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Ready to launch: cheap global car

2008-01-02 12:13
India's Tata Group plans to launch the world's cheapest car in January while also preparing to assume ownership of Ford's exclusive Jaguar and Land Rover brands.

The "people's car" will be unveiled by Tata head Ratan Tata at the New Delhi motor show on January 10.

Costing 100 000 rupees (or 2 500 dollars), analysts have predicted this car could revolutionise the cost of vehicles around the world.

Tata's pet project - he helped in the design process - is aimed at getting the Indian population off their motorcycles and into cars.

But despite its low price and safety factors, analysts say the five-seater sedan could be a tough sell for Tata's vehicle arm, Tata Motors, even with an economy growing by a scorching nine percent, creating new affluence.

Two wheels versus four

If motorcycle owners wanted to graduate to cars, there are a lot of good second-hand cars for 100,000 rupees or less, analysts say.

"You don't find large sections of two-wheeler owners buying second-hand cars simply because they don't find them as attractive a proposition," said Mahantesh Sabarad, analyst at Mumbai brokerage Prabhudas Lilladher.

"A two-wheeler, the most popular kind, would cost 35 000 to 40 000 rupees, so it's still a big jump up," Sabarad said, adding cars cost far more to maintain.

"It will not be an immediately profitable venture, it will take a longer time to break even -- at least three years," said Angel Broking analyst Vaishali Jajoo.

Tata has said it's targeting the car at Indian and eventually other emerging markets. A Tata Motors board member recently revealed the car would get a significant 25 kilometres per litre.

Hit by declining vehicle sales

A lot is riding on the cheap car with Tata Motors "betting large sums of money," said Sabarad. Tata Motors is taking on the challenge at a time when its share price has slid some 20% this year due to a decline in its vehicle sales.

If the cheap car is a winner, environmentalists fear it will further congest India's clogged roads and add to choking pollution.

But Tata says the car will create no more pollution than a motorcycle and is confident of its success.

"We should be able to create a new market that does not exist," said Ratan Tata, forecasting an annual market of a million cars.

Total two-wheeler sales were nearly eight million last year while car sales were around one million, said Sachin Mathur, research head at leading Indian credit rating agency Crisil.

"The cost of motorcycle ownership is three to four times lower than that for a car. That's why you won't see car sale volumes going from one million to eight million overnight," he said.

But a cheaper car "will provide some acceleration to market growth" at the same time as forcing other automakers to cut prices as well as produce cheaper cars, Mathur said.

Land Rover, Jaguar announcement imminent

Meanwhile, Tata's is also expected to win its bid, reportedly worth two billion dollars, for Ford's Land Rover and Jaguar brands in January as part of its aggressive overseas expansion campaign.

However, analysts are wary that a global economic slowdown will affect luxury car sales.

"I really doubt Tata Motors can do better than Ford did with these brands over the past decade," said Sabarad.

"They're definitely not looking at a near-term view in their strategy," added Jajoo.

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