TATA NANO

End Chapter Case: Tata Motors: Launch of People’s Car in India

Mr Ratan Tata made an announcement that Tata Motors is going to launch its

dream one lakh rupees car in the year 2008. By this time the company will be

able to complete it’s styling and test the prototypes on the road. He is of the

opinion that the launch of the car would create a new paradigm in low cost

personal transport, carve out a new market segment and reach a broader base of

the customer pyramid. Mr Ravikant, managing Director, Tata Motors said that the

styling and designing of the car have been completed and prototypes are being

tested in the plant. The product will feature a rear engine, 4-5 seat, four door car

with about a 30 horsepower engine. The company is planning to locate the

manufacturing plant near Kolkata. Tata Motors has already finalized a Rs.1, 000

crore plant at Singur in West Bengal for the manufacture of People’s Car.

Tata Motors is India’s largest bus and truck maker and it will invest about

Rs10 billion ($220 million) in the plant which will initially employ about 2000

people and provide jobs to another 10,000 component and service providers. The

car will cost less than Rs 100,000 ($2,200). This price is less that half that of a

basic car from market leader Maruti. This will make millions of Indians to have

their own car otherwise they would have settled down with a scooter or

motorcycle. The capacity of the plant spread over 700 acres with an additional

three hundred acres for suppliers have not yet been decided. Tata Motors have

also another plan to look at small satellite units owned by local entrepreneurs to

assemble cars.

Mr. Ravikant, Managing Director, Tata Motors agrees with the market survey

report tabled in the last board meeting. Rising fuel costs have added strain on the

automobile industry in both commercial vehicle and passenger car segment.

There is a growing market demand for fuel-efficient engine and such a situation

will spur the development of alternative fuels and energy sources for vehicles of

future. Tata Motors is exploring various new technologies to meet the new

challenges arising spiraling energy costs. The car will be made using more

plastic, rather than steel and also use some of the modern adhesives instead of

welding to help cut costs. But there are apprehensions in the air. Such product

propositions have prompted questions on safety and environmental standards

from analysts and rivals. The head of Maruti Suzuki Limited, which is the largest

carmaker in the country, has also raised questions on strength and safety of the

car in Indian road conditions. Small car make up more than three quarters of

India’s passenger vehicle markets. The product is only tested in factory

conditions and he has only two years to launch the product successfully in Indian

market. Mr. Dubey collected a piece of paper and started jolting down the

emerging challenges from the current state of the project and plans to develop a

suitable plan to take the project forward.

Tata Motors Limited Tata Motors Limited is India's largest automobile company, with revenues of

Rs.27266.41 crores (USD 1.096 billion) in 2005-06. The company has made a

net profit of $249.4 million (37% on YOY growth). It is the leader by far in

commercial vehicles in each segment, and the second largest in the passenger

vehicles market with winning products in the compact, midsize car and utility

vehicle segments. The company is the world's fifth largest medium and heavy

commercial vehicle manufacturer. The company's 22,000 employees are guided

by the vision to be “best in the manner in which we operate, best in the products

we deliver, and best in our value system and ethics.” It is redefining industry

structures and practices and setting new standards. It recently entered into a

partnership with fiat to share its dealer networks

Tata Company was established in 1874 with promotion of a single textile mill.

Jamshetji Tata built this vast empire with his vision of encouraging India’s intellectual

and industrial capital. The house of Tata’s is engaged in the development of steel,

hydroelectric power, modern manufacturing methods, telecommunications, technical

education and research. Tata Sons is the promoter company for many large Tata

companies. Tata companies became legally independent under the dismantling of

the managing agency system in 1970. During 1970s, the company and management

got accustomed to operate and grow within the strict government regulatory

environment. Among the notable Tata companies are Tata Engineering and

Locomotive Company (TELCO), Tata Iron and Steel Company (TISCO), Tata Power,

Tata Motors, Associated Cement Companies (ACC), Tata Chemicals, Tata Tea,

Titan Industries and Indian Hotels.

Tata Engineering and Locomotive Company was incorporated in 1954 to

manufacture diesel vehicles for commercial use, excavators, industrial saunters,

dumpers, heavy forgings and machine tools. J. R. D. Tata (1945-1973), and Sumand

Moolgaokar, Chairman (1973-1988) led out the road map for their entry into

automobile business by sensing the boom in the automobile industry and set up the

second factory in Pune. The company has evolved to become a fully integrated

automobile manufacturer from that of a truck manufacturer. Tata Motors Limited is

the largest commercial vehicle manufacturer in India and one of the top three players

in the passenger vehicle segment. It was established in 1945 to make steam

locomotives. It tied up with Daimler-Benz in 1954 to produce commercial vehicles

and later manufactured the same as an independent unit from 1969. Its plants are

located in Pune, Jamshedpur and Lucknow. From a net loss of Rs. 5 billion in FY 01

to a profit of Rs 8.1 billion in FY 04, the company has evolved as a big player in the

league of commercial and passenger vehicles in the world. It has recently acquired

the commercial vehicle division of Daewoo Motors. The company manufactures

heavy commercial vehicles (HCV), light commercial vehicles (LCV), passenger cars

and multi-utility vehicles.

History of Tata Motors at a Glance

1946

Tata Engineering undertook manufacture of 5000 'KC' broad gauge open

wagons for the Indian Railway

1948 Steam Road Roller introduced in collaboration with Marshal Sons (UK)

1950

Collaboration signed with Krauss-Maffei, W. Germany for manufacture of

steam locomotives

1954

Collaboration with Daimler -Benz AG, W.Germany, to manufacture medium

sized commercial vehicles at Jamshedpur.

