The action is in India
The hot news this week all seems to center on India.
Tata is scheduled to unveil their $2,500 car on Thursday of this week. In the meantime, Ford has just announced that it is spending $500 million on facilities in India that will build small cars. And, last but not least, Indian car maker Mahindra & Mahindra has pulled out of a billion dollar joint venture with Renault/Nissan which would have been aimed at building small cars, too.
The later report comes amidst reports that Mahindra is in talks with Chrysler, which may concern a joint venture with that company or even, possibly, an equity stake and cash infusion at Chrysler.
The new car from Tata, which has been the subject of rumors for several months (ever since Tata gained more mainstream visibility with its bid for Jaguar and Land Rover), is expected to skimp on both environmental and safety standards and would not, therefore, be able to meet U.S. or EU criteria. India’s own standards, however, become stiffer in 2010, and presumably the car is engineered to meet those requirements. Tata, however, is not particularly concerned with more strict standards in Europe and America. Tata is focusing on selling the car in India and other developing countries.
Power in the car is said to be very low – the engine is made by Bosch and has a displacement of less than a liter, with only about 35 hp source compared it to that of a lawn mower. The vehicle uses a continuously variable transmission to make the most of the available torque. Everything in the vehicle appears to have been engineered with cost-cutting foremost. The steering column, for example, is said to be hollowed out, saving both cost and weight. The car has no radio, air conditioning, or power accessories. Nor does it have air bags or anti-lock brakes. The wheel bearings are engineered to last, but only if the speed is kept under 45 mph.
Though the car itself won’t be eligible for sale in Western markets because no effort has been made to meet safety and emissions standards outside of India, the tighter standards which are already on the horizon in India suggest that future products targeted at the ultra-low price Indian market might be more easily modified for sale in developed countries.
There is no question that the car makers are looking at the Tata product as creating a market and that they don’t want to be locked out of that market. Ford has just announced that it is pumping half a billion dollars into India for plant and production facilities over the next two to three years. That money is targeted at production of a small car. Renault and Nissan wanted to do that, too, and had arranged a joint venture deal with India’s largest car maker, Mahindra, that involved a billion dollars, half from Renault/Nissan and half from Mahindra. According to published reports, Mahinda is now pulling back from that deal, though Renault and Nissan apparently are planning to continue. Meantime, though, Renault and Nissan have also joined in a joint venture with another Indian car maker, Bajaj Auto Ltd., to build a small car.
The break in the joint venture relationship with Nissan/Renault comes just as reports are surfacing that Mahindra is talking with Chrysler. Just exactly what they’re discussing is something neither company is revealing and, in fact, there may not be much to reveal. Chrysler is talking with just about everyone, right now. In particular, they’ve been looking for a small car platform that could be used as a foundation for Chrysler products, but without the expense and time of developing one from scratch.
The big question, however, is what will ultimately be the fate and significance of the new Tata.
In and of itself, the car creates serious social questions. For example: to what extent is it justifiable to produce cars which are less safe and pollute more just to make them cheaper and more available to people who otherwise could not afford a car? Why should developed countries shoulder the increased costs of reducing vehicle emissions if the developing countries are going to unleash fleets of cheap polluters?
Then there’s the nature of the car itself. As one observer put it, the new Tata costs about the same as the premium sound system in a Lexus. When cars hit that price level, does the car become a disposable commodity? The new Tata may be aimed at those with limited financial means, but the doctrine of unintended consequences says that things don’t always turn out as they were planned. Assuming that safety and emissions standards are met, what happens when cars at this price range are imported into America and Western Europe? Does it get to the point that people buy a car expecting to use it for a while and then replace it when it’s worn out, much like they do now with a coffee maker?
Everyone sees developing markets as the future of the auto industry. Either you are in these markets or you’re shut out of the future growth in the industry. General Motors, in particular, has been both nimble and successful in building its presence in China, from which it may be able to leapfrog into other emerging markets. But the established auto makers also face the challenge of competition from local manufacturers, companies who have been joint venture partners in the past but may soon become sufficiently advanced that they can stand on their own.
Moreover, these automakers may invade the Western home turf of the established car makers. Tata’s purchase of Jaguar and Land Rover seems to be made with exactly that intention.
The introduction of the new Tata on Thursday is only the beginning of the story.