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How the Rs 1-lakh car was made
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January 12, 2008

Ratan Tata was able to keep his promise and deliver a car for Rs 1,00,000, the Nano, with help from some 100 component manufacturers, most of them homespun Indian outfits. Some of them worked with the core Tata Motors [Get Quote] team in total secrecy for over three years.

A day after Tata drove the car to the ramp at the 9th Auto Expo here and the world gaped in awe, several component manufacturers decided to lift the veil of secrecy and told Business Standard how the car was put together through collaborative engineering. The price target, they said, was achieved by sheer design improvisation and not cutting corners on essentials.

The brief to them was simple: make things smaller and lighter, do away with superficial parts and change the material wherever possible.

A few did their own research and development, some developed products with Tata Motors and quite a few were given designs by Tata Motors. The company even helped some vendors find international partners to make products that met the company's requirements.

To begin with, it was decided to make the 623 cc two-cylinder petrol engine from aluminum. Conventional engines are made from cast iron, adding weight as well as cost to the car. "Being smaller and lighter, the cost was lower," said Rico CEO Arvind Kapur who supplied the blocks to house the engine.

The engine being lighter and placed at the rear of the car put less pressure on the steering systems, which allowed for more cost savings. As a result, there was no requirement for a link between the engine and the rear wheels.

Surinder Kapur, chairman of the Sona group, which supplied the steering columns, steering gear and differential drive assembly, said: "The tubular design of the car instead of the conventional 'rod' design definitely helped cut costs, particularly the processes involved."

Lumax, which has supplied lighting systems for the Nano, worked closely with engineers from Tata Motors' Engineering and Research Centre to ensure that cost targets were met. "We also did some competitive buying of material from countries like China and Thailand," Lumax Executive Director Deepak Jain said.

Costs were also cut by using regular bulbs that meet the regulations instead of long life bulbs.

Still others said Tata Motors was able to bring down prices through old-fashioned bargaining. Price negotiations from Tata Motors' side apparently started from 50 per cent of what component suppliers offered. But the Nano is expected to sell in large volumes and that would make up for the crunch in margins, they were promised.

"When you are talking about 350,000 to half a million units, you start pricing the parts on variable cost. Typically at 250,000 units if the part reaches break-even point then the scope for reducing price changes dramatically," said Anil Srivastava, CEO, GEA, a strategic consulting firm for automobile and parts companies.

Even so, some suppliers could not meet Tata Motors' price demands. For instance, AIS, the country's top automotive glass maker, decided to stay out of the basic car shown by Tata yesterday (the order was placed with Saint Gobain). "We are hopeful of getting into the deluxe model," said AIS CEO Sanjay Labroo.

Initially, Tata had plans to assemble the car at the dealers' workshop to cut down his spend on logistics. The plan, reliable sources said, still stands.

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