Friday, August 25, 2006

Ek lakh ki gaddi chalega kya?

The problem with advertising in this country is that people end up promising the Moon, sometimes even Mars or Venus and all you get is a bottle of water from Mahim Creek which you are told is a 'miracle'. Anyway, businessmen are as bad usually, I meet many of them and they keep on saying that their new product or service will be over the top and you won't have to pay more than charanna for it. However, in a weird sort of way, I have to admire Ratan Tata for shooting off his mouth. One day the man decides that instead of dumping two-decade old trucks on Indian roads, he will make a car to broadbase his business and dramatically cut the risk from the cyclicity of the commercial vehicles business. And the Tata Indica range of vehicles, despite the rough edges, isn't a terribly awful vehicles and it gets the job done fairly well in the country.
But now, Mr Tata wants to give Indians a fully-functional passenger car for one lakh rupees. In the scale of the things, that works out to around $2100 for a brand-new car. Thanks to a fortunate accident, I've been on the automotive beat for about a five years, maybe a bit longer, anyway and while I think the idea is very nice, I'm still spectical about the vehicle. Its not that I think that a cheap car isn't possible - the Maruti 800 is possibly the cheapest production car in the world today, after the Trabant has (thankfully) gone out of production. But when Mr Tata promised the car, the world was quite a different place - and I'm not talking about the American misadventures in West Asia. I'm talking about the price of steel, plastics and rubber. OK, lets forget plastics and rubber - lets just look at steel (PDF). Steel prices have shot up dramatically, and steel still comprimses most of the cost of a car. Look at motorcycles, they can't get any cheaper than they are, any cheaper and the motorcycle companies will not be able to cover the cost of steel. And a car needs a lot more steel than a bike.
That is...
Unless Tata Motors changes the materials tradionally used in a car. If Boeing can build a new airplane out of advanced carbon-fibre composites, surely a car can be built by materials as strong but cheaper than steel. What we do know is that Tata Motors and GE Plastics have entered into a tie-up. However, what I am scared of, is that in an attempt to make a car they end end up making another Reva.
The Reva, while I admire Chetan Maini for his idea about the car is the flimsiest thing in the world. Most people who write paeans about the concept haven't obviously driven the car. Insulting the Reva would be calling it a glorified Golf cart, but when I was coming off Moolchand flyover once, the car which I had with me for a test-drive really felt that it was about to come apart at the grand speed of 70kmph. And since the car is all fibreglass, the sequence of events with a Blueline in Delhi would - Crash, Bang, Splat! Basically put, if Tata Motors wants to make me or anybody for that matter confident in the car they have to ensure that people don't feel unsafe driving ther car. The thing is while, I'll probably take a seat on a Boeing 787 in a jiffy (and most of the software running that plane would have been made in Noida and Bangalore), a car will have to inspire far more confidence.
See, today, the Maruti 800 would marginally fail, or at least come close to failing globally established safety norms. There is no doubt that road safety isn't a big concern in India, just yet (another post on the matter soon), but can you make a car secure for Rs 1,00,000/-? I honestly do not think you can.
Yet, before you get to safety, the car itself has to be built. I know that Tata Motors are extremely close to the design freeze stage, or they might have already frozen the design. Hundreds of likely set-ups have been spoken about, but likely the car will be a rear-engined, rear-wheeled drive unit. Being powered by a small Diesel engine, it will also probably be the car that will irritate you the most on the road because idiotic drivers will be driving on the wrong lane. Most people who buy the small car will be first time car drivers from lower-income groups, and I'm saying that they should not drive, but without enough driver education, Tata Motors is all set wreck havoc on our roads.
Which brings us to another aspect of the price, Tata Motors profitability. After all, the company is a large-cap blue-chip Indian company listed on the indices. Heck, it is a major member of the BSE Sensex 30. Regular small car margins for the manufacturers run at between 5-8 per cent of the cars value. Even though, the company believes that margins will be lower (Duh!) I frankly doubt they will make money at this pricepoint for a few years until, and this depends if the car is a roaring success, the company can take advantage of economies of scale But in case the one lakh sticker price is just the promotional price and the price gets raised after a month or so, Tata Motors shareholders need not worry, after all the company's share price has increased some ten times in three years. More important the company is massively expanding its dealer network over the next couple of years to reach even more people, so even if the car doesn't take off in cities, it has a ready market in non-top 25 towns.
But the crucial question is will people buy a cut-price vehicle? I don't know. All I do know, is cut-price doesn't always work, Indians, and this is borne out by auto sales look for value in vehicles. If a manufacturer can deliver compelling value for cheap - like the Bajaj CT100 motorcycle, people will buy. But if people perceive the Tata vehicle as a ultra-cheap car without any street credibility, there might be an issue. Look at computers, sales of Rs 10,000, naam-ke-vaaste Linux computers has been slow, despite the fact that people load pirated Windows on these machines. People want something close to decent functionality - so they are not averse to spending five-six thousand more. I agree with CK Prahalad when he argues that there is a fortune to be made at the bottom of the pyramid, its just that you can't give bottom-dwellers (bad pun) scraps from above. We aren't fish living in the ocean.
Anyhow, all the doubts and questions about the car will answered in 2008 when the next Auto Expo happens in Delhi. I'm fairly sure that Mister T will have his regular Auto-Expo whizz-bang with the one-lakh car, and we might also get a peek at the next generation Indica range. Anyway, lets see how it goes.