1959

Research and Development Center set up at Jamshedpur

1960 The company's name, which was Tata Locomotive & Engineering Company

Ltd. was changed to Tata Engineering & Locomotive Company Ltd.

1961

Exports begin with the first truck shipped to Sri Lanka.

1966

Engineering Research Center set up at Pune to provide impetus to

automobile Research and Development.

1968

Vehicle manufacture facilities steadily built up at Pune. Collaboration with

Hueller Hille Gmbh, W. Germany, for the manufacture of unit construction

special purpose machines.

1971

Introduction of DI engines.

1972 The company sold know-how to Tata Precision Industries Pvt. Ltd in Singapore for the design and production of machinery and tools.

1977

First commercial vehicle manufactured in Pune

1983

The company issued 15% secured non-convertible debentures of Rs.100 each aggregating to 30 crores in order to augment the long-term funds for working capital requirements and to meet the capital expenditure on its modernization and replacement program. Manufacturing of Heavy Commercial Vehicle commences.

1984 The Govt. approval received for increasing the vehicle manufacturing capacity

to 35,520 vehicles per annum thereby bringing the total licensed capacity to 78,000 vehicles. Collaboration with Hitachi Construction Machinery Co. Ltd. Japan, to manufacture hydraulic excavators. Capacity expansion at Pune.

1985

First hydraulic excavator produced with Hitachi collaboration.

1986

Production of first light commercial vehicle, Tata 407, indigenously designed, followed by Tata 608.

1988

The Tata mobile pick up entirely designed and engineered by Telco was launched in July 1988. Test facilities such as specially constructed gradient track to check the climbing capability of vehicles and their ability to start on an incline was added to the Engineering Research Center at Pune. The company negotiated with Daimler-Benz for manufacturing their World Concept Truck in India. These vehicles were to be marketed overseas by Daimler-Benz under their brand, which would lead to technological up gradation of the existing range of vehicles in India.

1989 The company acquired 25% of the market share in the light commercial vehicles. The company signed an agreement with Hitachi Construction

Machinery Co. Ltd. Japan for the manufacture of a more advanced series of hydraulic excavators i.e. `EX' series. The Company entered into an agreement with Cummins Engine Company Inc. USA for forming a 50-50% joint venture to produce fuel-efficient engines with low-commission characteristics for powering the Company's range of Medium/heavy vehicles. Introduction of the Tata mobile 206 - 3rd LCV model

1990

A new model of earthmoving equipment the TWK-3036 Tata Front End Wheel Loader was introduced.

1991 The company entered into a collaborative agreement with an internationally renowned engine research and development organization to jointly develop higher horsepower, fuel-efficient diesel and petrol engines to meet the future requirements of the company.

The company launched two new passenger vehicles, the SIERRA and the ESTATE totally designed and manufactured in India. The company acquired a BIFR company, Noduron Founders Maharashtra Ltd. The company launched a new earth moving equipment TWK-3036 Tata Front End Wheel Loader. Two new models in the EX series of hydraulic excavators were launched.

A 10 tonne pick and carry articulated crane, designed and developed in-house was also introduced. One millionth vehicle rolled out.

1992

With the help of Hitachi Construction Machinery Co. Ltd., EX-400 model Hydraulic excavator was introduced during the year.

The Company undertook to establish a joint venture with Mercedes-Benz to manufacture automobile products for sale in India and to meet the needs of export markets. The project also included the possibility of manufacture of a Mercedes Benz passenger car for the domestic and foreign markets. Mercedes-Benz India Pvt. Ltd. was incorporated on November 1994, which commenced initial assembly of cars in March 1995.

During the year company entered into an agreement with Nachi-Fujikoshi Corporation, Japan to manufacture arc and spot welding robots suitable for automobile manufacturing applications. During the year, company undertook to set up a joint venture with Asian Glass Co. Ltd., Japan to manufacture float glass to be used as windshields for automobiles.

1993

During the year company introduced the Tata full forward 609 LP bus and Tata 609 SFC semi forward version.

Tata vehicles launched in Argentina Chill, Paraguay etc. Joint Venture Agreement signed with Cummins Engine Co. Inc. to manufacture high horsepower and emission-friendly diesel engines for medium and heavy commercial vehicles.

1994

During the year, company introduced the Tata SUMO and LPT 709. The company developed a new fuel injected, 4-cylinder petrol engine with the assistance of AVL Austria.

An agreement was entered into between Daimler-Benz AG and Mercedes

Benz India to manufacture `E' Class paneyer cars and engines in India. The project is to be located at near Telco's factory in Pune with capacity to manufacture 20,000 cars and 30,000 engines.

The Company successfully launched high performance, low emission and fuel-efficient medium commercial vehicles with Cummins engines in Kuwait, Kenya, Zambia and Ghana.

Taking advantage of the broad banding policy announced by the Government of India, the Company entered into a collaboration agreement with Honda Motor Co. Ltd., Japan, for the manufacture of their `ACCORD' model of cars in India.

A shovel version of model EX 300 LC was introduced. A 6 tonne mini excavator was launched. Joint venture agreement signed with Tata Holset Ltd., UK for manufacturing turbochargers to be used on Cummins engines.

1995 During the year a new double pick-up and Army Version of various Telco Vehicles were developed. A 25 tonne 6 X 2 truck and a bus with Cummins engine launched.

