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High raw material costs and production delays could force top Indian vehicle-maker Tata Motors to raise the price of the world's cheapest car, with suppliers resisting pressure to lower prices any further.
Tata Motors is turning the screws on parts makers as it pushes to launch the car, despite delays in construction of the plant in the state of West Bengal after farmers opposed the acquisition of their land.
Suppliers, already grappling with volatile raw material costs and softer domestic demand, are baulking at Tata's price and delivery targets. Some have reportedly turned down its orders and others are seeking guarantees on volumes and prices.
Tata Motors has promised to sell the car for 100,000 rupees ($3100), but some analysts say it will now have to price it 25 per cent higher in order to maintain a profit margin of 8 per cent.
A sticker price of 125,000 rupees would put the vehicle in line with other low-cost cars being considered by competitors such as Renault and Nissan.
Chairman Ratan Tata said at a recent shareholders' meeting that the firm was committed to launching the car in the first half of the fiscal year ending March 2009.
A car priced so cheap in a country where small cars make up two-thirds of sales could have a potential market of 1 million units, Tata has said. Suppliers say they have been told to gear up for an initial run of 250,000-300,000 units.
Tata Motors also has been encouraging suppliers to set up factories near the new plant to reduce transport and packaging costs, which can make up 8-10 per cent of total manufacturing costs, while also enabling "just-in-time" deliveries that reduce the need to hold costly inventories.
The company, which is estimated to have invested about $564 million in the project so far, also has said it may use satellite assembly units owned by franchisees, alternative materials such as General Electric's re-engineered plastics, and some modern adhesives instead of welding to cut costs.
- Reuters
