Clues to India's future prosperity can be found in Henry Ford's past
theglobeandmail.com
July 4, 2007
When Henry Ford's Ford Motor Co. introduced the Model T in 1908, it sold for $850 (U.S.), less than half the $2,000-$3,000 charged by competing auto makers. The Tin Lizzie (as it came to be known) was so successful that by the time the 10 millionth rolled off the assembly line, nine out of 10 cars roaming the roads of the world were made by Ford.
Next year, exactly a century later, India's Tata Motors hopes to repeat the trick when it brings out a no-frills car for the masses that will sell for about 100,000 rupees ($2,600 Canadian). That's one lakh in Indian terms of measurement, and the one-lakh car would be the cheapest by far, not only in India, but in the world.
Many in the auto industry doubt that mastermind Ratan Tata, head of one of India's biggest business empires, can keep the cost that low. But if he even comes close, he will have done for India what Ford did for the United States 100 years ago: Put the dream of car ownership within reach of the common people.
At present, most Indians get around by train, bus, motor scooter and three-wheeled auto rickshaw. Indians buy about 1.3 million passenger cars a year, less than Canadians, even though India's population is 36 times as big. But with India's economy growing at 8 or 9 per cent a year, the market is set to boom. One study estimated it will double within a decade. With a population of 1.1 billion, and a middle class expected to grow tenfold over the next two decades, India is a potential motherlode for car makers.
Rather than cater to the upwardly mobile "New Indians" who want a flashy car to advertise their success, Tata is aiming at the lowly striver who wants to get around while getting ahead. The cheapest competing car, Suzuki's Maruti 800, goes for more than $4,000.
But Tata's car wouldn't be a bucket of bolts like East Germany's infamous Trabant. If reports of the secretive project are correct, Tata's rear-engine one-lakh car would have four doors, a top speed of around 120 kilometres an hour and a 33-horsepower engine, but no power steering or air conditioning on the basic model.
No one knows what the creature will look like yet, but Mr. Tata trained as an architect and brought in Italian car designers for the project, so it is bound to be much more than a tin box on wheels. If it catches on, Tata hopes to sell them not just in India but in Africa, Latin America and other parts of Asia - wherever incomes are still relatively low but aspirations high.
Tata is not the only one to see the potential of a low-cost car for the developing world. Every important global car maker, from Toyota to Volkswagen to Peugeot, has plans to produce a low-cost people's car. Chrysler is working with China's Chery and General Motors is working with South Korea's GM Daewoo on no-frills models. Germany's Roland Berger Strategy Consultants predicted in a recent report that 18 million cars priced at less than $14,300 would be sold around the world annually by 2012, an increase of four million a year from the current figure.
Renault's Logan has already sold more than half a million of its basic Logan model, which made its debut at $7,600 in 2004. Now it plans to take on Tata by producing a new model that Renault-Nissan chief executive officer Carlos Ghosn hopes to sell for less than $3,000 and market in Asia, with low-cost India as the manufacturing base.
If it's smart, India could become a hub for the production of small, cheap cars for the world. It has low-cost labour in abundance, hordes of skilled engineering graduates and a growing number of inexpensive parts makers.
Tata honed its low-cost car-making skills with the Indica, a compact hatchback it sells in Europe, and the Ace, a small, sturdy truck that went on sale two years ago for $5,400 and became a huge hit with Indian drivers.
India's recent economic success has been founded to a large extent on supplying services like software development to wealthy overseas clients. Its future success may lie with supplying inexpensive, good-quality products and services to its own people, cutting costs through creative innovation. That was Henry Ford's trick, after all. |
