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So the pressure is on for Indica to succeed. Tata insists it's no great gamble: with the car's start-up cost of just $400 million, Tata is not, he says, "betting the company" on it. Perhaps not literally. But his peers--and the stock market--perceive the Indica as a symbol of his personal prestige. "Most people see the car project as an extension of Ratan Tata's ego," says R. Amarnath, vice-president of research of ABN AMRO in Bombay. "He wants to show that it can be done." The Indica, moreover, is India's first truly homegrown car. Tata decided to go it alone after turning down a Chrysler overture for a joint venture. "We didn't see any need for a foreign partner," says Telco executive director V.M. Rawal. "We already had a powerful brand name, and we felt we could develop the technology ourselves." Tata says he worried that a joint venture could be "tantamount to our giving up management control of the company."

But going solo is fraught with risk. Telco had no experience in cars; it makes trucks and clunky sports-utility vehicles (SUVs). The company didn't even have an automated assembly line. But in 1994 Telco bought a seven-year-old Nissan line and paint shop from Australia for a fire-sale price of $20 million--Rawal says the deal shaved at least $130 million from the project cost. At the same time, Telco engineers went to work on two car engines: gasoline and diesel. The project was kept under wraps until January, when the first Indica prototype emerged at a car show in Delhi. Amid rave reviews from the auto press, Tata dropped two bombshells: the car would be on the road by the end of the year, and the basic gasoline model would be priced competitively with the Maruti 800, the market leader from Suzuki Motors' 15-year partnership with the Indian government.

Tata's announcement electrified the auto industry. Until then, newcomers to the Indian market had shied clear of Maruti's turf. Daewoo, Peugeot, Opel and Ford all had launched mid-priced sedans--$9,000 and up. The conventional wisdom was that, with the economies of scale of its 350,000-unit-a-year plant and a sticker price of less than $6,000, the Maruti 800 had a lock on the small-car segment. But Tata, breaking from his conservative mien, was throwing down the gauntlet. "It will be quite a fight," says ABN AMRO's Amarnath. "The might of Maruti versus the clout of the Tatas."

Is the Indica battle-ready? A test drive of the car on the Telco track in Pune, near Bombay, shows that it handles better than the Maruti 800, thanks mainly to its larger engine capacity. Unlike the Maruti, the Indica doesn't lose power when the air-conditioning is switched on, an important consideration in the sweltering Indian summers. The Telco car is also roomier and feels sturdier. But Indian auto experts remain wary. "There's no question the car looks like a world-class product, or that its technical specifications are top-drawer," says Hormazd Sorabjee, editor of Auto India magazine. "But the Tatas have never made a defect-free vehicle." Teething troubles have attended the launch of each of Telco's SUVs, most recently the 2-liter Safari earlier this year. Small-car buyers are unlikely to forgive the Indica any such lapses--they, unlike SUV buyers, have other options. There are also questions about Telco's ability to match Maruti's time-tested, nationwide dealer network.

Tata says he's prepared. He has created a separate organization within Telco to produce the Indica--he compares the management structure with General Motors' Saturn division. He has hired Joe Consiglio, a lifelong Detroit car man who was most recently with Chrysler, to supervise manufacturing and quality control. And he has formed a joint venture with Hong Kong's Jardine Matheson to split the cost of developing a retailer network. "We have hedged the gamble to the best extent that we can," says Tata.

Rivals and independent analysts remain skeptical about the Indica's chances. But Tata and Telco have confounded skeptics before. In the mid-1980s, when the Indian government opened up the light-truck segment to foreigners, Toyota, Mazda, Nissan and Mitsubishi arrived in quick succession. Telco's homegrown model was slow off the mark and was initially dismissed as inferior to the Japanese competitors. Yet today, Telco commands a 65% share of the market. If history repeats itself with the Indica, perhaps it will make a car freak of Ratan Tata, too.

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Daily

November 16, 1998

INTERVIEW
Ratan Tata, chairman of India's Tata group of companies


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