Driving Toward The $2,200 Car
By Alam Srinivas

(Business 2.0) – India has 60 million vehicles on the road, 70 percent of which are scooters, mopeds, or motorcycles. Of its 7.6 million passenger cars, most are at least four years old. Now India's burgeoning middle class is itching to trade up. For automakers, that means big opportunity. And if their strategies to expand car ownership prove successful in India, similar techniques may also work in developing economies like Indonesia, Malaysia, and Vietnam.

Price is the key. Motorbikes and scooters in India retail for a relatively affordable $600 to $1,500. But most cars go for at least $4,500--one reason so few are sold. Local automakers are racing to create cars that would retail for 100,000 rupees--roughly $2,200, or just half as much as the lowest-priced models sold today. At that magic price point, the reasoning goes, sales could double from last year's total of 900,000 vehicles.

Tata Motors, India's second-largest automaker, is expected to be first off the drawing boards with its entry. The company should finalize plans by the end of this year for a four-seat hatchback powered by a 600cc two-cylinder engine. To hit its target price, Tata's as-yet-unnamed vehicle will be homegrown and made mostly of low-cost local materials. To pare manufacturing costs, the vehicles will probably come off the line in kit form to be assembled in rural factories. Other cost-cutting options under consideration include using thermoplastics for certain parts that are usually made of metal and replacing nuts and bolts with adhesives wherever possible.

One thing is sure: The $2,200 car won't be confused with a luxury model. Forget amenities and good looks; Tata admits that passengers may find the car's ride noisy and its appearance ungainly.

Competitors are already lining up to take on Tata's ultracheap vehicles. General Motors's Indian subsidiary is considering a move into the market, perhaps by buying assets of bankrupt Daewoo Motors India and adapting Daewoo's Matiz minicar platform. India's Kirloskar Motors, allied with Toyota, is also said to be interested but has been tight-lipped about its plans. Conspicuously, however, Maruti Udyog, India's largest automaker, has no plans for a bargainmobile of its own.

The new ultracheap cars could begin arriving in Indian showrooms in four to five years. Don't expect to see any of them cruising down U.S. or European highways, however--industry analysts say Western consumers would never put up with such cheaply made vehicles. -- ALAM SRINIVAS