Newsmaker: Ratan Tata
Under Ratan's guidance, Tata Consultancy Services went public, and Tata Motors was listed on the New York Stock Exchange. His dream was to manufacture a car costing approximately $2,200 — a dream that was realised with the launch of the Tata Nano at the New Delhi Auto Expo on Jan. 10. The car is expected to be sold to the public starting in December 2008. For more Newsmakers, please read the redesigned February issue of Aftermarket Business magazine.
The Tatas and you, in particular, are on the brink of realizing a long cherished ambition. Do you feel vindicated? Are you apprehensive?
There has always been some sort of unconscious urge to do something for the people of India and transport has been an area of interest. As urbanization gathers pace, personal transport has become a big issue, especially since mass transport is often not available or is of poor quality. Two-wheelers — with the father driving, the elder child standing in front and the wife behind holding a baby — is very much the norm in this country. In that form two-wheelers are a relatively unsafe mode of transporting a family. The two-wheeler image is what got me thinking that we needed to create a safer form of transport. My first doodle was to rebuild cars around the scooter, so that those using them could be safer if it fell. Could there be a four-wheel vehicle made of scooter parts? I got in touch with an industry association and suggested that we join forces and produce what, at that point, I called an Asian car: large volumes, many nations involved, maybe with different countries producing different sets of parts. Nobody took the idea seriously, nobody responded.
This was similar to what happened when we wanted to get going on the Indica. I had proposed a partnership with an industry body to create an Indian car, designed, developed and produced in India, something that could be conceptualized and executed as an Indian enterprise. Everybody scoffed at the concept. I remember people saying, “Why doesn't Mr. Tata produce a car that works before he talks about an Indian car.” My confidence got a boost when we finally succeeded with the Indica. Willy-nilly, we decided to look at [the low-cost car] project within Tata Motors.
It was never meant to be a ($2,500 in U.S. dollars) car; that happened by circumstance. I was interviewed by the [British newspaper] Financial Times at the Geneva Motor Show and I talked about this future product as a low-cost car. I was asked how much it would cost and I said about ($2,500). The next day the Financial Times had a headline to the effect that the Tatas are to produce a ($2,500) car. My immediate reaction was to issue a rebuttal, to clarify that that was not exactly what I had said. Then I thought, I did say it would be around that figure, so why don't we just take that as a target. When I came back our people were aghast, but we had our goal.
Two or three important events have influenced the development of the car; inflation, for one. The cost statement was made three-four years back but we are holding on to that price barrier. This will definitely diminish our margins. The price of steel, in particular, has gone up during the intervening period.
A second point is that we initially conceived this as a low-end 'rural car,' probably without doors or windows and with plastic curtains that rolled down, a four-wheel version of the auto-rickshaw, in a manner of speaking. But as the development cycle progressed we realized that we could — and needed to — do a whole lot better. And so we slowly gravitated towards a car like everyone expects a car to be. The challenge increased exponentially; there was the low-price barrier, inflation, adding more features and parts to the vehicle, substantial changes in basic raw materials. What the team has been able to achieve, in the face of all these constraints, is truly outstanding.
What does it mean to me? It means that we have in us the capability to undertake a challenge that many car companies have chosen not to address or have been unable to address.
What are the innovations that have made the Tata Nano possible, from design to product finalization?
Initially I had conceived a car made by engineering plastics and new materials, and using new technology like aerospace adhesives instead of welding. However, plastics didn't lend themselves to the volumes we wanted because of the curing time required. Volumes mean the world in this context: if we produce this car and if it is for the wider base of the pyramid, we can't settle for small numbers because then the purpose is defeated.
When we were planning facilities for the car and working out a business plan, the business plan shown to me was looking at a figure of 200,000. I said 200,000 cars is crazy. If we can do this we should be looking at a million cars a year, and if we can't do a million then we shouldn't be doing this kind of car at all.
But such a figure (a million cars) has never been achieved in the country before. If it had to be done the conventional way, it would have meant investing many billions of dollars. So we looked at a new kind of distributed manufacturing, creating a low-cost, low break-even point manufacturing unit that we design and give to entrepreneurs who might like to establish a manufacturing facility. We looked at different ways of servicing the product, at the customer’s location, and through a concept adopted from the insurance industry, wherein self-employed people are trained and certified by us. And we went back to innovation in design and scrupulously took, as much as we could, cost out of the product.
We did things like make similar handles and mechanisms for the left- and right-side doors; we developed our own small engine which could sit under the rear seat, enabling us to craft a smaller overall package; we looked at a new type of seats; and we worked at cutting costs everywhere. We have put our instrument cluster in the middle, not in front of the driver. This means the same dashboard will work for a left-hand-drive vehicle. There are a lot of such innovations that are low-cost and future-oriented.
