Contract manufacturing for Rs 1-lakh car

Mayur N. Shah

Mumbai, Nov. 2

Tata Motors is in preliminary discussions with Canada-based Magna International, one of the top five automotive component suppliers in the world, for contract manufacture of its much-awaited Rs 1-lakh car.

This has been revealed by sources involved in the negotiations between the two sides.

If the deal goes through, Magna will make the Rs 1-lakh car at many satellite manufacturing plants that will be set up for the purpose, said an official with one of the companies.

In the global automotive industry, contract manufacturing is usually undertaken for specific models that are low in volumes and thus not economically viable for an auto major to manufacture. With respect to the Rs 1-lakh car though, the overall volumes will be large while the satellite plants will have limited production capacities individually.

Feasibility issue

The feasibility of a Magna tie-up for contract manufacturing with Tata Motors lies in the sales goal that the latter envisages, where it intends to reach the car across a scattered geography. 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.

Magna may not build all the possible satellite locations in the country but is likely to put up the majority of them due to its expertise in the field of contract manufacturing since 1979, said one of the officials who was part of the discussions. The global components supplier has been doing contract manufacture for several companies such as GM (Saab convertible), BMW (X3), DaimlerChrysler (G-Wagon, E-class-4WD, Chrysler 300C, Chrysler Voyager, Jeep Grand Cherokee, Jeep Commander). Other players

Besides Magna, there are other automotive players such as Pininfarina of Italy and Karmann, Germany that take up similar contract manufacturing projects. Magna's presence in the country (through its subsidiary Magna Steyr-major component supplier) and its expertise at producing various kinds of cars on a single manufacturing line give them the edge over the others, said the official.

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(This article was published in the Business Line print edition dated November 4, 2006)
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