Tata Engineering and Locomotive Company (TELCO), acquired a second hand paint shop, machine line and cylinders from the Australian unit of the Japanese auto giant, Nissan. During the year a machine tool division was expanded to double its machine building capacity and significantly reduce production times. Mercedes Benz car E220 launched.

1996

TELCO has decided to launch a new indigenous family car, by the middle of 1996. The company seeks to manufacture a 900cc engine car that would cater to the domestic as well as the export market.

The company introduced the 70-tonne Tata-Hitachi Ex-700 Shovel, the largest in the value of Ex series of hydraulic excavation fielded by Telco. Also, a back-hoc version of Ex-400 model was launched and the Ex-300 LC model was specially modified for use in granite mining operations.

The Company has launched "Tata Safari" in its Multi utility vehicle segment. Tata Holset's turbo charger plant inaugurated on November 25, 1996. Tata Sumo deluxe was also launched.

1997

TELCO emerged as number one in the Review 200 survey conducted by the Far Eastern Economic Review in association with Citi Bank. Telco decides to install an electronic data interchange (EDI) network that will connect the Telco plants, with its vendors.

Telco became the first Indian private company to reach the sales of Rs.10, 000 crore. Telco has entered into an alliance with Bridgestone to promote a new company, in which Bridgestone will hold a 51 per cent equity stake, to manufacture automotive tyre. The company will set up a unit with a capacity of 1.5-lakh per annum. The proposed plant will be part of a comprehensive facility that will have flexible lines capable of manufacturing the small car, the Sumo and other models.

The agreement with Le Moteur Moderne is for the development of diesel and petrol engines for its passenger cars. The Karnataka plant is being set up to build special purpose and heavy-duty vehicles. Telco is showcasing its sports car `Telsport' 4X4 for the first time at the fourth Middle East International Show opening at Dubai.

Telco sport is TELCO's first entrant in the passenger vehicle segment to be followed by a five-door SUV in the later part of next year. Tata Industries Ltd (TIL) is setting up a 50:50 joint venture in alliance with Jardine International Motors Ltd (JIML) for establishing an automobile retail and after-sales service company which will operate dealerships for Telco passenger cars in certain cities in India

The Company introduced a 9-tonne vehicle that was well received in the market. A 40 tonne tractor-trailer powered by Tata Cummins Engineering was introduced.

The Company developed a low floor bus chassis to meet the specific needs of urban transport. Tata Sierra Turbo launched. 100,000th Tata Sumo rolled out

1998

Telco proposed to set up authorized service stations every 100 km on every highway. Telco proposed to commercially produce compact, efficient and economically viable vehicles, which use alternative fuels within the next two years. The Tata group has signed a joint venture with Jardine International Motor Mauritius (JIMM) to establish a passenger car dealership network in the country.

Telco announced a tie-up with Tata Finance Ltd and ANZ Grindlays Banks as the official financiers for its small car "Indica" to be launched in December. Telco is sold its construction equipment business into a new subsidiary company, Telco Construction Equipment Company Ltd.

The Company in its small car segment launched "Tata Indica" which evoked an overwhelming response in the Indian market.

A new range of Cummins engine-powered vehicles were introduced which included a 35 and a 40 tonne articulated truck and two variants of buses. Tata Safari - India's first sports utility vehicle launched. 2 millionth vehicles rolled out.

1999 Telco is the first Indian manufacturer to offer commercial vehicles meeting Euro-I emission norms, a year before they are due to be introduced in the country. In Oct 1999, the Company won the National award for R&D Efforts in Development of Indigenous Technology in the Mechanical Engineering Industries Sector instituted by Department of Scientific and Industrial Research, Ministry of Science and Technology for the year 1999.

SKF Bearings India Ltd signed an agreement with Telco to supply hub bearings for its latest model Tata Indica. Telco presently has a joint venture with Daimler-Chrysler in India, Mercedes Benz India, which manufactures the top-of-the-line Rs 26 lakh-plus Mercedes Benz E Class. Telco has reduced its

stake in the venture to around 14 per cent.

Tata Technologies, a Telco subsidiary, has launched a value chain management (VCM) system designed to enable value-based interaction between business partners and manufacturers. Machine Tools and Growth Divisions, Axle Division and Transmission Division of Tata Engineering transferred to newly formed subsidiaries Telco Automation Ltd., HV Axles Ltd. 115,000 bookings for Indica registered against full payment within a week. Commercial production of Indica commences in full swing.

2000 The Company launched the Indica 2000, the Euro II Complaint, 75 BHP multi-point fuel injection (MPFI) version. The Company has won the National Technology Award for indigenous development and commercialization of the Tata Indica car. The Company shut down its commercial vehicles assembling unit at Lucknow following persistent labor problems.

Telco decided to defer the launch of its mid-sized passenger car, Magna, to around June 2002.

Tata Engineering & Locomotive Co. is renamed as Tata Engineering Ltd. It has replaced its three-shift production line with a one-shift daily schedule starting from 26th June.

The company launched a program `Super bazar' for owners of commercial vehicles whereby they can get their vehicles evaluated on the spot as to present value and investment required for up gradation. The company appointed ICICI as a preferred financier for customers buying its range of vehicles, including the Indica.

ICRA revised the rating assigned to the Rs 600-crore long-term NCD programs of auto major Telco from `LAAA', indicating highest safety to `LAA+' indicating high safety.

FICCI-SEDF- Business world-Compaq award for social responsiveness was awarded to the company. The Central Pollution Control Board for Environmental Technology award was presented to Tata Engineering in recognition of its contribution towards efforts to conserve the environment.

