The big impact of small cars

Suddenly everyone in the world, from New York to Nagasaki, know what a lakh is. In an economic world used to the numerical lexicon of metric millions, the term lakh has suddenly gained currency. All thanks to Ratan Tata's ‘one-lakh’ car, the Nano. Reams of newsprint have been devoted to the nuts and bolts of this new car.

The fact is this. The small car is not big news because it’s the cheapest car in the world. This car is not designed around cheap parts or cheap labour. This car brings into focus India’s engineering and design skills, management systems and a new business strategy. This is a showcase of India’s business capabilities and not cheap Indian resources.

Tata looks beyond Tata

One of the key factors in Tata pulling off the price challenge has been its active partnership with its vendors. More than 80 percent of the car is outsourced. Tata has tapped into the knowledge base and resources of its suppliers for solutions rather than try and invent the wheel all by itself.

A number of solutions have come from these suppliers as well. For example, the Nano uses a tailor-made fuel injection system from Bosch. A low-cost version of their full-fledged Motronic system, this version, called Value Motronic, uses a simple ECU with software that is especially tailored for this car. This customised setup allows Bosch to use comparatively basic electronic circuitry. Also heavily reduced are the numbers of sensors that relay information to the ECU. A normal Motronic system may have up to seven or eight sensors, but the Nano makes do with only four basic ones. Bosch cleverly uses intelligent software to predict the outcome of many eventualities. This system costs less than half of what a normal system does.

Lucas-TVS, the company that supplied the alternator and starter motor for the Nano, like other suppliers, had to take a fresh approach in design to meet the demands of price, size and delivery time. The size of the components had to be reduced by 15 percent to accommodate them in the engine. The company had to develop a gear reduction start with a smaller diameter of 60mm and an alternator of shorter length to give 40 amp power for the AC version and 70 amp for the non-AC version.

The fact that Tata Motors has applied for 34 different patents for the small car itself speaks of the innovation that went into the creation of the Nano. The innovations that auto component manufacturers associated with the project have had to adopt has shot the Indian auto component industry onto the global radar. With the automotive industry across the world looking to cut costs, India is now being expected to cater to the growing need of auto components at competitive rates. High-value orders for auto component units are expected to follow the entry of Nano into the market.

The agenda for the vendors supplying components to engine was to integrate components and systems during the design stage itself so as to optimise cost, space and weight, without compromising on efficiency.

Tata Motors' partnership with its suppliers does not end with the design and supply. To optimise logistics in this high-volume venture, the company asked its suppliers to move closer to the manufacturing plant. Fifty-five auto component makers, including 54 from outside West Bengal, will set up auto component manufacturing facilities in the vicinity of the Tata Motors’ small car plant at Singur.

New business model

The Tata Nano is not just a car but a new business model. The way the car is going to be built and sold is a paradigm shift from current models. Tata will produce all the mass items and ship them as kits to assembly plants across the country. These would be low-cost, low break-even plants that any entrepreneur can buy and establish an assembly operation. Since quality control is critical, specially trained personnel would oversee these entrepreneurs. This business model would help Tata penetrate into the remotest part of the country, while creating a new line of business.

Most importantly, Tata has caught the attention and fired the imagination of the automotive world. Some carmakers have publicly attacked the car. Others are burning the midnight oil to develop concepts of their own.

Bajaj too catches the small car bug

Back home, Bajaj Auto has thrown in its hat into the ring. The company unveiled its concept two days before the Tata Nano. The concept car is not the one Bajaj Auto is going to eventually produce. This was essentially a concept, a statement of intent from the two-wheeler giant that it plans to go headlong into the car business.

While Tata’s Nano and Bajaj’s concept share a focus on affordable transportation, there are many differences in the way they approach the problem. Rajiv Bajaj has a different economic philosophy in mind for his future car. And this philosophy does not start off with a one-lakh rupees price benchmark. His key word is total cost of ownership.

With easy finance available from banks, the monthly EMI only accounts for a third of the total cost of ownership. Fuel and maintenance account for the rest of the monthly cost of ownership. While the price of cost goes down as time passes and the price of fuel continues to go up. Since fuel cost has a greater bearing on the cost of ownership than the cost of the car itself, Bajaj believes that doubling fuel economy is far more important than halving the price.

Bajaj is confident about offering stunning fuel efficiency and is looking for a figure of over 30kpl. It might seem like an ambitious target but Bajaj has said that they will be offering some breakthrough technology that will make that figure achievable. Skeptics will do well to remember that Carlos Ghosn, the Renault-Nissan chief, picked Bajaj to bring in the ‘frugal engineering’ a buzzword bandied about by him on the Indian auto industry’s capabilities. Another advantage that Bajaj enjoys is its experience as a bikemaker that is great for cost efficiencies. At the core of it are again, like Tata, the company’s suppliers. Traditionally bike suppliers operate on a value-added pricing mechanism, which is cost plus margin. If Bajaj can upgrade its vendor base from two-wheelers to four, it’ll enjoy a cost efficiency that carmakers have to negotiate hard to win.

Bajaj has another strategy to expand its pie. This platform will spawn both a passenger car and a commercial vehicle. While the commercial version will share the mechanical underpinnings with the car, it will have a ladder-chassis construction as against the car’s monocoque design. The company hopes to launch its ‘Lite’ commercial vehicles in 2009 from the new Chakan plant. It will be offered in different body frames for various application — open-bodied pick-up van, close-bodied delivery van, soft drink, gas cylinder carriers etc.

Bajaj Auto is leaving no technology unturned to make its car to a reality but its not going to be easy. The company has no experience with monocoques and the complex task of manufacturing the ‘body-in-white (BIW) is where it will lean heavily on its alliance with Renault and Nissan. Bajaj will lead the product development with support from Renault and Nissan. On the other hand, Renault and Nissan will bring much- needed manufacturing experience. Bajaj’s tie-up with Renault and Nissan is a “three-way exclusive global alliance to market this car”. Bajaj’s low-cost expertise and Renault-Nissan’s experience in the car business could be a winning challenge. Two companies, one goal, two different ways to get there. And this is just the beginning. What is sure is that the Tata Nano has sparked off not just a whole new class of cars but a whole new way of thinking about cars.