New Delhi: Renault SA, Nissan Motor Co. and Bajaj Auto Ltd said in a joint statement that they would collaborate to produce a small car that would cost around $2,500 (Rs1 lakh), making it the second car in the world and in India with ambitions to be the cheapest four-wheeler on the road.
The three firms will set up a joint venture company in which India’s No. 2 motorbike maker, Bajaj, will hold the single largest majority with half the ownership, while partners Nissan and Renault will hold a quarter each. On sale from 2011, the cars—some 400,000 of them each year—will be produced in Maharashtra, at Chakan, near the existing manufacturing facilities of both Bajaj and Renault.
Bajaj vs Tata (Graphic)
No investment details were shared by the firms, whose car will compete directly with that of Tata Motors Ltd—at least on price. Tata unveiled the world’s cheapest car, Tata Nano, in January after four years of research and development because Ratan Tata, 71, chairman of the firm, the largest vehicle maker by sales in India, promised a so-called “people’s car” to his countrymen.
Tata, in January, said that while he stuck to the Rs1 lakh promised price tag, “there will come a time when we will not be able to hold to a price that we have emotionally held ourselves to.”
And though the Bajaj-Renault-Nissan alliance is some years away from selling the car to Indians, analysts are already saying such competitive pricing could eat into profits of the joint venture and that it is going to be a challenge to maintain this price.
“Their strategy would be similar to that of Tata Motors (for the Nano). We could see a number of variants. While the base model would not be profitable, they are likely to make money on the higher models,” said Piyush Parag, analyst at Religare Securities Ltd.
The Bajaj-Renault-Nissan promise of a car that costs $2,500 at its cheapest, delivers on the widely stated ambition of Carlos Ghosn, 54, who heads both Renault and Nissan, to make a “frugally engineered” cheap car using India’s ability to cobble together a vehicle with limited and inexpensive material. Renault already produces a no-frills sedan, Logan, in India with partner Mahindra and Mahindra Ltd, and Ghosn was one of the few people who believed that Tata could make a Rs1 lakh car. The price tag for the new car is a departure from what majority partner Bajaj Auto’s 41-year-old managing director, Rajiv Bajaj, had said barely five months ago. In January, while unveiling an early prototype of the planned small car, Bajaj said, “Bajaj is about making automobile products that make money,” and said he wasn’t going to promise a Rs1 lakh car.
Ambitious plans: A file photo of Renault-Nissan chief executive officer Carlos Ghosn and Bajaj Auto Ltd managing director Rajiv Bajaj.
Since declaring that, inflation in India has soared to a three-year high, led by the price of everything from steel to oil, making consumers acutely aware of the cost of goods. And, in early signs that the joint venture is hedging its bets on price, the two-wheeler maker is already saying the $2,500 price may change.
“From now to 2011, the price may change with the integration of new regulations such as Euro-IV emission regulations and macroeconomic evolutions such as steel and other raw material prices,” said S. Ravikumar, vice-president (business development) at Bajaj. Commodities such as aluminium and steel that go into making a car have become more expensive. Steel prices have spiked by as much as 30% since the beginning of this year, forcing auto makers to raise vehicle prices to protect margins. “I don’t know how they could say that price will be $2,500. Tomorrow, (who knows) what will be the price of steel?” said Amit Kasat, an analyst with Motilal Oswal Securities Ltd.
Euro-IV stage emission norms that mandate stricter definitions for exhaust emissions from vehicles kick in by 2010. Experts say this represents a big leap from the preceding Euro-III norms in terms of technology and expenses and?many?local?auto?makers are allying with foreign firms to bridge this technological gap.
Bajaj and other vehicle makers such as Tata Motors are hoping to draw the country’s almost 50 million two-wheeler owners to upgrade to cars. Only seven of every 1,000 persons in India own a car compared with 12 in neighbouring Pakistan and Sri Lanka and sales of cars have doubled in the past five years.
Car sales in India are expected to reach three million by 2015, according to the Society of Indian Automobile Manufacturers. Car makers everywhere are looking for the next big breakthrough in technology after the US economy, the largest in the world and the biggest buyer of vehicles, slowed, and oil, which powers these vehicles touched record highs, doubling in a year. That’s set off a race to make money and sell cars that buyers won’t hesitate to purchase because they cost less to run. Tata Nano is promising a fuel efficiency of 20km per litre.
Bajaj, in January, said he would focus on a low cost of ownership and make a car that would use fuel twice as efficiently as the most fuel-efficient car currently available on Indian roads, which is the Maruti 800. That delivers about 18km a litre.
While both he and Ghosn declined to be interviewed for this story, in a January interview with Mint Bajaj had said he intended to tackle pricing by producing a car that was not “over-designed”. He had added that keeping the weight of the car down, lowering its top speed and finding a cheaper way to ship it cross-country would take some costs out.
Chakan, on the outskirts of Pune, where the car project code-named ULC will take off, is home to other auto makers such as Volkswagen AG, Europe’s largest auto maker, and M&M, India’s largest utility vehicle maker. The Maharashtra government typically offers incentives such as concessional land, and tax rebates to big- ticket investments, though it couldn’t be ascertained what was given to this project. Bajaj already has three factories in Maharastra, at Chakan, Akurdi and Waluj.
For Nissan and Renault, this will be a second factory in India. The two are spending Rs4,500 crore in building a factory that will make 400,000 cars a year in Chennai. The joint venture with Bajaj will also give the combine a chance to boost market share.