TELCO closed down its unit for maintenance for seven days from 27th November for the first time in its 47-year history. Tata Engineering has joined hands with Daimler-Chrysler, the world's third largest auto conglomerate, forming a consortium to bid for an order of 60,000 light commercial vehicles from the South African government.

First consignment of 160 Indicas shipped to Malta. Utility vehicles with Bharat 2 (Euro II) compliant engine launched.

Launch of CNG buses. Launch of 1109 vehicle - Intermediate commercial vehicle.

2001 Tata Engineering decided to go in for a strategic alliance with world leaders of engines, gearboxes and axles. Telco and PSA Peugeot Citroen called off the

proposed venture for developing a mid-size passenger car. TATA Engineering announced the addition of MPFI petrol version to the Indica V2 range. 100,000th Indica wheeled out.

There was launch of CNG Indica, Tata Safari EX. Indica V2 becomes India's number one car in its segment. The company Exits joint venture with Daimler Chrysler

2002 Foreign Institutional Investors (FII) hike stake in the company to 13.34%. The company launches six new products in light, medium and heavy vehicles segments on Jan 15 during Auto Expo. The company displays its Tata Sedan car at the Geneva Motor Show.

Indica was adjudged top selling B-segment car in 2002. The company Launches two new motor sport cars (The Zero and Double Zero Pace cars). Tata Engineering and BPCL tie up to market co-branded lubricants. Telco names Sedan as Tata Indigo. It Unveils 'EX' series of medium and heavy commercial vehicles. I

Indica sales cross two-lakh mark. The company unveils the 207 DI, the first of its small commercial vehicles (SCV) in Maharashtra with a focus on the LCV segment. It launches new range of Tata Safari. It Acquires 5.91% stake in Tata Precision Industries Private Ltd., Singapore, taking the stake holding in the company to 49.99%. It floats division to develop used car market. The company releases medium size segment car Indigo in Andhra Pradesh.

Tata Engineering signed a product agreement with MG Rover of the UK. 2003

The company unveils Tata 207 DI in Andhra Pradesh. Telco's sedan debuts at the top of the C-segment sales. The company receives Teri's (The Energy and Resources Institute) Co RE-BCSD (Corporate roundtable on development of strategies for sustainable development and environment-business council for sustainable development) corporate social responsibility (CSR) awards for '01-02 . The company unveils Indigo Station Wagon at the Geneva Auto Show.

Standard & Poor's Ratings Services revises the outlook on its `BB-' rating for Tata Engineering to stable from negative. The company overtakes Hyundai in passenger vehicle market.

The company turns around, posts profit of Rs 300.11 crore as against the loss of Rs 53.73 crore the previous corresponding period.

Company name changed from Tata Engineering & Locomotive Company Ltd. (Telco) to Tata Motors Ltd. (TML) with effect from July 29, 2003.

The company unveils a customer care campaign called Project Vishwaas for its commercial customers across the country.

The company unveils City Rover. Tata Motors Ltd signed a binding Memorandum of Understanding (MoU) with Deawoo Commercial Vehicle

Company Ltd (DWCV), Korea for the acquisition of this company.

Introduces Tata SFC 407 EX Turbo Light Commercial Vehicle (LCV). Tata Safari ranks No 1 in MUV/SUV segment. 135 PS Tata Safari EXi Petrol launched

2004 Tata Motors launch an upgraded version Indica on January 15, 2004, in a bid to shore up sales of the small car.

Tata Motors introduces new 'Indicab' for tour operators. In a move to consolidate its presence in the light commercial vehicles segment, Tata Motors launches a new variant of its 407 series with increased pay load capacity called SFC 407EX. Tata Motors buys Daewoo truck unit for Rs 465 crore . Tata Motors unveils Tata SFC 407 EX in Kerala. Acquires Daewoo Commercial Vehicle Company Ltd (DWCV), Korea. Tata Motors launches new 6-tn truck. Tata Motors, the country's largest commercial vehicles manufacturer unveiled the new LPT 909EX Turbo Truck in Tamil Nadu.

Tata Motors and Tata Africa unveiled a range of passenger cars, utility vehicles, pick-ups, trucks and buses for the South African market. Tata Motors has launched a face lifted version of its multi-utility vehicle, Tata Sumo. Tata motors rolls out Tata SFC 407EX BS II turbo light commercial vehicle.

HR-training division of Tata Motors bags the prestigious and internationally recognized "Golden Peacock National Training Award" in the category of `Large Employer'. Tata Motors launches Indigo Marina on September 14, 2004. Indigo Advent unveiled at Geneva Motor Show.

Tata Daewoo Commercial Vehicle Co. Ltd. (TDCV) launches the heavy-duty truck ‘NOVUS’, in Korea. Sumo Victa launched.

Tata Motors lists on the NYSE. 2005

Tata Motors partners with IOC for bio-diesel pilot project. Tata Motors rolls out its 500,000th Passenger Vehicle. The Tata Xover unveiled at the 75th Geneva Motor Show. Branded buses and coaches - Starbus and Globus – launched. Tata Motors acquires 21% stake in Hispano Caracara SA, Spanish bus manufacturing Company. Tata Ace, India's first mini truck launched. Tata Motors wins JRD QV award for business excellence. The power packed Safari Dicor is launched. Introduction of Indigo SX series - luxury variant of Tata Indigo marks a new era. Tata Motors launches Indica V2 Turbo Diesel. Inauguration of new factory at Jamshedpur for Novus.

