Tata Minicar Meets New Market Trend

Soaring crude oil prices and increasingly strict emissions controls around the world have forced carmakers to design energy-saving and environmentally friendly models that appeal to rapidly growing market segments. However, most of these, such as the ones that were displayed by Toyota and Volkswagen at the Frankfurt Motor Show last September, remain in the concept stage.

An exception is the mini car that Tata Motors launched at the 9th Auto Expo in New Delhi this January. Dubbed the "People's Car" or "NANO," it is scheduled to enter mass production in October and hit the showrooms carrying price tags between US$2,500 and US$3,000--about the price of a high-end DVD player for the Lexus LX 470 SUV. .

The car will have two engine options with common-rail technology-a twin-cylinder 660cc petrol unit and a more expensive 700cc diesel-and will come with four doors and five seats. It is considered a more comfortable (albeit somewhat more expensive) alternative to the motorcycles that serve as the most popular form of transportation for India's middle class.

The plain and simple car has an aluminum body and plastic interior components held in place with glue instead of the traditional screws. It is much lighter than a normal car and consumes far less energy, thanks in part to the absence of conveniences such as power steering, air conditioning, radio, and power windows. It has only one windshield wiper, and is narrower in the front and wider in the back so as to reduce air resistance. It goes 54 miles on a gallon of fuel, and drivers are advised that traveling in excess of 70 kilometers per hour could damage the engine.

Tata sourced most of the car's components through bidding on the Internet, thereby slashing parts costs by 30% to 40%.

Upsetting Traditional Thinking

"The NANO could overturn the traditional thinking about making a car," said Ariba, a Tata parts agent. "It may lead to a popular new pattern of thinking about car design within five to 10 years."

By developing its new mini car, Tata hopes to take advantage of the huge market potential in India. According to CSM Worldwide, an auto research institute, India could replace China as the world's fastest-growing auto market by 2013 with an annual growth rate of 14.5%, compared with China's 8%. "Car sales will reach 1.8 million units in China in the next five years, but India will double that with 3.6 million units," CSM predicts.

Maruti Suzuki, India's largest carmaker, believes that "Around 99% of the one-billion people in India want to buy a car, and a key point of concern is how much they are able to pay for one." Those at the peak of the economic pyramid will buy luxury models, of course, but the real driving force in the Indian auto market comes from the middle and lower levels of the pyramid where most people have limited budgets for buying their first car.

An ideal automobile, according to Maruti Suzuki, "is a four-door energy-saving car which can accommodate four or five people for a family trip." That pretty well describes the NANO, which is designed for not-so-well-off people who value convenience more than comfort.

Huge Potential in the Mini Market

The encouragement of automakers to develop mini models is one of the distinctive features of India's auto-industry policy. "India is targeting an annual production value of over US$1 billion for mini cars within a decade," notes Fourin, a Japanese auto research institute, "and is ambitiously striving to move the ranking of its auto industry into the world's top 10."

Rapidly expanding demand in the emerging markets of the BRIC countries (Brazil, Russia, India, and China) will boost the global trend toward smaller cars in a time of soaring fuel prices and more stringent emissions controls.

"Small cars that cater to market demand in India will also appeal to consumers in other emerging markets such as those in Southeast Asia, Africa, and the Middle East," said a ranking Tata executive. "After developing a sound market base in India, we are planning to export the NANO within four years."

The launch of the NANO has greatly elevated Tata's statute in the global auto market. Starting out as a trader in tea and trucks back in the 1940s, the Tata Group now has over 80 subsidiaries and 220,000 employees worldwide. At the end of last year, its total assets were valued at more than US$15 billion.

The group's statute will get another boost when it completes its acquisition of the British luxury brands Jaguar and Land Rover, for which it is paying US$2.03 billion cash.

Tata is likely to encounter ever-stronger competition in the mini-car market, however, as rivals from Japan, Europe, and the Untied States rush to develop cars of similar size.