Forewarning: These are just my Sunday morning musings on the upcoming Tata small car and not entirely supported by facts.

The prototypes are undergoing testing and the small budget car is reported to be only 20% off its price target. This is a commendable job if the customers get a competent product.

So, how is Tata planning to keep the cost of the INR 100,000 within the target price?

Part I: Buy land cheap. Best, convince the state government to capture it for you and then sell it to you for throwaway prices.

Tata's small car plant in Singur, West Bengal is reported to be coming up on a land which the company purchased at throw-away prices. While the farmers may now be realizing that they have been taken for a ride (the realization no doubt helped by education received from certain political groups), the negative publicity received by the company in the wake of the land dispute is slowly being countered by immaculate press releases that flood my inbox every week. Things like “Tata opening an educational institute in Singur” and “Tata training Singur residents” are the stuff of press releases that the company' well-oiled PR machinery sends to numerous journalists every week. By 2008, when the plant starts churning out cars, Tata will again be the respected name that it is considered to be.

A certain Mamata Banerjee – once a stoic opponent of the Tata Singur plant – is surprisingly silent nowadays. Has she been ‘convinced' of the Tata's honorable intentions?

The farmers never mattered anyways.

The way of acquiring land has always been a well debated issue in India. There is no point in talking about SEZs in this space as they have already been written about in various other forums. But, even without SEZs, any mega project – like a car plant – manages to extract the maximum, and some more, from the state governments in terms of sops.

Take the upcoming Tata plant in the state of Uttaranchal. The land was (and I ‘guess' it) purchased at INR 225 per-square-metre, less than half the cost of the first allotments in the SIDCUL industrial park. All 1,000 acres of it. Tatas then convinced the state government to waive off the stamp duty as well and then get electricity supply for the plant at rock-bottom prices. 

Not that getting sops from state governments is a bad idea, or something unethical. It is the common practice worldwide – every region wants a big investment and employment generator project, like a car plant, and state governments, world over, offer sops to attract investors.

It's just the way that it is being done in India that is unethical. There is a complete lack of transparency, unless someone uses the Right to Information act to dig it out of government records.

Further, the prices offered to the original land owners are very low. Often land owners do not even get the prices paid by the manufacturer to the state government for the land. The land is often acquired by force – unethical again.

It is just convenient that the farmers – forcefully copulated with by the government – have no other alternative but to line up as cheap labour at the plant's gates, the same plant that has come up on their land.

Part II: Design from scratch

Tata has done well in designing the car from scratch. So all the journos who predicted that it will be a shortened wheelbase Indica platform with half of the Indica's 1.4-litre engine, can eat their heart out. It's not going to be anything even remotely similar or inspired from the Indica.

Designing from scratch means cost saving is built not only in terms of raw material costs but also deigning costs, prototyping costs, development costs and manufacturing costs.

What this means is that the car will cut corners – where it can – but not where it makes a difference. Expect to find cheaper plastics and plastics in place of fabrics but don't expect sheet metal to be replaced by plastics. While cost saving was the main prerogative, Tata is expected to learn from the mistakes done by ‘plastic car manufacturers' like Sipani Automobiles.

What this means that we can expect innovation in the design and manufacturing methods of all components and systems in the budget car. What this also means that component suppliers have to innovate as much as Tata themselves.

Part III: Early vendor involvement

The success of such an ambitious project lies in Early Vendor Involvement (EVI). Tata has involved a number of key vendors from the start of the project. This ensured that vendors were on the same thought wavelength as the OEM.

The vendors, who do not believe in the project, turned believers in the process and EVI means that low cost is built into their component designs. The EVI also meant that where the vendors could not find solutions to the ‘budget' problems, they could sit and think it aloud with Tata guys.    

Part IV: Keep things in your family

A large number of vendors come from the Tata owned Tata Auto Comp (TACO). This not only helps in the joint development process but also keeps margins in check – OEM, Tier I and Tier II as well. The final product is then as cost effective as possible. Think of it as an equivalent to the Keiretsu system.  Apart from TISCO, some other Tata group companies like Tata Steel and Tata Ryerson will provide sheet metal solutions for the budget car.    

Apart from TACO, one can expect participation of a number of leading vendors – some of them coming specifically for the budget car project.

Watch out for a list of probable vendors for the budget car project in one of the next posts.

Part V: Keep the bakery close to the people who will eat the bread

Tata's plant in SIngur is in line with the company's ideology of making the car close to the markets. The Singur plant will ensure easy supply to the smaller towns of Northern India. Logistics costs will be saved. In doing so, Tata realizes that the budget car will find buyers in smaller towns and not big cities like Delhi.

Part VI: Keep vendors close to you

Tata has been acquiring huge chunks of lands (at throwaway costs as detailed before) for its projects. While nearly half of the land acquired is planned for use for the Tata plant, the rest houses the supplier park. Most of the remaining vendors are located in close proximity of the plants. No point in discussing the benefits here.

Part VII: Innovate in everything

Tata knows that going the same way as all other manufacturers will not yield it anything. What it needs to do is to innovate in everything. So do its suppliers. So Bosch is developing a low cost fuel injection system for the engine while Tata GY Batteries has developed a low cost battery.   

Part VIII: Keep fingers crossed

Nuff said!