Tata TL 4X4 , India 's first Sports Utility Truck (SUT) is launched

Mr. Ravi Kant was very happy with the success story of Tata Motors and was quite

confidant that launch of people’s car will bring more success to the company. However, he

decided to take note of evolution of Indian Automobile Industry before really addressing the

challenge of the car launch in 2008

Indian Automobile Industry

Automobile industry in the country is a fast growing industry. Indian

automobile sector’s contribution to GDP is very low, when compared to other

industrialized countries. It contributes around 5% of the total industrial output in the

economy as against 15% in the developed countries. The total size of the automobile

industry in India is around Rs 850 billion. The commercial vehicle segment witnessed

buoyant market conditions due to strong economic growth, robust industrial growth,

low interest rates, developments in roads and other infrastructure, good agricultural

production, realignment of the industry and good replacement demand.

The passenger vehicle market sales volume including exports crossed one

million marks in 2004. This is a highly competitive market with thirteen players in

operation. Of the thirteen players, nine are the global majors and competes with the

market with over 55 models across nine segments. More than eighty percent of the

market is for vehicles below the value of Rs0.5 million. High disposable incomes,

frequent new product launches, lower interest rates, availability of vehicle loan, price

cuts and excise exemptions are the main drivers of growth in passenger vehicle

segment. The compact segment with a number of models by four players is the

largest segment in the passenger vehicle segment with the share of around 41%.

Taking with the mini segment, small cars constitute 60% of the total market. The

entry mid-size segment grew by nearly 47% in FY 04 and constitutes 12% of the

market.

Automobile Domestic Sales Trends

Automobile Domestic Sales Trends (In Nos)Category 2001-02 2002-03 2003-04 2004-05 2005-06M&HCVs 89999 115711 161395 198506 207446LCVs 56672 74971 98719 119924 143237Total CVs 146671 190682 260114 318430 350683Passenger Cars 509088 541491 696153 820179 882094Utility Vehicles 104253 113620 146388 176360 194577MPVs 61775 52087 59555 65033 66366Total Passenger Vehicles 675116 707198 902096 1061572 1143037Scooters 908268 825648 886295 922428 908159Motorcycles 2887194 3647493 4170445 4964753 5815417

Mopeds 408263 338985 307509 322584 332741Total Two Wheelers 4203725 4812126 5364249 6209765 7056317Three Wheelers 200276 231529 284078 307862 360187Grand Total 5225788 5941535 6810537 7897629 8910224

The passenger vehicle segment in India is broadly divided into the following three

categories namely passenger cars, multi-purpose vehicles (MPVs) and utility

vehicles (UVs). The total market for passenger cars is around Rs. 300 billion and

accounts for approximately 35% share of the automobile market (by value). A total of

12,27,703 passenger vehicles were sold in the 2004-2005. 1,89,975 passenger

vehicles were exported in the fiscal year 2004-2005. The domestic passenger

vehicle industry grew by 17.4% during 2004-2005.The Society of Indian Automobile

Manufacturers (SIAM) mainly classifies the passenger car industry into the following

sub-segments based on the length of the automobile:

• A1: Mini — up to 3,400 mm.

• A2: Compact — from 3,401 mm to 4,000 mm.

• A3: Mid-size — from 4,001 mm to 4,500 mm.

• A4: Executive — from 4,501 mm to 4,700 mm.

• A5: Premium — from 4,701 to 5,000 mm.

• A6: Luxury — 5,001 mm and above.

The mini and the compact segments account for 80% of the market by

volume. The major players in the automobile industry are Maruti, Tata Motors, Ford,

Toyota, Honda, Mahindra and Mahindra, Hyundai etc. The compact car segment is

the largest segment in the passenger car industry accounting for more than 60

percent of the sales. In the commercial vehicle segment, the trend has seen a shift

towards light commercial vehicles from medium commercial vehicles. Sales of

Sports utility vehicles (SUV) are also picking up riding on the growing purchasing

poser and tastes of Indian upper middle class. India is fast becoming an export hub

for automobiles, with active contribution from all the segments. India is increasingly

becoming a sourcing base for auto majors seeking Completely Built-Up Units (CBU)

as well as outsourcing of components despite stiff competition from countries like

China and Mexico. Global automobile majors like Hyundai, Ford, Skoda, and Suzuki

have made India a manufacturing base for particular models of cars. Industry

estimates the global auto component industry to touch $1.9 trillion by 2015, of which

around 40 per cent ($700 billion) is potentially expected to be sourced from low cost

countries like India. Economic developments offer a great growth opportunity to

automobile industries.

Indian automobile industry has typical characteristics. The industry is cyclical

in nature. The auto industry is cyclical in nature and, hence goes through ups and

downs every few years. However, in India’s case, the cyclical trend is a secular one,

i.e. the cycle keeps moving upwards. In other words, it forms higher bases and

higher tops at every stage. Automobiles industry has a high correlation with

economic growth and therefore faces the risk of an adverse impact due to economic

downturn. The auto industry is capital intensive in nature, which proves to be an

entry barrier for potential players. The cost of setting up a plant varies depending on

the capacity, location among other factors. Though many state governments

welcome the setting up of big auto plants as they provide employment and growth.

They provide many economic incentives to attract this investment. A case in this

regard is the setting up of Tata small car plant in Kharagpur, West Bengal, with a

proposed investment of Rs. 1000 crores.

