Ratan Tata: The People's Car

Four years ago Tata Motors embarked on an ambitious project to bring millions of people in India and elsewhere into the car-owning class. Today Chairman Ratan Tata unveiled the result: the Nano, a stripped down car with a 624 cc four-stroke engine that can seat four passengers. The car is a feat of engineering-it's made from plastic parts held together with adhesives-and meets all India's environment standards. Partly because of the visibility of the project, the Nano has become a lightening rod for criticism on the environmental impact of cars. Tata talked with NEWSWEEK's Jason Overdorf at the Delhi Auto Expo on the eve of the announcement. Excerpts:

NEWSWEEK: Some people have said this car is going to be a disaster for the environment. What impact will the introduction of these vehicles have on pollution levels in India?
Ratan Tata:
Our car will meet all emissions requirements in India and in fact the emissions requirements overseas, present and future. Our engine today will meet Euro 3 [emissions standards] today and with small tweaking will meet Euro 4. It will therefore meet all the specifications of emissions that exist in India. We will emit less pollutants than the best two-wheelers in the country. I don't mean per passenger mile or anything. I mean per vehicle. So I am both amused and intrigued by why we are being panned as an environmental disaster before anyone even knows. And in fact the major NGO that's making much of the noise [the Center for Science and the Environment] already knows because I responded to them in great detail with what our numbers were. That appears to have been ignored.

One other point you made is that the sales numbers are not going to be so huge initially, right?
We're building a plant for 250,000 [cars]. It will be expandable to 300,000, and if you mirrored it that would be 500 or 600,000. It would be a challenge to get vendors and a whole infrastructure in place that would enable us to just endlessly build cars, apart from the resources that would be required. So if somebody thinks that we will be putting 2 million cars or 4 million cars into the market, I think that's a bit absurd. Today, with 4, 2 and 3-wheelers, every year [India adds] about 7 million [vehicles] in the market. [India] produced 1.4 million passenger cars last year, so it's kind of flat. What would this car do? Would it sit on top of that by adding 2 and 3 and 4 million? Would it wipe out everybody else? Would we produce and sell 7 million cars? No. It's reasonable to assume that we might be looking at in the next four to five years, maybe a half a million cars, which would be a very good number. No single platform would have that kind of number. What would half a million cars be as a part of an annual production that at that time, with 2-wheelers, 3-wheelers and 4-wheelers, might be 12 to 15 million vehicles? I don't see what the concern is, unless people are seeing ghosts.

I just want to raise one other thing. The noise is being raised by people who are doing nothing about pollution in a holistic manner. Nobody is doing anything about the total population and pollution from two-wheelers, from power stations, from generators. All of this has to be viewed together if one is truly worried about the environment. There are two scooter plants being established today-Honda and Suzuki-each one has about 250,000 unit capacity when they come online. They're not said to be polluting, they're not said to be congesting, they're not said to be unsafe. It's only us.

The other big question for everyone is how you brought down costs so dramatically. Is there a shortlist of two or three big innovations you made to cut costs?
When you start an exercise like this you dimension your product, and we dimensioned the size of our product. When you shrink the size of the product you obviously reduce the amount of material and material is the largest single element in [the cost of] a product. Then there are hundreds of innovative ideas that have brought the price down, or have in fact generated the kind of low costs that we have developed. And there are more on the anvil that will come from vendors, and not all of them will be based on volume.

Are there any that have the potential to change the way the traditional big guns in the auto industry are making cars?
The whole process of putting a car together perhaps needs to change by welding going to adhesives at some point in time. [Among] the most expensive parts of an assembly process are the paint shop and the press shop, so [global manufacturers will move to] materials that will lower the [capital investment] and operating costs [for] those types of units.

India has been talked about as becoming a small car manufacturing hub. What impact will the Nano have on that future?
It will only enhance it. It won't hurt it in any way. Finally, the people are going to decide if this car is going to do what everybody fears it will do or not. Not us. We have as a company put together a concept and converted it to reality, and we believe it is a very interesting value proposition but finally the market will need to decide. Who enters and who competes and what that product is going to do to us is a function of who addresses what the customer wants.

Renault-Nissan has already announced they are going to get into this game. Do you anticipate that this will be an active space that a lot of companies want to get into?
It will be. There's been self-denial that this space is a real space until we addressed it. We will have several people following us, including big companies, and we will need to raise the issue of why those big companies did not address those areas earlier. But possibly the first national car company to address it will be a Chinese company. The day they consider this to be an important segment of the market we will see a Chinese company come closest to us or even break our barrier.

Your coming into this market is somewhat similar to the entrance of Suzuki in the 1980s, in that it has the potential to create huge volumes. In working with suppliers, have you seen inklings of the kind of sea change that the launch of the Maruti 800 engendered?
We have. There was first a lot of disbelief among suppliers that we were really serious about this business. In West Bengal we conceived of a situation where they would be a campus-with ourselves and our vendors on the same campus. The acceptance of this and the investment in this was minimal at first. But now we can't provide enough space in our campus. Suddenly vendors are seeing large volumes, the ability to amortize investments they would have to make that they were not willing to do, and they've ceded their place to other vendors who were willing to do it. Now some of the majors want to come back in and play a role. In fairness, somebody else did take the risk, did place their faith in us, and they're there.