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Case Title:

Tata Motors' Rs. One - Lakh Car Project: Opportunities & Challenges

Publication Year : 2006

Authors: Saravanan I B

Industry: Automobiles

Region:India

Case Code: CCA0039C

Teaching Note: Available

Structured Assignment: Not Available

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Abstract:

In May 2006, Tata Motors, India’s largest automobile company, announced its first plant to manufacture a small car costing approximately Rs.1 lakh, causing uproar in the Indian automobile industry. Ratan Tata (Exhibit I) said that the car would create a new paradigm in low-cost personal transport, carve out a new market segment and reach the broader base of the pyramid

Apart from kindling the interests of millions of future car owners in India, the Rs.1 lakh car project of Tata Motors initiated debates in the industry about the feasibility of such a low priced car and its conformity to the safety and emission standards. Established auto manufacturers felt that Tata Motors’ project was too ambitious when viewed against the inevitable price increase of steel and other raw materials in future. They also opined that it would be very challenging for the Tatas to retain the price tag. But Ratan Tata went ahead with the strategic alliance with Fiat Auto SpA, constructing an assembly plant in West Bengal and looking for never-before moves like using reengineered plastics and adhesives instead of welding metal components to keep the car light and affordable. Tata was confident that his one-lakh car would appeal to the masses, as did his Indica, and would sell in sufficient volumes

The engine for the small car project codenamed Project X3, was likely to be a Euro IV compliant, 30 – 35 bhp, 700cc petrol engine, The car would have 'continuously variable transmission (CVT) technology. Italian design house, IDEA, which worked with Tata Motors on Indica will be designing the aesthetic and aerodynamic model. The other cost-cutting measure related to the intensive use of plastics on the body of the car. Developers for the project were experimenting on carbon-fiber composites from renewable resources which would offer a strong but incredibly lightweight alternative. The company was considering 3-4 sites to produce the 'people's car', whose engines and power-train would be developed in-house. Tata was also reported to be in talks with the TVS, the Hero and the Kinetic Motor groups to co-invest in the assembly facilities in other locations. Tata Motors reasoned that by 2007, the launch year of small car, the top-end price for motorcycles would be Rs. 70,000 to Rs. 80,000. Hence, a car priced at Rs. 1 lakh would be a perfect and safer alternative. Tata also eyed the possibilities of exporting to south East Asian countries like Vietnam, Malaysia and Indonesia

As of 2006, the annual size of the global car market was around 50 million units, of which the Asian numbers, excluding Japan and Korea, might be under three million indicating the unsaturated nature of the car market in Asia. Added to this would be the market of the high priced two wheelers. A perfect entry price for these populous countries would be in the range of $2,000-3,000 which would open up these markets and buildup unprecedented volumes. While India had the engineering skills and innovative industry leadership, China could be a source for mass manufacturing. An alliance which synergizes these abilities could create opportunities dethroning Japan and Korea as automobile leaders in Asia. A huge market thus developed would have scope for not only Tata Motors, but other players from both the nations.

Pedagogical Objectives:

  • The Indian automobile industry
  • Tata Motors and its various products
  • Possibilities for a Rs. One lakh car in India
  • Various challenges such a car would face in the Indian market
  • Opportunities available for the car in India and markets abroad
  • Technologies and components going into car making

Keywords : Tata Motors; Rs. One lakh Car; Project X3; Indian Automobile Industry; Growth strategy of Carrefour in China; IDEA Designer for Tata Motors’ cars; Reengineered Plastics for interiors; Tata Motors plant; Singur; West Bengal; Two wheeler and Four wheeler Industry in India; Export possibilities for small cars; Small cars; Tata Ryerson and Tata Motorfinance; Core Competency & Competitive Advantage Case Study; Quadricycles; Aerodynamics and aesthetics in small car; Automobile consortium in India

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