The Next People’s Car

Monday, April 9, 2007

An Indian car may soon earn a parking place in history alongside Ford’s Model T, Volkswagen’s Beetle and the British Motor Corp.’s Mini, all of which put a set of wheels within reach of millions of customers after they rolled onto the scene. Tata Motors? (nyse: TTM -? news? -? people ) is developing a car it aims to sell for about $2,500–the cheapest, by far, ever made.

There is a lot riding on its small wheels. If the yet-to-be-named car is a success when it goes on sale next year, it would herald the emergence of Tata Motors on the global auto scene, mark the advent of India as a global center for small-car production and represent a victory for those who advocate making cheap goods for potential customers at the “bottom of the pyramid” in emerging markets. Most of all, it would give millions of people now relegated to lesser means of transportation the chance to drive cars.

It is a hugely ambitious project–rivals have called it impossible–for any company. But it is audacious for one that hadn’t even built cars a decade ago.

For decades Tata Motors has been India’s largest commercial vehicle maker–the Tata logo appears on buses, dump trucks, ambulances and cement mixers. Sturdy as elephants, they are a fixture of the Indian landscape. Owners inevitably paint the exteriors in a cheerful riot of bright red, green, orange, blue and yellow and line the un-air-conditioned cabs with teakwood to keep them cooler in India’s searing heat.

However ubiquitous, Tata’s trucks faced a problem after the Indian government began reforms that opened the Indian economy in 1991: the huge cyclical swings in demand typical for commercial vehicles. To diversify, Tata would enter, at great expense, the less volatile passenger car market.

Before the reforms Indian customers had so few choices that Tata was sheltered. When demand tailed off it just worked down a waiting list, and there was never a need to concern itself with customer desires. Sure enough, after the economy slumped in the late 1990s–just when expenses for developing the passenger car hit home–Tata truck and bus sales plunged by 40%, and Tata Motors lost $110 million in fiscal 2000. It was the first red ink seen since 1945, when the company was founded to make locomotives. Executives were stunned. “It was corporate India’s biggest loss,” says Ravi Kant, managing director of Tata Motors. “The crisis changed us. We told ourselves, ’Never again.’”

But Tata Motors, part of India’s largest conglomerate, first had to reset its ways. Like many Indian companies protected for decades from foreign competition, Tata had gotten to 2000 still fat and slow.

Change started with a spring 2000 meeting at the Lakehouse, a bungalow across the street from the company’s main factory in Pune, a three-hour drive east of Mumbai. Kant, then in charge of the commercial vehicle division, needed fresh ideas instead of rigid resistance, so in an experiment, he called a meeting of 20 of his most promising young managers–all under 35 years old.

“I have a problem,” he said in his matter-of-fact tone. “The company is bleeding.” He asked for ideas on how to stop the gush of red ink. Okay, they told him, trim costs.

Girish Wagh was there, just 29 then. He remembers the shock of what came next. “Ravi Kant said that 1% in cost cuts would be a rounding error. He asked for 10%!” says Wagh. “Never had we thought of such a target.” Every single year until then costs had gone up, not down. Kant told them to present a basic plan that very afternoon, in front of him and–alarmingly–all their bosses.

They worked frantically. By the 3 p.m. meeting, their wildest ideas were on the table. Taken together, they added up to 6.5%. “A breakthrough!” Kant remembers thinking. But that’s not what he said. “Please go back and think again,” he told them. He needed 10%, not 6.5%. “You’ve got three weeks.” The young team took some measures even as it scrounged for more. In came benchmarking, purchasing from Internet auctions, outsourcing parts to more efficient suppliers and boosting revenue by selling Tata-made dies to other companies. Meanwhile, the Pune factory’s veteran boss bought into the project.

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Source: Forbes (link opens in a new window)