The real reason Tata's Rs 1-lakh will change everything: it's green!
Tata's Rs1-lakh will debut at the Delhi's Auto Expo, which starts January 10th. The Rs1-lakh will also be at the Geneva Motor Show this March. Tata group chairman Ratan says Tata won't make a hybrid Rs1-lakh (also known as the people's car) because it would be too expensive. The Rs 1-lakh will be the cheapest car in the world and he won't make a hybrid because of the cost? I hope Ratan understands the real reason Rs 1-lakh will be a hit: it's not the low cost but the car's green credentials. Let me explain.
5 minutes and 30 seconds into the video above Ratan Tata is asked about the several thousand dollar car. He says he thinks a cheap car could be done because he already makes a car for $4,000. So, this begs the question, is a $2,500 car really anything new? Below the fold is a video of Top Gear test driving the cheapest cars you can buy today. It includes economy cars from Kia and Hyundai that you can pick up for just over $10,000. The Kia and Hyundai cost much less to make but the $10,000 mark is crossed once you take into account (as Jeremy explains in the second video below the fold) the added costs of shipping, taxes, middle men, etc etc etc.
If the Rs1-lakh comes to the states, I expect it would be priced, at best, several thousand dollars below the $10,000 mark set by Kia and Hyundai. Breaking the $10,000 price ceiling for a car will be an achievement but by itself, I don't think price will be the game changer everyone imagines. You still have to pay for insurance, fuel costs, repairs, parking, etc and lets not forget something that Top Gear reminds us of in the videos below: economy cars really, really, really suck. Just because the Korean car makers are getting a little competition from India and prices might fall won't make people suddenly like economy cars.
Go below the fold to read why Rs 1-lakh is a game changer.
[Source: Google video, Economic Times, Business Standard, YouTube, Yahoo Autos]
So what is Tata doing right if they are just another economy car company? Two things. First, they focused on fuel efficiency which no sub-compact car company has done before. The Rs1-lakh will get 59 miles per gallon and I bet you will see things like weight reductions in other sub-compacts and a greater focus on fuel efficiency as the Rs1-lakh takes market share. Second, they allow their cars to be used by companies to make air cars and fuel cell cars. Electric cars companies find it difficult to get a car glider (a car without the engine), but Tata reached out to companies with interesting green technologies.
If Tata just focused on very high-mileage, green car technology and did not mention cost at all, the excitement would be just as high for the Rs 1-lakh. In fact, I would not be surprised to see the prices for the Rs 1-lakh go up a lot with over-priced options as they notice interest from people looking for low operating cost and green technologies alone. Take heed, Kia and Hyundai: Tata is using Toyota's playbook, so don't be like GM in the recent past by denying the logic and excitement of green cars, then lose market share.
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