Product life cycles have shortened which makes it a technology intensive

industry, where constant up gradation, better techniques, body design, engines need

to be made from time to time. Many companies launch limited editions of a particular

model manufactured in limited numbers and priced higher, to offer the pride of

exclusive ownership. This is done to extend the life of a model a little bit more. The

industry is mainly oligopolistic in nature as there are only a few players in a particular

segment of the market. But now the trend is changing slowly with new international

players coming in and the competition level rising.

There is strong competition in select segments (such as compact and mid

size segments in passenger cars). These segments have the volumes, so are the

most competitive in the segment. Lot of Multinationals is present in the sector and

many new players are expected to enter the market. Most of the major global players

are present in India and a few more are expected, attracted as they are by the high

project growth and upgrading in buying. Financial strength assumes importance, as

high investments are required for building capacity and maintaining adequacy of

working capital. Access to distribution network is important in this industry. With

consumer preferences changing inter product substitution is taking place though not

at an alarming rate. Public transport is emerging as a major substitute as its service

quality is improving. A large number of automotive suppliers are present in the

country. Automotive players are rationalizing their vendor base to maintain

consistency. Though we have a large number of component manufacturers, we have

relatively few world-class suppliers.

The consumers are becoming increasing aware about various options available

in the market and are inherently price conscious. Increasing awareness among

consumers has raised expectations. Thus the ability to innovate is critical. Increased

amount of international travel has exposed Indians to world-class services and

products, and they are demanding that same level here. Product differentiation via

new features, improved performance and after sales services is important. Increased

competition has limited the pricing power of the manufacturers.

Indian automobile industry has its own strengths and weaknesses. It’s a rapidly

growing. The domestic market in India is growing at a rapid pace. It is growing into

one of the largest markets for small cars. India is known for low cost operations.

Labor is one of the cheapest in the world and highly skilled. But if one analyzes

Indian automobile industry, it is evident that not all segments are developed. Maruti

800 is the largest selling car in India and belongs to the mini segment. The Alto,

Wagon R, Zen, Santro belongs to the compact car segment and account for the

maximum volumes. Compared to this the mid-size, executive, premium segments

are relatively underdeveloped. The companies are also spending less in research

and development front. R&D and Technology spending in India is not as large as is

the case with some of the players’ abroad. Many companies have to rely on their

foreign partner’s capabilities in introducing new models. An exception is Tata Motors.

Asia is the fastest growing market in the world. Exports are proving to be a

lucrative avenue for carmakers. Additional volumes help in reducing fixed costs per

unit. The Government is encouraging investment in the Indian auto industry. In the

Auto Policy 2002, the Government set a vision to establish a globally competitive

automotive industry in India and to double its contribution to the economy by 2010. It

is improving the road infrastructure that will contribute to industry growth. There are

few emerging threats. China is the biggest threat to India as it is growing at a faster

pace and with cheaper cost of labor. For the automotive sector, regulatory norms are

gradually being made more stringent (Euro – 3 norms). Rising Oil prices may

depress the demand for vehicles going forward. This is because it is a key variable

and any increase in fuel prices may decrease usage and hence the demand for new

vehicles. Second hand vehicles are not far away from proving to be a threat to the

new ones. Slowly the second hand market is developing with the jumping in of

organized big players. Increasing use of public transport as it is becoming more

efficient and government efforts to promote public travel

Analysis of various key demand drivers suggest that launch of people car, will

help in building volumes and achieving the desired goal for the organization. One of

the key demand drivers is the increasing purchasing power of Indian consumer. It is

not just the willingness of a person but his ability to pay that determines demand. Per

capita income in India is low compared to most developed countries. This income is

rising and is driving demand for new cars. Many people are moving towards cities for

better prospects and better standard of living. Further, due to rapid development,

many districts are becoming towns and towns are becoming cities. This is improving

the demand and widening the potential client base

The equated monthly installments (EMI) have reduced and the loans are

available for longer tenures. Procedures have become hassle free; a salary

certificate and residence proof gets one a loan. Besides, there are a number of

choices and options to choose from. Depending on ones need, a long term or a short

term, a floating rate or fixed rate loan can be availed from banks and other financials

institutions.

Prior to 2002, the Government had imposed certain criteria’s that needed to be

complied with by automakers. With the sanction of the New Auto Policy in March

2002, local content requirements and export obligations, imposed earlier, were

scrapped and minimum investment requirements were diluted. Moreover, excise

duty on passenger cars was reduced and import duties on auto components was

lowered. These changes helped in bringing down the price of cars and helped the

automobile sector.

The small car owners with higher incomes and reducing prices will upgrade

themselves to the mid-size segment cars and many of the mid-size car owners in

turn will move into the premium category. There will also be cross demand for the

utility vehicle segment. The average holding period in India, over the years, has

shrunk from 7-8 years to 3-4 years. Any rise in the cost of petrol and diesel fuels will

affect the buyer’s decision.

The quality and easy accessibility of roads are the major factors influencing auto

demand. When accessibility by roads increases traveling becomes convenient and

hence there is an increase in potential vehicle buyers. Further, quality of roads is a

major factor. Better quality roads induce potential customers into actual user,

bringing down the maintenance cost considerably. The Golden Quadrangle Project

and improvement in National and State highways is also fueling the demand for

bigger and better cars, as people can now travel at high speed in these highways.

Previously many families owned just one car, now the hectic and independent

lifestyle has forced many families to have multiple vehicles, to satisfy the

requirement of each family member. E.g. in a upper middle class Family with

Grandparents + Working Couple + Teenage Kids there may be as many as 3 cars.

