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Web Exclusive| Will India really get some low cost cars?

Web Exclusive| Will India really get some low cost cars?
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First Published: Tue, Aug 07 2007. 10 39 AM IST

Murad Ali Baig, Auto expert  & columnist
Murad Ali Baig, Auto expert & columnist
Updated: Tue, Aug 07 2007. 10 39 AM IST
New Delhi: Small cars are not always cheap cars as the Mercedes A Classe or Volkswagen Beatle clearly demonstrates. But cheap cars are what many in India want and these are always small. It is clear that many buyers would prefer a cheap small car to the motorcycles that their budgets now compel them to buy.
Murad Ali Baig, Auto expert & columnist
Most importantly, manufacturers cannot make cheap cars unless the Indian government brings down the multiple taxes that makes everything so very expensive and out of reach for the average consumer.
The Government had recently lowered excise duty on smallish cars from 24% to 16% but the customer still had to swallow 40% MODVAT on the components the auto companies buy before excise, 12% local sales tax and local taxes in many states is levied. This cascade effect nearly doubles the manufacturing cost of any car unlike a uniform 8% in Korea and 15% VAT in the EU or in the USA.
Tata Motors have kept a veil of tight secrecy about their plans to produce a small car costing below Rs 1 lakh. Bajaj and Mahindra and Mahindra as well as TVS have confirmed that they are already working on producing a low cost four-wheeled vehicle. However, since car buyers want air-conditioning and power steering and as all new cars have to meet increasingly tough pollution and safety standards that push up costs, are we going to be offered a real car or just some rather basic four-wheeled auto rickshaws?
At the recent Geneva Motor Show, Mr Ratan Tata admitted that the price of Rs 100,000 would be ex-factory, excluding taxes and that models with air-conditioning and other features would cost more.
We need not invent the wheel because Japan has some lessons for us. At the end of the Second World War, an impoverished and beaten Japan needed low cost and fuel miserly cars. So in 1949 they introduced a range of Kei Jidousha cars, vans, pick-ups and even SUV’s. These were also called Kei Cars or Rs.K’ cars. They had to be less than 3.4 metres long, less than 1.48 m wide and less than 2 m tall with engines under 660 cc and less than 64 bhp.
These Rs.K’ cars are Japan’s largest selling domestic cars and have yellow number plates and enjoy much lower annual taxes at about $50 per year as compared to $350 to $500 for bigger cars. As they are not too fast and cheaper to repair, they also get much lower insurance.
Since these conditions are highly applicable and relevant in India, it is about time that the Indian Government offered similar incentives to boost domestic auto production and to get India’s huge middle class and rural buyers duly motorized.
In view of the huge impact that the industry has on employment, lower taxes would be justified. Also the revenue from a much larger sale of cheaper cars is likely to compensate and/or offset any financial dip that may accrue on account of this.
The Maruti 800, that revolutionized Indian cars after 1983, had evolved from these Rs.K’ cars but the showroom price of Rs 2.16 lakh for the basic model includes India’s heavy taxes. If there were zero taxes it would only cost about Rs 1.4 lakh.
There is pressure on India to lower taxes on cars, in line with other Asian countries but revenue departments seldom agree when the auto market is growing. What is important to note is that without lower taxes, the low cost car project may remain just a pipe dream.
All the Japanese auto companies like Daihatsu, Honda, Mitsubishi, Mazda, Nissan and Suzuki have many popular models that might be suitable for India. Today there are a number of equally attractive models that Indian buyers would love to own. The top contender will undoubtedly be the 3.41m long Daihatsu Charade that may be offered by Toyota, a sister company, in the form of the restyled Passo. Toyota’s other partner Fuji is mainly involved in manufacturing trucks but they also have a small Pleo.
Honda is already investing in a new big plant to make small cars and could consider their popular Beat or their nippy Life. Nissan is in the process of setting up a big plant in India with Mahindra and Renault and is reportedly considering a small car. Their small Cube or Bogo might be of interest in this context.
Ford could also consider its partner, Mazda’s similar sized AZ-Wagon, Laputa or Carol models with similar engines. If Hindustan Motors want to get into higher volumes they could easily bring in Mitsubishi’s Minica or eKActive.
Nonetheless, Suzuki will not meekly surrender its small car territory, moreso since it has several excellent very small cars like the Kei or Lapin. There might also be a few small non-Japanese cars to consider, like Fiat’s small Seicento would give the Tata-Fiat range enormous depth, provided the costs could compete with the aggressive prices of the Indica.
While the Indian market has shown a growing appetite for expensive SUV’s, there are many Indian buyers who would love a small SUV with big attitude like several Rs.K’ cars that are so popular in Japan. Suzuki’s little Jimny will emerge on top especially since it has already proven to be popular in UK, Japan and several other markets. On the same lines is Mitsubishi’s small Pajero Mini, the Daihatsu Terios and the Mazda AZ-offroad which are likely to be equally attractive.
It is rather surprising that a country that makes over a million passenger vehicles does not make a single sports car… especially with better highways which are now available, to drive them on. The rich and fortunate can afford expensive imported sports cars from BMW, Lamborghini, Mercedes or Porsche but many young couples are now ready to move out of conventional family cars into sporty ones like the Daihatsu Copen roadster. Fuji, also which is also part of the Toyota group, has the sporty looking Subaru R1 and R2 models. But if sports car were really affordable, thousands would flock to them, and that is another story altogether.
Murad Ali Baig is one of India’s foremost auto experts. Feedback to his column can be sent at livemint@livemint.com
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First Published: Tue, Aug 07 2007. 10 39 AM IST