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.
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.