Key Success Factors in Indian Automobile Industry

Analysis of Indian automobile industry revels various factors for success in

business. A company in today’s scenario needs to have a presence in most

segments, if not all. This ensures that it retains its customer when he upgrades his

vehicles. This is governed by the philosophy of customer life cycle revenues rather

than just product life cycle revenues.

Being a capital-intensive industry, the fixed cost component is very high.

Hence, volumes are absolutely essential for lower fixed cost per unit. Many of the

players are concentrating in the lower end of the market due to the volume constraint

at the higher end. Due to intense competition, margins of auto companies have

come under pressure. There is a huge emphasis on cost reduction to maintain

margins. Many players have initiated steps in cost reduction by entering into

agreements with their vendors, entering into forward contracts for materials and so

on. Earlier, dealerships used to be mainly in the big cities from where bulk of the

demand was generated. However, now demand for vehicles has started flowing in

from semi-urban areas as well. To serve this segment of the population companies

need to establish integrated dealership networks in these places as well.

Tata Motor’s Successful Strategy in Indian Market

Tata Motors is one of the few successful stories in Indian automobile sector

where the company has done a turn around in just two years of time. What has

made Tata motors a successful story? There are various reasons for this success.

Speed to entry in the market, continuous up-gradation in models, expenditure in

research and development and various other factors have contributed to the success

of Tata Motors.

Superior Stakeholder Satisfaction is the primary reason for its success. Tata’s

in Indian industry are synonymous to trust. They have built this by continuously

focusing towards customer needs and continuously coming up with new, innovative

and high quality products to meet customer expectations.

Since the volumes are driven at lower end of the market, the company is on a

process of strategic soothsaying. In the current scenario, Tata motors is laboriously

working towards an under Rs.100000 cost car which it’s rivals think is not possible.

This shows their strategic inclination towards strategic soothsaying. The current

project of people car is an endeavor towards this goa, which is the second dream of

Mr. Ratan Tata, after Indica

Tata motors designed and launched the first indigenously manufactured car –

Indica in a period of just 31 months at a development cost of Rs. 206 crores, which is

less than the time taken internationally during that period, the investment is higher at

$800million (Rs. 2800 crores @ Rs.35 per dollar) which shows their intent for speed

and economy of launching a product in Indian market.

The company has always positioned for surprise. Indica created a totally new

segment of diesel cars in its segment. Previously nobody had anticipated that a

diesel car could be so successful in that segment. Shifting the rules of the game is

one of the key intent for Tata Motors. Designing and launching a diesel car, when the

market was completely captured by petrol cars shifted the rules of the game in one

stroke. Now people had the opportunity of owning a decent diesel car that was

comfortable as it was economical to drive. Diesel was no longer a dirty word. So

launching a people’s car around 100,000 is another shift in the rule of the game.

Tata, first with Indica and now with Rs. 1 lac small car, has always signaled

the market with its intent boldly. This has left competitors scurrying for cover and

intent to develop new products. Tata has followed a consistent strategy in

establishing its passenger operations. They started with developing and launching

the Indica, which had the maximum probability to success against the market leader

Maruti’s mainstream product (800, Zen, Omni). Then they launched the Indigo,

based on Indica platform that hit the Maruti esteem category. Finally they hit with the

Indigo Marina that again an extension of Indica platform and extend the market to

beyond Maruti’s product range. The common platform drastically slashes the cost to

develop and produce the car, thus the BEP is less and pricing highly competitive. At

the same time they hit the Gypsy segment with first Sierra and now the Grand Vitara

with Safari Dicor.

The People’s Car Project

The People’s Car Project is the second big dream project of Mr Ratan Tata

after the launch of Indica car in Indian market. Tata Indica is a successful story in

Indian market. Tata Motors has always led the market by changing the rule of the

game. People’s car is one step in this direction. The company has been able to

complete it’s styling and test the prototype in the factory. The company is sure that

the launch of the new car would create a new paradigm in low cost personal

transport, carve out a new market segment and reach a broader base of the

customer pyramid. Mr Ravikant, managing Director, Tata Motors said that the styling

and designing of the car have been completed and prototypes are being tested in the

plant. The product will feature a rear engine, 4-5 seats and four-door car with about a

30 horsepower engine. The company is exploring various new technologies to meet

the challenges arising out of spiraling energy costs. The car will be made using more

plastic, rather than steel and also use some of the modern adhesives instead of

welding to help cut costs. But there are apprehensions in the air. Such product

propositions have prompted questions on safety and environmental standards from

analysts and rivals.

Mr. Ravikant has to take few decisions regarding the new car. Though the

prototype is ready, its features need to be tested and also one needs to identify

customer’s acceptance level. He categorized his decisions into three major

categories namely functional, structural and aesthetic characteristic testing

decisions. The functional characteristic decisions involve the benefits that the

consumer likely to obtain from the product. The development of new functional

characteristics challenges the technical skills of the research and development

center. Functional product features can be delivered in a variety of ways via various

structural characteristics. These include factors like size, shape, form color, material,

odor and tactile qualities. The range of options between these structural

characteristics is very large and the number of possible combinations is almost

endless. The aesthetic characteristics involve the actual design, shapes and colors

and the other less ornamental features which together help create an appealing

visually attractive and distinct product. All these three decisions are closely related. It

involves a combination of features, ingredients and components to be put together.

He thought it would be a good idea to come up with a research plan to test all the

three aspects of the new car before it is being launched.

