Tata's Nano heralds new era of budget cars for developing countries

People's cars

01 September 2008 16:04  [Source: ICB]

INDIA'S TATA Motors hogged the limelight in January this year when it unveiled its ultracheap Nano, an Indian rupees (Rs) 100,000 ($2,308) car that is due to hit the market next month.

But other auto companies across the world are quickly queuing up with similar offerings, as they come to terms with a new industry reality the future lies in cheap compact cars, tailored not only for developing economies such as India and China, but also developed markets where high gasoline prices have forced consumers to turn away from expensive, gas-guzzling models.

Carmakers working on low-cost models include Japan's Toyota, France's Renault, Italy's Fiat, South Korea's Hyundai, and also Chinese players Geely and Chery.

Germany-based Roland Berger Strategy Consultants expects the market for low-cost cars to double in China and Eastern Europe over the next few years. In India, it expects the market to grow by approximately 50%.

SMALL, BUT PERFECTLY FORMED

So what does this drive toward economy cars mean for the chemical industry?

"Innovations and new developments in chemicals, which simplify operations or processes, while improving performance such as fuel efficiency, emission reduction and improvement in aesthetics are of interest to the auto industry," says B.B. Parekh, chief of strategic sourcing at Tata Motors.

This could include, Parekh says, promoting lighter-weight plastics like polypropylene (PP), with enhanced properties in terms of scratch resistance and better paintability, in place of expensive polymers such as polycarbonate (PC), polybutylene terephthalate (PBT) resins, or heavier, costlier steel panels.

Chemical companies should also look at promoting processes that eliminate or simplify post-molding operations such as painting. This could be by either developing a primerless painting process, or introducing an extensive choice of pre-colored polymers, he adds.

Another suggestion from Parekh is for innovative lower investment joinery processes, such as low-cost adhesive bonding, which can join metal to plastic or plastic to plastic in auto body manufacturing.

MATERIAL WORLD

"Small cars need cost-competitive technology. There is a big drive toward plastics from metals depending on temperature," says a source from a polymer compound manufacturer.

"Compactness has implications on heat. For instance, compact cars have a smaller engine compartment and bigger sitting area. So what used to work with PP has moved to high-temperature plastics. Small cars open up new design requirements," he adds.

There are some obvious advantages in increasing the use of plastics, as they save costs and have better fuel efficiency. They are also less expensive to process than metal. However, there is a limit to the amount of plastics that can be used.

A source close to Tata says the company had evaluated having a full plastic body for the Nano. "But it realized that consumers are looking for a regular car, even if they are buying a cheap car. The Nano uses the same plastic components as any other car," says the source.

This view is echoed by Roland Berger, which points out that producing low-cost cars is not about selling junk, but rather selling quality that is specially conceived to meet customers' needs. Making quality cars cheaply and profitably will be a challenge as the cost of raw materials, be it plastics or steel, have soared in the past few years.

Recent media reports say that Tata is struggling to maintain the Rs100,000 price tag for the Nano, as raw material costs have risen to 23% of the car's price, up from about 13% in 2003 when the company started developing the model.

Tata was unwilling to comment on how rising costs have affected the Nano. But Parekh says the only way for auto companies to counter inflation is through innovative engineering to reduce the use of material without compromising on functionality.

Malini Hariharan, country manager, India, for ICIS, has over 15 years of experience in the chemical industry. Malini has been regularly analyzing the performance of the Asian industry and has interviewed many of the movers and shakers in the region.

By: Malini Hariharan
+65 6780 4359

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