Equally important to the cost structure was the incentive we could get from having our manufacturing facility at a particular place. The benefits on this count will be passed on to the customer.
Our move to West Bengal was a leap of faith and a sign of our confidence in the leadership in the state. We were breaking new ground, not only on the product front but also in helping industrialize a previously ignored part of India. But we did not start out getting the incentives that other states were offering. I remember telling the chief minister [Buddhadeb Bhattacharjee], “Sir, much as we have tried, it makes no sense for us to come to West Bengal. We cannot meet the cost requirements we have without incentives.” It was then that we negotiated a set of incentives that, long-term, work out to be the same as we may have had if we set up in some other place.
Other than emission norms and safety standards, what are some of the other challenges, physical and psychological, that Tata Motors had to overcome to make this car happen?
There was the usual dilemma of what is basic and what is nice to have. A basic car may not have all the niceties its fancier cousins sport, and when you're looking at saving money on every single bit of the car — even parts that cost as little as ($20 U.S. dollars) — you keep facing these dilemmas. Hundreds of such dilemmas have risen.
However, we were always conscious that there should be no quality stigma attached to the buying of this product. One thing we were clear about: this was never going to be a half-car. Nobody wants a car that is less than everybody else's car. Our car may have a small engine and certain limitations in terms of being basic, but that does not make it inferior. Also, we have a higher version of the car — with air conditioning, leather seats, etc. — that we will be displaying at the auto show in Delhi (held in January). We hope people will look at that, too. Down the line, as we widen our range, we will have dressed-up versions with higher-powered engines, diesel engines, automatics and the like. We have a whole bunch of innovations coming along on this platform.
What we now have is a car that is truly low-cost which has, approximately, the same performance as a Maruti 800 in terms of acceleration, top speed, etc.
When future versions of this car hit the market, will they not be in direct competition to the Indica? (a previously released Tata model)
No. The way I see it, this vehicle will cannibalize some of the lower-end car market and some of the higher-end motorcycle and scooter market. It will eat into both of those markets but it will also create a market of its own. It will expand the market by creating a niche that did not previously exist. It may well cannibalize some of the higher-end car market, but to a small extent, and probably only when people look to buy a second or third car.
About the criticism that the car will add to India's pollution problems, why are the Tatas being singled out?
For now, let me just say our car will cause less pollution than a two-wheeler.
I'm trying to think of a parallel where someone has introduced a product at a disruptively low price and changed the market. A good example would be the Swatch watch, low-cost, trendy and with a wide range. Did Swatch finish off the Swiss watch industry? No (in fact, it was a Swiss company that created Swatch, the same company that produced Omega). Did it finish off Citizen and Seiko and other Japanese competitors? No. Did Swatch cause the Japanese and others to produce something like the Swatch? Yes, it did, but Swatch continued to dominate its niche.
What did this do to the global watch industry? It enabled somebody to look at a wrist watch almost like cufflinks: you could buy 10 Swatch watches, you could wear different ones for different occasions. Swatch sold multiple watches for a single wrist. I think something similar could also happen with the Nano.
Why are people attacking only the Tata Group?
I think it comes from vested interests. Let's ask ourselves why the car is attracting so much attention and why it is being attacked so much. My view is that if the car were not attracting all this attention, it wouldn’t be attacked. This car has provoked serious apprehensions in some manufacturers. There are people in our company even who fear what it will do to the Indica. Do you think there's a concern among three-wheel manufacturers that it might replace their vehicles? Yes, there is because some three-wheelers cost more than what the Nano will cost. All in all, I think people are attacking us because they are apprehensive.
Has the Indica experience helped in the creation of the Nano?
Oh yes, enormously. The Indica experience and the Ace experience have helped; Ace especially because it was another tight, cost-based exercise.
If the Jaguar deal comes through: What next for the Tatas on the automotive front?
I won't comment on the Jaguar deal, but to answer your question, we are not in an acquisitive mode. That's not our strategy for growth.
The Tatas have been on the front pages constantly of late — what is it like being in the middle of it all?
Embarrassing and unpleasant. Whenever you are on the front page, you are also — each time, and more so in India than elsewhere in the world — creating detractors and critics. For every action there is some kind of reaction, somebody who is hunting for something to criticize. And most often it is the reaction that people remember. This is all the more embarrassing because we are not a Group that seeks publicity.
If you look at the coverage that has happened, you cannot fail to notice how the low-cost car has been turned into an issue of congestion, of pollution, of safety. Initially it was all about why a car at this cost was simply not possible; that talk is long gone, only to be replaced by these 'new' concerns. We are not really talking about how it will change the way people live or transport themselves, what their aspirations may be.
Ideally, I would really wish we didn't have the visibility and the media publicity because we haven't sought it.
