World's cheapest car unveiled

NEW DELHI Thu Jan 10, 2008 2:33pm EST

1 of 5. India's Tata Group Chairman Ratan Tata poses with company's new 'Nano' car during its launch at the 9th Auto Expo in New Delhi January 10, 2008.

Credit: Reuters/Adnan Abidi

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NEW DELHI (Reuters) - India's Tata Motors Ltd unveiled the world's cheapest new car on Thursday, bringing car ownership closer for millions of poorer consumers in emerging markets but raising environmental concerns.

The 4-seater Nano, with an engine around 625cc, will have a dealer price of 100,000 rupees ($2,500), about half the cost of the cheapest car on today's market, a 25-year old model from Maruti Suzuki Ltd, Tata's great rival.

The Nano will go on sale later this year, the company said.

"Let me assure you and our critics the car we have designed will meet all safety norms and all foreign environmental criteria," Chairman Ratan Tata said as he proudly unveiled what had been dubbed the "People's Car" at the Auto Expo in New Delhi.

"In a way it is a high point for me. There is a sense of achievement and vindication," he told reporters later.

The compact but curvy Nano stands in sharp contrast to the luxury Jaguar and Land Rover brands that Tata is negotiating to acquire from Ford Motor Co.

Hundreds of people crowded into the pavilion to see the long-awaited launch, standing on chairs to get the best view as Tata introduced and then drove the car onto the stage in a media circus more worthy of a pop concert or an Oscar ceremony.

Tata planned the car years ago as a safer and more affordable alternative for the millions who often ferry families of four, plus baggage, on motorbikes and scooters.

"It's a dream come true," Ashok Singh, a constable with the Delhi Police, said at the show. "I look forward to buying that car. My wife will be really happy."

New cars are preferable to buyers in India, where the absence of an organized market for second-hand cars makes buying them a tedious and sometimes risky process.

Environmentalists are not so enthusiastic. They worry millions of the cheap cars will flood on to India's roads, many of which are already heavily congested, sending emissions levels sky high in Asia's third-biggest economy.

WAFER-THIN MARGINS

The car arrives at a time when oil has topped $100 a barrel, the move to fuel-efficient "green" cars is gaining momentum, and a wave of nostalgia has spurred sales of brands such as BMW's Mini and the Fiat 500 Cinquecento.

The car has a rear-mounted gasoline engine and travels 20km per liter, with a basic model and two deluxe variants and plans for diesel versions.

"The proof of the pudding will be in driving it, but visually it looks pretty good," said London-based auto analyst Ashvin Chotai, who was at Thursday's unveiling. "The pricing was a bit of a surprise. I thought it would be a bit higher."

Tata said costs were kept low by cutting the "size of the package", which brought about a reduction in material. Innovative processes and systems, for which the firm has filed 33 patents, also helped.

Chotai believed deluxe variants, which will include features such as air-conditioning, would account for bulk of the sales. Tata expects the car to sell well in semi-urban and rural areas as well as India's cities.

"Margins are still going to be very, very thin," he said.

Shares in Tata Motors, which has a market worth of $7.5 billion, fell 2.8 percent to 749 rupees, after having risen more than 4 percent, in a Mumbai market that ended 1.4 percent lower.

Tata Motors' stock trades at nearly 17 times forecast earnings, compared to 20.2 times for top utility vehicle maker Mahindra & Mahindra, whose shares fell 0.6 percent to 803.15 rupees on Thursday.

For additional stories, pictures and video from the Auto Expo go to here

Tata has said it will initially produce about 250,000 Nanos and expects eventual annual demand of 1 million units.

Global car makers -- initially skeptical that Tata could produce such a low-cost car -- are now scurrying to make their own versions to meet the needs of cost-conscious consumers in emerging economies such as China, India and Russia.

Ford this week said it would build a small car in India within two years, and the alliance of Nissan Motor and Renault, which has made a big success of its no-frills Logan sedan, plans a $3,000 car with Bajaj Auto.

Volkswagen, Toyota, Honda Motor and Fiat have also said they are looking at small cars for emerging markets where strong economic growth has made car ownership a reality for millions.

Tata said it would focus on the home market for 2-3 years before considering exporting the Nano to countries in Africa, Latin America and Southeast Asia.

With just 8 people in 1,000 owning a car in India, there is huge potential to upgrade bike and scooter owners, who bought about 7 million two-wheelers in 2006/07.

"Our challenge is just beginning," Tata said. "We have to deliver now on what we've promised today."

(Additional reporting by Rakesh Sharma, Editing by Louise Ireland/Mark Williams)

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