12 comments:

Bonatellis said...

i think the 1 lakh-car initiative is bound to be a disaster in terms of strategy.
agreed, the idea is to convert bike-lovers into going for a car, but with financing so cheap right now the price differential with a "proper" car will be about 2k a month. if RNT's logic is to work, why isn't Reva a hit?
and just imagine what this investment will do to the company's financials and brand perception!!

telco should be better off investing in the hispano carrocera's of the world ...

this has probably become an ego issue for the Man ... he wants to leave behind his contribution in the world auto mart ...

K said...

The Reva costs more than a Maruti Alto, thats one reason it sunk. It is a two-seater with no luggage space and it feels flimsy. Which is why I have mentioned that people have to feel safe in the car because if they don't no-one will buy it.
I do not doubt Tata's engineering capabilities to deliver a solid product. Its just the price point that gets me a bit sceptical. And yes, it is an ego issue for the man, the one-lakh car will be his 'legacy' as you said Bona. Will it sink the company that above all Tata Group companies he has moulded by himself - not that TCS or Tata Tele don't have his thumbprint, but Tata Motors is the company he seems the most involved in.
Lets wait till January 2008.

simran said...

the problem with advertising, K, is that it’s as good or crap as the product it sells. reva – flimsy? sure. but it’s still a welcome sight in bangalore and in a city jammed to the hilt, the only car that gets its space. can see why a delhi boy won’t take to it. anyway, clich├ęs aside, R. Tata is perhaps the last decent industrialist around and i hope that he gets the genie out of the bottle

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Anonymous said...

hey ratan tata clarified way back in december - business today that the one lakh price point was not feasible and that some journo had concoted that. The price could be a little higher. as for the tech don't underestimate Tata. Their Ace mini-truck is a killer app. Too good and comfortable Ace can replace the jumpy bajaj autorickshaw any day. So yes the Tata 1 lakh plus car will be a hit

thalassa_mikra said...

Interesting that you mention Trabant. I've been driven in a pre-Renault Dacia and seen Lada and old Skodas in action. My verdict? NO!!!!

I think a car that is near similar to this proposed car is the Toyota Kijang, which is sold in Indonesia. By all accounts it's a horrible car, with messed up suspension, manual everything, poor safety, gas guzzling, etc. However it is comparatively cheap in the Indonesian market, and is their biggest selling car.

http://en.wikipedia.org/wiki/Kijang

(I don't know if Wikipedia is correct that the Kijang is sold as the Qualis in India)

But more or less, I agree that you cannot go beyond a certain price point without seriously compromising basic features and safety.

thalassa_mikra said...

Oh, and I just realized that the Reva is supposed to be like a Smart. But a Smart is actually a pretty good car, tiny and light, but not flimsy at all. It is also priced above a number of four seater models from companies like Fiat, Ceat, Citroen, etc.

By the way, I hope you weren't suggesting that Linux OS is inferior to a Windows platform. I love Linux, and the next computer I buy would only have a Linux platform!

Chenthil said...

Nitpicking - isn't it CK Prahlad who talks about bottom of the Pyramid?

K said...

Chenthil : Damn, whats wrong with me. Sorry about that!
T_M : Someone had the bright idea to bring a Smart to India - but it was too small and it cost Rs 6 lakh after import duties. Why would anyone who wants a badi gaddi buy that for that much?

Abhishek said...

Surely, a powerful idea from the Tatas to reduce business dependence on the commercial vehicles space, which has its own cyclical patterns. Moreover, if they are able to generate the right volumes with the 1-lakh car, it will be a money-spinner, considering the retail consumer base in India.

Soumyadip said...

Even if the price is around the 1,000,00 mark, it might just be for the base model - which might just include the engine and the chassis. All other components being add-ons. You never know. The fact that makes entire concept mindboggling is that auto-rickshaws cost atleast a hundred grand. In case Mr. Tata does indeed deliver what we are expecting and if the mileage is good, we might just see another new mode of public transport. My hometown is crammed with yellow-top Maruti 800s, just because of the low running costs and the rising unemployment, the 1-lakh wonder might just make matters worse.