Renault-Nissan and Bajaj Announce Rival to Tata Nano
By Michelle Krebs May 22, 2008By Nick Kurczewski
PARIS -- India's Tata Nano
single-handedly created a new automotive segment, the ultra-low-cost car, when it was unveiled at the New Delhi Auto Expo in January. With a starting price of only $2,500, the Indian-built hatchback is the cheapest car in the world and touted by many as being the car that will bring four-wheeled motoring to the Third World.
But this field of only one could soon become crowded, at least if other auto manufacturers rushing to develop similar low-cost city cars have anything to say about it. Before the Nano even goes on sale in October of this year, its first challenger has already arrived on the scene.
France's Renault SA, its partner Nissan Motor Company of Japan and Bajaj Auto Ltd., India's second-largest motorcycle manufacturer, have announced their intention to build a low-cost car for the Indian market by 2011. The joint venture will be 50 percent owned by Bajaj Auto, with Nissan and Renault each having an equal 25 percent stake.
Like the Nano, the entry-level price for the Renault-Nissan-Bajaj developed vehicle will be only $2,500. The car, codenamed "ULC" (Ultra Low Cost), will be available with both diesel and gasoline-powered engines -- though little else is known about the car in terms of design, engineering or trim-levels.
We caught a glimpse of Bajaj Auto's initial low-cost prototype back at the New Delhi Auto Expo. Placed behind glass walls and sporting a dreary shade of gray paint, the upright hatchback hardly looked like a world-beater. At the time, the Bajaj Auto representatives we spoke with suggested that any future model would be priced at least $500 more than the Nano.
New Challenges, New Factories, New Markets
The production version of the ULC will likely be a welcome step forward from this initial dull prototype. But Renault, Nissan and Bajaj would be wise to tread carefully into the uncharted world of ultra-low-cost automobiles.
After all, Nissan has yet to sell a single car in the Indian market, and Renault's Indian sales efforts have so far been limited to selling only its low-cost brand, the Logan. In its 60 years in business, Bajaj Auto has never produced a four-wheeled vehicle of any kind. And let's not forget that by the time the ULC finally arrives in 2011, the Tata Nano will already have a three-year head start in the market.
Then again, Renault-Nissan and Bajaj Auto are not exactly entering this joint venture with their eyes closed. What Bajaj Auto might lack in direct experience with automobiles, it makes up for with its years of building frugal and rugged motorcycles and trikes.
As for Renault, the French manufacturer has valuable first-hand experience of the Indian market courtesy of an existing joint venture with the Mahindra & Mahindra group. The Logan sedan is built in a Mahindra automotive plant in Nashik, roughly 100 miles from Mumbai. Since being launched in May of last year, over 28,000 Logans have been sold via 80 Mahindra showrooms throughout India.
Ashish Sinharoy, vice president of communications and corporate affairs for Renault India, described to AutoObserver the extent of Renault and Nissan's investments aimed at transforming India into an engineering and manufacturing hub. The Renault-Nissan Technology and Business Center, located outside Chennai, is a $120-million joint venture between Renault and Nissan to establish what Sinharoy refers to as "a global engineering, procurement and business processing center." The facility will conduct work for Renault and Nissan plants worldwide, and have a staff of 1,500 by the end of 2009.
Renault and Nissan are also set to build a factory on the outskirts of Chennai that, once completed, will produce up to 400,000 cars per year. Sinharoy says that construction of this roughly $1.2-billion automotive plant is about to begin. Renaults and Nissans will be built at the new plant, and the first cars will roll off the assembly line by mid-2010.
As for the ULC project, Sinharoy would only confirm that the car's design will not be a "me-too product," and that markets in Southeast Asia could figure into the car's sales plans. There are currently no plans to bring it to Europe or America.
Crowded at the Bottom?
While Renault and Nissan appear fully committed to the Indian automotive market, one key question is whether India's booming automotive market can actually support more than one ultra-low-cost car. Is there enough room at the bottom of the automotive food chain to support anything more than the Tata Nano?
"I imagine you could get four to five players in this segment," said Paul Blokland, managing director of Segment Y, an automotive consulting firm based in Goa. Nonetheless, Blokland believes that Tata Motors will build a very strong lead in this new segment. This is due not only to the imminent release of the Nano, but also to the huge popularity of Ratan Tata, chairman of the Tata Group.
"Ratan Tata can really inspire people," Blokland explained. And even when the company gets it all wrong, somehow Tata comes out ahead. Blokland singled out the launch of the original Tata Indica hatchback in 1998 as a prime example of this.
According to Blokland, the first Indica was simply "an appalling car." Yet, when Tata Motors rolled out the vastly improved Indica V2 a few years later, Ratan Tata's expression of gratitude towards Indian car buyers for putting up with the car's initial problems helped turn the situation around, and it earned Tata Motors enormous brand loyalty.
For now, Renault-Nissan and Bajaj will be more concerned about the sky-rocketing prices of raw materials and the impact it could have on the ULC's target-price of $2,500. Other auto manufacturers also look set to enter the low-cost city-car market. Hyundai has recently announced that it will sell a $5,000 car in India. Tata will also be keen to protect the automotive segment it created with the Nano. The ultra-low-cost car market might still be in its infancy, but it's growing fast.
Photo by Nick Kurczewski
Bajaj Auto's $3,000 prototype displayed at the New Delhi Auto Expo in January.
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