Tata may outsource assemblies

AUTO EXPO 2004

Tata group Chairman Ratan Tata said Tata Motors was considering outsourcing sub-assemblies of its cars to local car makers who might have idle capacities.

Tata told Business Standard that outsourcing of sub-assemblies, which includes engines and transmissions, to local companies was an option to derive cost advantages.

"Sharing each other's expertise and using excess capacities of other automobiles is a global trend. We will consider this in lieu of fresh investments for expanding our own capacity," he said.

Tata declined to name any company in India that he could outsource sub-assemblies to. However, senior executives in the CK Birla group firm, Hindustan Motors (HM), said a team from Tata Motors had visited its Pitampur plant sometime back to explore possible collaborations.

"If they make a proposal, we are ready to assemble engines and transmissions for them," the HM executive added. HM is already making engines for Ford India.

Sources in Tata Motors said the company was still working on the cost advantages of outsourcing sub-assemblies over in-house capacity expansion.

A senior executive said that the company was working on a CRDi (common rail diesel injection) engine, but declined to comment on where it would be assembled. The HM executive said the same could be assembled at Pithampur using imported kits.

Tata said he was also considering outsourcing manufacturing to other countries outside India. He said that the company could take advantage of the liberalised trade regime to derive cost benefits.

But he did not give details. A company source said that Tata Motors was considering Thailand as a base for component manufacturing through a group company, which the company did not confirm officially.

The company is already selling two cars, Indigo and Indica, which are leaders in their respective segments. It has also got orders for 100,000 City Rovers (Indica) from MG Rover of the UK.

Several analysts say that the company will have to invest to create additional capacities in the near future to be able to sustain the heavy demand for its vehicles, especially since it cannot afford to cut down volumes of its mainstay Indica. Tata also said that his dream project of manufacturing a Rs 1 lakh car was on track.

He also said that the acquisition of South Korea's Daewoo Commercial Vehicle Company was likely to be completed within the next few months.

The $164 million buy will be funded through internal accruals, Tata said, adding that the acquisition will provide Tatas an entry into the heavy commercial vehicle markets in several markets, including in South Korea where Daewoo has a 26 per cent marketshare. He said that the Daewoo vehicles will be rebadged subsequently.

Addressing a press conference at the Auto Expo here, Tata said that the project was at the concept stage. But he was confident that the car would be on display at another Auto Expo in the future.

Tata said: "With this car, we want to break new ground. But we are starting with a clean chit of paper. What we think we should be able to develop is a full-fledged car - not a car on a three-wheeler platform, neither a stripped down car. It will be a small car where a family of five can fit in, having all safety features and compliant to prevalent norms."

He said that Tata Motor engineers were considering whether costs could be brought down by using adhesives instead of weldings, etc and use of new materials for the body.

Tata explained that India was 5 million two-wheeler market. And there was a huge gap between the prices of two-wheelers as well as entry-level cars. "This is an opportunity we want to explore, and we are working on it already," he said.

India is primarily a small car country. But it is also emerging as a manufacturing hub for small cars worldwide.

Though there is constant effort by the top players,especially Suzuki's subsidiary Maruti Udyog, to bring down the price of its entry-level car, which costs around Rs 2 lakh now, even further, many within the industry feel Tata's dream may only remain a dream.

Earlier in the day, Deputy Prime Minister LK Advani had said that the local auto industry should work towards making cars more affordable so that more and more people could buy cars. He also advocated the need for a Rs 1 lakh car in the future.

"The challenge before you is to bring down the cost of the vehicle and make them more affordable," he said.