Renault's Race to Replace the Rickshaw

Tata Motors is hot on Renault's heels in a drive to produce and distribute the world's most affordable car in the fast-growing India market

by Gail Edmondson

Renault-Nissan Chief Executive Carlos Ghosn touched down in India twice on Oct. 29, making pit stops in his frenetic bid to grab a piece of the emerging global market for ultra-cheap cars. After inking a joint venture for low-cost vans and trucks in Chennai with Ashok Leyland (ASOK), he flew to Pune in his corporate jet to kick the tires at the factory of Bajaj Auto (BJAT), India's No. 2 motorcycle maker and a potential partner in Ghosn's quest to engineer a $3,000 car by 2010. A project could be announced within months.

Ghosn needs to quicken the pace. In the race to develop the world's cheapest car for emerging markets, he's about to be lapped. India's Tata Motors (TAMO) aims to launch its long-awaited $2,500 car in 2008. Tata Chairman Ratan Tata vowed in 2003 to build a people's car for India costing 100,000 rupees ($2,500)—a project once greeted with widespread skepticism. Now, as he prepares to unveil the audacious experiment at the New Delhi Auto Expo, Western auto chiefs including Ghosn are starting to sweat. "The challenge is to build a low-cost car that makes money," says Ghosn.

At the Tokyo Motor Show in late October (BusinessWeek, 10/26/07), Ghosn predicted Renault-Nissan (RENA) could have a $3,000 car on the market by 2010, though he has yet to clinch a joint venture for the project in India. "We know Tata is announcing this car in the Indian market in 2008. And if Tata can do it, we can do it," Ghosn said in Tokyo.

Producing A Partner

The Renault CEO is keen to nab an Indian partner to do "frugal engineering" on a $3,000 car, since Indian engineers are more able to break with Western automotive traditions and think outside the box, he says. Western experts agree that engineers will have to entirely "rethink" how a car is designed in order to bring development costs down radically.

"Low-price vehicles are not vehicles of inferior quality equipped with the most basic components," says Wolf-Henning Scheider, president of the gasoline systems division at German auto supplier Robert Bosch. "They are inexpensive technical solutions produced using state-of-the-art components."

During his visit to the Bajaj motorcycle plant in Pune, Ghosn and two top Renault-Nissan executives spent an hour in discussion with Managing Director Rajiv Bajaj, toured the plant, and spoke to workers about the opportunity Ghosn envisioned for a joint venture. He also took a ride in a Bajaj three-wheel rickshaw—the popular, inexpensive vehicle that a $3,000 car would compete with.

Before departing, Ghosn told Bajaj—a mechanical engineer who received a master's degree in manufacturing systems engineering from the University of Warwick in Britain—that he was impressed with the clean, well laid out factory, the network of suppliers nearby, disciplined work practices, and the clear evidence of Japanese Kaizen quality practices.

If Ghosn shakes hands on a deal with Bajaj, the Indian vehicle maker would take the lead in developing the $3,000 car, while having Renault-Nissan's vast engineering expertise at its disposal. "Cost is the main challenge, and we have to make it robust," Ghosn says.