Tata Motors Ltd, which plans to make India’s cheapest car, is seeking volume-based pricing from car parts suppliers to whom it is also holding out the promise of being the company’s only source for a particular part, people familiar with the matter said.
“This is for the first time an OEM (original equipment manufacturer) has gone for such gradual scaling of prices,” said an auto parts vendor, who will supply parts for the car. He wished to remain anonymous citing confidentiality agreement with the company. “There’s a price for 10,000, 20,000 and 50,000 parts.”
Vehicle makers typically fix the prices of components for six months or a year, irrespective of volumes, and these are usually adjusted for changes in the prices of commodities and any change in specifications.
Debasis Ray, a Tata Motors spokesperson, which is India’s largest vehicle maker by sales, said the company could not share details of supply contracts because this would affect its competitiveness.
The vendors did not say what the progressive discounts would be.
Passenger vehicle ownership in India is at seven per 1,000 people, compared with 12 per 1,000 in neighbouring Pakistan. Most new cars in India are purchased by first-time buyers. Tata plans to introduce a small car that will be priced at Rs1 lakh, almost half the price of the Maruti 800. Other companies such as Nissan Motor Co. are also interested in developing cars priced around $3,000 (Rs1.23 lakh).
Tata Motors is building a factory in Singur, West Bengal, to make 250,000 cars a year, starting 2008, and hopes to make as many as a million cars a year eventually by farming out assembly to other factories in the country. “It is a low-margin game. Naturally, one would want to supply as much as possible since economies of scale will also benefit us,” said the chief executive of another parts maker. As many as 40 vendors are building factories in Singur exclusively for the small car project.
Tata Motors has promised many vendors that they would be its single source for components for five years from the start of production if they continued to meet the cost and delivery norms. A component maker said Tata had also proposed that suppliers should offer them a staggered price decrease after the first year.