Tata’s small car price may not be $2,500

July 25, 2007

Tata Motors, the country’s third largest automobile maker, has announced the launch of its keenly awaited small car with a price tag of just Rs 1 lakh or $ 2500, but all indications are that the firm will have to stretch the price tag up by at least 25 percent.

High raw material costs are said to be pushing up the price of Tata group honcho Ratan Tata’s dream project – the Rs 1-lakh small car.

Tata’s are reportedly putting pressure on suppliers to lower prices. Media reports said suppliers are also opposing any more downward revision of prices.

Tata Motors plans to launch the small car in the summer of 2008, but its plant in Singur in West Bengal itself has been embroiled in a controversy over land acquisition.

Meanwhile, what is troubling Tata’s suppliers is the choppy raw material prices. Domestic demand is also easing, making life miserable for them. So suppliers, it seems, are not keen on the Tata order unless they are able to derive some sort of assurances on volumes as well as prices, reports said.

Tata Bearings, Tata Toyo Radiator, Tata Johnson Controls, Tata Yazaki and Tata Ryerson, which are group firms, will be in the line-up of suppliers for the small car apart from firms like Sona Koyo Steering Systems, Kinetic Engineering and Bosch Chassis Systems.

Tata Motors also will use raw materials like reengineered plastics to help cut costs of the small car. Welding is another area which Tata eyes to cut costs. Tata Motors plans to do this with some high quality adhesives available in the markets, reports said.

Tata Motors has reportedly asked them to be ready to take on orders for about 3 lakh units.

The calculation behind this is simple: 2 out of 3 cars sold in India are small cars. That is exactly why Tata Motors has already pumped in an estimated $450 million for the small car. And this has caught the attention of none other than Renault and Nissan Motor Co’s chief Carlos Ghosn. Ghosn wants to study the feasibility of a $3,000 car. And if media reports are any indication he can only do it in collaboration with an Indian carmaker.

Ghosn is not alone now in keenly following Tata Motor’s small car project. Bajaj Auto, Toyota, Honda Motor Co. Fiat, Volkswagen have also been fascinated by the idea that they are all pursuing it, albeit with a high level of secrecy.
They very well know that it would be more difficult to meet emission standards than building the low cost car. And that is the challenge their teams have been assigned to crack. Safety is another vital area of concern.

Tata Motors is keen to cut not only raw material costs but also packaging as well as transportation-related costs. That is why the company has been asking its suppliers to set up their units near the Tata Motors plant. Tata Motors sees about 10% reduction in costs through this alone, though it remains to be seen how this works out.

There have been other concerns as well. A Rs lakh car can be a traffic nightmare for a city like Mumbai and some civic officials have already mooted the idea of regulating small car’s entry in such places. Though these are legally untenable arguments, the traffic woes will only mount in most of India’s crumbling cities.