Excerpts from an interview published in Autocar Professional on January 15th, 2006

Ratan Tata looks positively relaxed as he walks into the lounge of Mumbai's private airport for this meeting. He has been awake since 3am and has just flown in from the south. There are hardly any signs of fatigue as he poses for pictures before the interview is scheduled to begin.

As the coffee comes in, Tata sends word to remind his driver to have his meal as he is going to be late. The first thing that strikes me about this man is his humility and disarming attitude. Remember, he is India's most powerful corporate chieftain who is equally well known across the world.

The topic now shifts to the all important Rs 1 lakh car and the rationale of moving down the value chain. Is this the best route and does it make sense to ignore the more profitable premium category?

If you look at India, you have about one billion people growing at about 17-18 million a year. You have a middle class or a consuming class of about 250 million, which is increasing from the bottom up each year. And you have a higher percentage at the top of the pyramid, which has been the buying public hitherto for most Indian products.

There is also a segment of the market that is brand conscious, prestige-conscious and would often even prefer to buy foreign brands to Indian brands. They know what is happening elsewhere in the world and would prefer to put their money on a foreign brand rather than an Indian brand, he explains.

In the automobile sector, other than Tata Motors and Mahindra & Mahindra, the industry here largely comprises of foreign companies. As Tata says, while it is an issue of great satisfaction that these two Indian companies have been able to get meaningful market shares. in this arena, only the top part of the pyramid is being addressed.

Hence, the million-plus cars being sold are going mainly to that segment and somewhat to the top end of this large consuming area. I had projected that we would be a million cars in 2000 but that did not happen because we were in an economic downturn.

So we can say that in 2007, our market would be 1.7 million or two million units. But is that really the market potential of the country? After all, it is one where the people buy six million two and three wheelers, which is six times the passenger car market, he says.

As everyone is aware, this is obviously because of the price disparity. The point therefore, he adds, is to be able to address the lower market somehow with a reasonable acceptable product. India, in any case is a country where people have a tremendous urge to own but often it is beyond their reach.

Why do you see such a great sale of clothing on a foot path? Why is Fashion Street in Mumbai so popular? The guy in the factory wears clothes that at least look like what the higher end wear. The fact that they come from Tibet or Nepal is not an issue.

Why is it that the same footpath sources are able to sell tennis or running shoes even if they are fraudulently branded Nike or Reebok? The person is aware of those brands, wants them but cannot afford to pay for them. So, he settles for these, remarks Tata.

What is clear is that if branded product manufacturers can address that market, it is a huge opportunity. The bigger question is the ability to address it and this where Tata believes it is possible.

If we are looking at a small car, we should not do this at the same proportion as cars of today are being looked at. We should be bold and take some risks so that we can have a much larger scale of consumption of that product in India or elsewhere. We need to take a gamble on that and that is my take on addressing that wider market, he says.

Tata believes that this is something that needs to be done because otherwise the Chinese will address that market in India with a suitable product. All that they will do is to squeeze the Indian manufacturers into a position at the higher end of the market, denying him access to the larger market.

We can certainly increase numbers by addressing the lower end on lesser margins but still be profitable. The Ace has been an example at the commercial vehicle end. It is the same thing where you are getting much more for that vehicle.

You must not be overpricing the value for what you are providing. If you can answer that, then it makes sense. Then if you take it further and put power steering, provide air conditioning and so on, it becomes an attractive product that others cannot compete with, he says.

According to Tata, the Rs 1-lakh car would probably be out towards the end of 2007-08. The way it is being planned now, it is going to be a rear engined car, essentially steel, with some plastic parts. It will be a five seater with four doors. No decision has been taken as yet on the engine capacity.

The car will have a continuous variable transmission. At that low cost, it will not have a clutch and will be easier to drive without any gears. It will be a product that will be simpler to deal with, easier for women to drive and something that we hope will add value to the customer, he says.

Tata Motors will produce the bulk of the production in its plant. This is where the entire concept becomes interesting. We What we also wish to do, which is still not fully clear and a concept at this point of time, is to create any opportunity for entrepreneurs, he says.

Low cost units in different parts of the country will assemble the car where Tata Motors will take the responsibility for training on site and other aspects related to quality etc.

We will give young entrepreneurs the opportunity to establish enterprises in distributed areas to produce this for us. We will produce all the high volume parts and send them as kits to these assembly units. This will also enable us to address some international markets in Indonesia, Africa etc on the same kind of basis.

So what we are looking at is designing a product that can be produced in high volumes, which we will do and than can also be viable in small volumes on a batch-basis from kits. With many products, if you conceive them for mass manufacture they cannot be produced in another form. This is what we are trying to do. It is taking more time because we have given ourselves a more complex situation, says Tata.

What he would like to see ideally, in the India of tomorrow, is 10 young graduates getting together out of an IIT and saying, Instead of having to work for somebody, we would become an enterprise of our own.

He adds, Hopefully we would like that enterprise to also sell the vehicle in that area. We would like the service engineer to be trained by us that could perhaps serve the customer. He could use the spare parts of this enterprise to service the customer. Can we change the traditional manner in which the customer is supported on the product?

Eventually, the idea is to not only to give India a low-cost car but create many jobs in different places for young people who otherwise would have to work for someone.

Tata believes that unconventional means would be needed to reach out to the customer.
And in order to do that, one must set his goals high in terms of volumes, as conventional volumes are not going to work.

So you have to be very bold and say that I am going to really change the paradigm of how people are going to travel, how families are going to have transport. I am going to try to get families to stop using tractors to go into town or to sit on a motorscooter in a dangerous manner.

We are trying to address the autorickshaw market in a different way or you will keep doing the same thing. I would really like to be involved in something that is exciting because it is different, he says.

Tata admits that the Rs 1 lakh pricetag has become a challenge and that the company is well on its way to meeting that target. Many people, he adds, still think it cannot be done. But this was the same story with the Indica where the skeptics were convinced that it was impossible to achieve.

It can be done but need not be done in the conventional manner of how the West looks at such products. All I am trying to say is that the way the West perceives something and the way we must look at something is different. The West is not trying to address the low end of the pyramid. He explains.

While this has been a totally indigenous effort, Tata says wherever the company felt that there was an expertise; it did not try to reinvent the wheel. So, even though we have developed our own engine, we are still looking at another engine that we can buy, one that is cheaper than ours and technologically better.

On all these fronts, we are willing to go wherever it makes sense to go. At the present moment, we are certainly keen to also be able to offer diesel as a fuel but this not on the cards at present, he adds.