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 2005-06
M&HCVs 89999 115711 161395 198506 207446
LCVs 56672 74971 98719 119924 143237
Total CVs 146671 190682 260114 318430 350683
Passenger Cars 509088 541491 696153 820179 882094
Utility Vehicles 104253 113620 146388 176360 194577
MPVs 61775 52087 59555 65033 66366
Total Passenger Vehicles 675116 707198 902096 1061572 1143037
Scooters 908268 825648 886295 922428 908159
Motorcycles 2887194 3647493 4170445 4964753 5815417
 Mopeds 408263 338985 307509 322584 332741
Total Two Wheelers 4203725 4812126 5364249 6209765 7056317
Three Wheelers 200276 231529 284078 307862 360187
Grand 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

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

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
 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
500301 557410 782562 960487 1045881
Cars
Utility
105667 114479 146325 182018 196371
Vehicles
MPVs 63751 51441 60673 67371 66661
Total
Passenger 669719 723330 989560 1209876 1308913
Vehicels
Scooters 937506 848434 935279 987498 1020013
Motorcycles 2906323 3876175 4355168 5193894 6201214
Mopeds 427498 351612 332294 348437 379574
Total Two
4271327 5076221 5622741 6529829 7600801
Wheelers
Three
212748 276719 356223 374445 434424
Wheelers
Grand
5316302 6279967 7243564 8467853 9735216
Total

Source: SIAM

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