Small Cars Racing in Indian Auto Sector

Government has been loudly expressing its intensions to make India a manufacturing hub for small cars for a long time. However, the curtain raiser Tata Motors’ ‘Nano‘ at Auto Expo 2008 in last January confirmed the candidacy of India as manufacturing hub for small car. And almost all the global carmakers accepted it. However, the better term for Nano class may be ‘ultra low cost’ car.

Japan had been the pioneer in small cars. Almost, all the major carmakers had a small car. As my professional assignment, I had interacted with most of them. I specially had liking for mini Pajero of Mitsubishi. But the Japanese small cars were extremely high-tech with many features such as turbocharged multi-valves engine and all safety features, and not cheaply priced and trimmed versions, as it came to be known in India with the launch of Maruti 800 in early 80s.

Nano is on the pattern of Japanese manufacturing philosophy. It will be safe and have all features. The reduction of cost and so the price is through design, materials, manufacturing, and distribution related innovations. The story of Nano is really exhilarating with many young men putting their best to give shape to the dream of an aging and respected boss. The whole concept made an impressive impact and change of mind in the auto industry about the capability of the Indian designers and managers.

‘Nano’mania is spreading and many in auto sector don’t wish to lose the opportunity. While Tata Motors is fighting with its time schedule for Nano’s market launch in late October, Carlos Ghosn, president and CEO of Nissan, has already announced Nissan’s intention to go solo and “compete in the entry-car with a dedicated platform that will be used for at least three models built in five leading competitive countries (LCCs), the first of which will be produced in Thailand and India in early 2010.” This is in addition to the low-cost $2500 car in partnership with Bajaj Auto. Nissan and Renault are allying for ultra-low-cost car, being developed with Bajaj and are planned to be launched in 2011.

And there is a flood of media reports from other automakers. Hyundai, Honda, Toyota, and even GM intend to enter in Indian small car market.

While Nissan will have its own manufacturing plant in Chennai, the joint venture with Bajaj Auto is located in Chakan, Maharashtra, where Bajaj Auto is already having its manufacturing facility. Nissan intends to manufacture its entry model with a very high percentage of localization. It is significant as it proves the capability of Indian auto components sector to supply the quality and number demanded by the global majors.

But the main thing to watch in coming months is the market reaction for ‘Nano’. While a pressure for price increase by its vendors may increase its price marginally by the time it hits market, the management is hell bent with all the teams working on the project for reducing the cost further with innovative inputs.

But it is not known whether Nano, or for that matter even Bajaj Auto’s ultra low cost car, will become more popular as a second car in the family with bigger cars, or fulfill one of the main aspirations of lower middle class as cheap entry car. With the increasing road connectivity of rural India, I personally wish it reached to the aspiring young men like my cousin Alok in villages, where it can be sparingly used only when required and not for creating traffic jams in already crowded metro.

It depends on the strength and strategy plans of Tata Motors if it wishes to make Nano an Indian vehicle of aspiring lower middle class globally over a period before the competition wins it over with better products.

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