A recent market survey conducted on Indian car owners has developed a list of

factors and features that customers look for which making a product decision.

Factors and Features that Constitute Them Factors Features

Everyday Driving For rough road driving Acceleration/Power Riding Comfort Ease of Handling Quietness Maneuverability in Traffic For long distance driving Safety Features Seating Comfort Towing Capacity

Passenger Comfort Passenger seating capacity As a family vehicle Interior Roominess For long distance vacations Seating Comfort Level of Luxury Riding Comfort

Quality/Durability Quality of Workmanship

Durability/reliability Quality of Materials Toughness/Ruggedness

Styling Interior Styling Design of Instrument Panel Ground Clearance Exterior Styling

Capacity Ability to carry large items Cargo capacity Towing capacity

Fuel Efficiency Fuel efficiency/ fuel economy

The company had earlier conducted a pilot research to test the product concept

over a small set of samples representing the target segment. The results of

content analysis reveals the following words used by the respondents in

response to the product concept.

Content Analysis of Product Concept Test Words/Phrases Mentioned Percentage of Mentions Fun 43 Goes Everywhere 37 Good 29 Economical 28 Pleasure 25 Practical 17 Reliable 12 Fantastic 9 Safe 3

The respondents were asked to give their ‘reason of buying’ for the proposed

concept car. The results of the same are presented in the table below.

Reasons for Purchasing the People’s Car Main Reason for the Purchase Percentage of Mentions Cost/ Reasonable Price 63 Good mileage/ Fuel saving 58 Ease of maintenance 56 Inexpensive/Low price 53 Traction/can go anywhere 49 Fun/Fun to drive 48 Ease of driving/handing/parking 44 Corporate brand name 37 Quality/well made 33 Suits to Indian city conditions 28

Reliable 17 Safe to drive 12

Tata Motors has some more challenges to tackle. Recently Tata’s have

entered into a partnership with Fiat to share their dealer’s network. The challenge will

be to maintain sales and avoid cannibalization between the two brands and convert

this opportunity into a win-win scenario. Tata Indica is under attack from it’s

competitors who have introduced new, contemporary, stylish and world class models

like Maruti Swift, Getz etc. The challenge is to continue building Indica brand by

upgrading it technologically and maintaining its position among the best cars in its

class. One of the key challenges Tata Motors now faces is replicating success

achieved by Indica with its Rs.100, 000 People’s Car project .A project in which it

has recently invested a huge amount. Now it needs to challenge its R & D

department to come out with such a low priced car.

One big problem with Tata’s is that they are still considered a truck

manufacturer and this has rub off effect on their passenger cars, which are much

heavier than contemporary competitor model. Indica is jokingly called as truck. The

challenge is to shed this image and project the image of a modern passenger

carmaker. The new petroleum policy envisages equating petrol and diesel prices in

the future. Since the USP and key advantage that Tata has about offering

functionally strong and cheaper vehicles, it needs to develop People’s Car as a

successful strategic initiative for the company. The diesel prices are likely to be

equated with petrol prices. Since this fuel difference will erode over a period of time,

challenge is to develop world-class diesel engines that are comparable in

performance to petrol engines. Also they need to develop superior petrol engines as

many people inherently buy petrol engine cars.

Mr. Ravikant was exploring the possibility of linking aspects of product design

with market survey results to find out the acceptability of the proposed car before

substantially investing in test marketing and new product launch. The product launch

is scheduled sometime in 2008 and he has roughly two years to test the features of

the proposed product, link with key customer expectations and then conduct a test

market in Indian market for long-term success of the dream car. He needs to develop

a route map for the same so that he can take necessary steps for a successful

product launch.

Exhibit-I

Installed Capacities in the Indian Automobile Industry

Source: SIAM

Exhibit-II Market Share for 2005-2006

Market Share for 2005-06

CVs 3.94

Total Passenger Vehicles 12.83

Total Two Wheelers 79.19

Three Wheelers 4.04

Source: SIAM

Exhibit- III

Turnover of Automobile Manufacturer

Turnover of Automobile Manufacturers Year (Rs.In Million)

1999-00 422,933

2000-01 492,024

2001-02 499,136

2002-03 595,184

2003-04 661,769

2004-05 835,851

Source: SIAM

Exhibit-IV

Installed Capacities in the Indian Automobile Industry 2003-04 2003-2004 2004-2005

Installed Capacity (In Million) Installed Capacity (In Million) a) Four Wheelers 1.51 a) Four Wheelers 1.72 b) Two &Three Wheelers 7.83 b) Two &Three Wheelers 9.13 c) Engines 0.18 c) Engines 0.18

Automobile Production Trends

Automobile Production Trends (In Nos)Category 2001-02 2002-03 2003-04 2004-05 2005-06 M&HCVs 96752 120502 166123 214807 219297 LCVs 65756 83195 108917 138896 171781 Total CVs 162508 203697 275040 353703 391078 Passenger Cars 500301 557410 782562 960487 1045881

Utility Vehicles 105667 114479 146325 182018 196371

MPVs 63751 51441 60673 67371 66661 Total Passenger Vehicels

669719 723330 989560 1209876 1308913

Scooters 937506 848434 935279 987498 1020013 Motorcycles 2906323 3876175 4355168 5193894 6201214 Mopeds 427498 351612 332294 348437 379574 Total Two Wheelers 4271327 5076221 5622741 6529829 7600801

Three Wheelers 212748 276719 356223 374445 434424

Grand Total 5316302 6279967 7243564 8467853 9735216

Source: SIAM

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