

Tata Motors’ one-lakh car plan has received more than its fair share of criticism from disbelieving competitors and admiration from potential customers who want to believe in the project’s outcome.

Speculations about the car’s features and other insinuations have ranged from curtains replacing glass windows, removable bolt-on seats instead of the regular ones, that the roof will be an optional add-on, and that the car will have plastic bod y panels instead of the regular metal panels.

Tata Motors is said to have considered specialty plastic panels from an American manufacturer, but has eventually decided on using metal body panels for the one-lakh car. Here are some of the other details about Tata’s people’s car that are currently confirmed bits.

The car is expected to be the world’s cheapest and will be a four-door, not a two-door, passenger car. It will be capable of seating four to five passengers and will sport a modern, mono-form design. The car will feature India’s first, all-new 600cc petrol engine.

Unlike most of the current set of small cars, which have front mounted engines powering the front wheels, the Tata’s one-lakh car is likely to feature a rear-mounted engine for practicality. A small, 600cc engine below the boot will help distribute weight better and driving the rear wheels will also enable to better tap the power-plant for easy driveability.

Another innovative, user-friendly feature planned for the car is using a basic, automatic or variomatic transmission, instead of a manual transmission set up. If costs can be contained, the auto transmission could be a brilliant idea, as the target customer — the millions of two-wheeler users looking for a low-cost upgrade — will find driving this car so much easier.

The car will feature metal body panels and glass windows that can be wound up. The Rs 1-lakh car is expected to be launched by mid-2008 in a stripped down, base variant, it will also be launched later with higher trim variants that could sport features such as power steering, power windows and air-conditioning.

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