The one-lakh car

http://www.economist.com/business/displaystory.cfm?story_id=10498699

The one-lakh car
A “people's car” from India
Jan 10th 2008 DELHI
From Economist.com

Tata Motors reveals a dirt-cheap model

RATAN TATA, chairman of the Tata group of companies, has a cerebral and cordial manner. But the so-called “one-lakh car”, which Tata Motors unveiled in Delhi to a rapt public on Thursday January 10th, is a product of impatience and chutzpah. Instead of waiting for the great swell of prosperity in India and elsewhere to create millions of customers for his company’s products, Mr Tata has decided to wade out—further than any one has gone before—to bring a car to them.

In India one lakh means 100,000, and Tata will sell the most basic version of its new car at 100,000 rupees, or $2,500 (not including taxes and the cost of transporting it to the showrooms). This is roughly half the price of its nearest rival, and little more than the cost of a three-wheeled auto-rickshaw. But the “nano”, as the car is called, is no rickshaw. Apart from the fourth wheel and the doors, it has a 623cc engine that will muster 33 brake horsepower. The car should eke out 50 miles to the gallon, Mr Tata says. It complies with the “Euro III” pollution standards that prevail in India and should meet the tougher Euro IV standards with a bit of tweaking. The firm claims that the car produces less pollution than some two-wheelers produced in India today.

Tata Motors is best known for its trucks, lovingly decorated and recklessly driven, that clatter along India’s highways. It started making small passenger cars only a decade ago. Its low-cost car project has set a trend. Mr Tata says he is “quite gratified” that other firms are following suit. Bajaj Auto, which is known for its two- and three-wheelers, said on January 8th that it hoped to team up with Renault and Nissan to produce its own low-cost car. Fiat, Ford, Honda and Toyota also have cheap models in the works. Tata may discover a market, only for others to crowd into it. “It’s not our God-given domain,” says Mr Tata.

Cheap cars can be expensive to invent. Tata experimented with a smaller engine, but was dissatisfied with its performance. It hoped to use continuous-variable transmission, but had to make do, for now, with manual. Tata’s rivals may be able to free-ride on its efforts, copying the cost-cutting tricks it had to discover through painstaking trial and error. “It will be an easier task for them than it was for us,” Mr Tata admits.

Competitors will, for example, notice how Tata shrank the car into what its chairman calls a “concise package”, with the powertrain at the back and the wheels at the “extremities”. The result is 21% bigger inside than the Maruti 800, says Ravi Kant, the managing director of Tata Motors, but is only 80% as long. That will, at least, shorten the traffic jams to which the nano will contribute. Congestion could be a big problem, if millions more cars are to take to the roads. The country's poor-quality road network is slowly improving, but it is heavily over-used. With India's transport arteries already so badly clogged, a boom in sales of low-cost cars could bring about a seizure.

Commuting in India’s cities can be both cosy and deadly. Children squeeze snugly between father at the handlebars of a motorcycle, and mother riding side-saddle at the back. This precarious balancing act, says Mr Tata was the “visual target” he had in mind when he first conceived of the need “to create another form of transport”. About 1,800 people die on Delhi’s roads each year, perhaps one-third of them on two-wheelers. Only 5% die in cars. Tata’s project may pose risks for investors, but it promises unaccustomed safety for customers.