The Rs. 100,000 car

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As disposable income increases, so do desires. The well to do youth of India could leapfrog from the thrill of “my first motor-bike ” today to that of “my first car” tomorrow.

Tata Motors is working towards introducing a sedan car for Rs 100,000 or Rs.1 lakh ( as the figure is popularly called in India), the equivalent of $ 2500. The story of the potential market for such a car is described in Time by Simon Robinson.

If Tata were to lure away even 10% of the 6.5 million Indians who buy motorbikes every year, it will have expanded India’s car market by more than half. Competitors aren’t willing to cede that kind of market share without a fight. Carlos Ghosn, head of Renault-Nissan, recently announced that his company was looking at building a $3,000 car in India. Fiat, General Motors, Honda, Hyundai, Maruti (the Indian division of Japanese manufacturer Suzuki), Toyota and Volkswagen are all developing low-cost cars, though none of them have promised anything quite as cheap as $3,000.

Apart from the potentially huge market in India itself, Tata Motors plans to export its economical car to other countries in Southeast Asia and Africa. With its affordability being a key advantage, the Chairman of the Tata Group, Ratan Tata hopes to eventually sell as many as 1 million such cars worldwide each year. Countries like Brazil and Russia could also be possible markets. The project is expected to succeed because of the relatively low manufacturing costs in India- engineering costs alone being estimated to be half that of Europe or the US.

On the flip side, there may be a high environmental price to pay as poor nations convert from two wheels to four. John Rogers, a consultant for the Asian Development Bank, estimates that the number of cars in India will increase from 6.2 million in 2005 to 41.6 million by 2025.

The new car will offer a viable option for many in India who currently manage- albeit with difficulty- to take their entire family out on their two wheelers!