India's newest little car faces big test

India Dispatch: The auto industry, gathered at the Delhi jamboree this week, remains divided over the much-hyped Bajaj Auto's latest model - the RE60.

The RE60 will compete with Tata's Nano. AFP

MUMBAI // Members of the car industry, gathered at the New Delhi motor show this week, remain divided over Bajaj Auto's latest model - the RE60.

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Everyone attending the expo has plenty of questions about it. Is it a car? Is it an auto rickshaw? Is it a box on wheels? The company has the answers. It calls its latest creation an "intracity passenger carrier".

Analysts, however, say Bajaj might as well create an entirely new category for its mini four-wheel people carrier.

"The company is trying to create a new segment with the RE60. This seems to be targeted towards the small-car buyer but in fact it's a unique proposition," said Abdul Majeed, the automotive practice partner at PricewaterhouseCoopers in Chennai. "The company needs to convince its customers there is value in this. It could be difficult, but as long as it manages to attract a customer demand, they could do well."

The competition in the small-car sector in India is fierce and the segment has had a bad year. Car sales in the country are expected to be flat for the current financial year, ending in March, compared with sales growth of about 30 per cent the year before, according to the Society of Indian Auto Manufacturers (Siam).

"The small-car segment has not managed to attract the buyers, it has been suffering from high interest rates, cost in raw materials and rising oil prices," said Sugato Sen, the senior director at Siam.

"We are anticipating the low-cost sales will rise for 2012. There are plenty of new models coming up, the industry is looking healthier and the customers are looking for value in this segment," he said.

The RE60 was developed in collaboration with Renault-Nissan and was initially meant to be a low-cost small car to compete directly with Tata's Nano - dubbed the world's cheapest car and retailing for about Dh12,130.

The RE60 and Nano do have similarities. Both are compact, extremely fuel-efficient and have a low maximum speed. The price of the RE60 has not been revealed yet.

It was the Nano that really started the craze for low-cost cars in India.

The car was the brainchild of Ratan Tata, the head of the Tata Group, who is due to retire at the end of this year.The Nano has a rear-mounted 624cc engine and plenty of headroom but limited storage space.

But the ride for the Nano has been anything but smooth, and many company-watchers said Tata Motors, part of one of India's biggest business houses, has a long road ahead to lift sales to its targeted 250,000 units a year.

Farmer protests disrupted early production and the first buyers did not get their cars until July 2009. Reports of fires scared away customers, would-be buyers had difficulty securing financing, and the price rose well above the initial 100,000 rupees (Dh6,898) mark.

The car has struggled to find a core market. "There was just so much media, so much attention, that the wrong kind of buyers started buying the Tata Nano in the beginning," said Ashvin Chotai, the managing director of Intelligence Automotive Asia in London.

"Rather than being a functional step above a motorcycle, it became known as a cut-price car," he said.

Tata has taken numerous steps to spur demand, including extending the warranty, improving marketing and financing options and expanding distribution to smaller towns. It recently rolled out a model that is more powerful, more fuel-efficient and has improved suspension and steering. What Tata has not done is launch a diesel Nano. Petrol in India costs 56 per cent more than subsidised diesel. Some analysts had expected a diesel Nano to be unveiled this week at the India Auto Expo in New Delhi, the same event where the original model made a splash at its launch four years ago.

Yesterday Mr Tata insisted that the Nano was not a flop, telling journalists: "We never really got our act together when the 100,000 were depleted," he said, referring to the first batch of Nanos sold through a lottery system when initial demand exceeded supply. "I don't think we were adequately ready with an advertising campaign, a dealer network. In sum, I don't consider it to be a flop. I consider that we have wasted an early opportunity."

Last month, Tata sold 7,466 Nanos, the most since April, but far from the 20,000-plus monthly pace that would get its plant in the western state of Gujarat running at full throttle.

Hormazd Sorabjee, the editor of Autocar India, said the RE60 was unlikely to attract the mass market. "It's not for the small-car buyer, it's for auto-rickshaw drivers and taxi drivers, so I don't see it as a direct competition for Nano," he said.

Rajiv Bajaj, the managing director, said the company was also mulling opportunities outside India.

"We see markets like Sri Lanka, which could be the first export market, has huge potential for RE60."

* with Reuters

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