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CHAPTER – IV

GROWTH OF AUTOMOTIVE INDUSTRY

AND NANO DEVELOPMENT

4.1 INTRODUCTION

4.1.1 In 1670s, the first ever self-propelled vehicle was designed by Father

Ferdinand Verbiest (Flemish Jesuit missionary, China). Later, a steam engine

powered car was built by Joseph Cugnot in 1769. The first four wheel automobile was

manufactured by Gottlieb Daimler in 1886 employing a V-slanted engine. The first

automobile powered by IC engine was designed & built by Karl Benz and over 15

million vehicles were manufactured by Henry Ford by 1927. Hybrid cars were

manufactured after 1900’s and the first hybrid commercial truck was manufactured in

1910.

4.1.2 Urban population is expected to increase from the present 28% to around 45%

by 2025. Rural population is also becoming progressive and there is a huge market for

automobiles in India. Automotive industry in India is one of the largest and one of the

fastest growing industries in the world. India manufactures over 11 million vehicles

(including 2 wheeled and 4 wheeled) and exports about 1.5 million annually. India’s

passenger car and commercial vehicle manufacturing industry is the seventh largest in

the world, with an annual production of more than 2.6 million units in 2009. There are

22 commercial vehicle manufacturers, which are engaged in the production of

automobiles in India. Indian automobile market has become highly competitive today.

Auto manufacturing companies need to adopt value engineering methodologies and

take policy initiatives in real earnest to secure a competitive edge in the market,

reduce manufacturing costs & improve the quality of products. Value Engineering

methodologies can serve as an important tool to improve quality and reliability of

products at reduced costs and achieve the target costing objectives of the firm. Value

Stream Mapping (VSM) is a powerful visual, simple and easy to implement tool for

lean manufacturing which allows the firms to understand and improve continuously

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various types of wastes (mudas) in the manufacturing process to improve bottom lines

and satisfy customers in modern competitive market environment.

4.2 BACKGROUND

4.2.1 The demand of automobiles is increasing continuously across the globe.

Automobile industry basic parameters are strong and despite the recent increase in

diesel prices dieselization of vehicles will certainly continue in the short term. We are

witnessing, today new launches of improved versions of vehicles with attractive

features .Manufacturers are offering to customers, heavy discounts, attractive

financing options and bank loans at lower interests to boost their sales. Success of a

company depends on making the customers happy and everything else, is incidental.

Management must make concerted efforts to understand the needs of customers to

provide service and after sale service to succeed in the market. Meeting the customer

demand is of high importance and reduction of lead time plays a vital role for

continuing and improving the business. The long lead times and high work in process

inventory are eating into the vitals and are reducing the profit margins. Increasing

global competition and complexity in the automotive sector has led companies to find

ways to maximize value of their products, processes, projects, or services within a

total system. Value Engineering has evolved into a strategic and an innovative tool

that has the potential to search alternative materials, technologies and processes

through evaluation of creative ideas. The maximized value is approached from a

customer viewpoint and the related function is expected to operate at the least cost

without affecting its quality and reliability. The literature on Value Engineering

covers all the issues involved, but it is essential to consider all the related aspects too,

that focus on maximizing values from the customers’ point of view in a

comprehensive manner.

4.2.2 Global economy is passing through critical times, today. This time the

economic slow down is widespread and has affected the advanced economies &

developing countries like China and India etc across the globe. All countries are likely

to post lower growth rates during 2012, than that what was forecast earlier. Austerity

measures being adopted by the developed economies are leading to social unrest and

unemployment. Consumer sentiment continues to be down and the Auto industry

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growth in 2013 is likely to remain slow. Rising inflation rates, interest rates and fuel

prices are adversely impacting the auto industry. Even the biggest automakers across

the globe are experiencing series of setbacks in the current times. Auto industry

economy is experiencing a slowdown shock. Since January, 2012 passenger car

industry as a whole has witnessed a drop of 15% in recent months, but India has a

mature and developing auto industry market. Every stake holder in the auto industry is

banking on improvement in the buyer segment by the end of 2012. Commercial

vehicle sales are projected to double in 5 years from 0.8 million in 2011-12. TML and

Ashok Leyland have planned to introduce new products and establish new networks

to reach out to their customers for offering a stiff competition to the new entrant

Bharat Benz trucks in the coming years. Force Motors, a manufacturer of commercial

and utility vehicles, launched “Traveller 26” LCV in October, 2012. The bus is

powered by a 129Ps/295 Nm common rail engine made under license from Daimler

AG. It uses dual mass fly wheel technology and has ventilated disc brakes on all

wheels. U.S. car major General Motor Company is likely to launch its hatchback Sail

sedan version and multipurpose vehicle, Enjoy by end of 2012.

4.2.3 In recent months, Mahindra and Mahindra group has been growing its auto

manufacturing segment and has entered all segments of the automobile industry with

its overseas forays and acquisitions. Farm equipment sector sales were low in Q2 and

is struggling to survive today. Operating margins were lower at 11.4% (12%). The

company performance was boosted with higher sales in vehicles and SUVs by 32%.

M & M has launched its first premium SUV in October 2012.

4.2.4 The two wheeler major Bajaj Auto sales from April-September 2012 has

experienced a down slide of 4%. Its exports have also declined by 4% during the same

period. Bajaj Auto has 27% share in the two wheeler domestic market and 33%

market share including exports. The company has adopted a strategy to focus on high

end motorcycle segment with its variable cost structure. Customers are value

conscious. Mileage is important, but customers want to have more features. Better

technology offers an opportunity to add features in different segments of vehicles.

4.2.5 The Mercedes Benz had started its luxury car sales, in completely knock down

(CKD) condition in India. Luxury car sales had been zooming at 50% CAGR from

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2007 till 2011. Slow down has started since Jan 2012 and in the first 8 months of

2012, luxury car sales have been flat with a modest 8% growth. The company has

sold 250 B-class imported vehicles in 2012, but the market remains unpredictable.

Audi and BMW mini SUV’s sales have increased affecting adversely the company car

sales. It has now introduced B class segment cars in CKD to beat the competitors.

Mercedes-Benz rolled out its first locally manufactured M-class luxury SUV costing

Rs. 45.64 lakhs from its Chaka plant near Pune in October, 2012. In the premium

hatchback segment there are both diesel and petrol variants. The SUV segment is

dominated by diesel vehicles and no petrol SUV is selling fast. Currently, diesel

vehicles are available in hatch back and the low end segment sedan cars.

4.2.6 The German Auto giant Mercedes Benz is set to introduce three heavy duty

global standard trucks with the caption Bharat Benz under its 100% owned subsidiary

Daimler India commercial vehicles Pvt. Ltd (DICV) . Indian commercial vehicles

segment will become highly competitive in the coming decade 2012-22. Competition

among the truck manufacturers will ultimately benefit the customers and fleet owners.

The company plans to launch 17 product in the range of 7 to 49 Ton trucks. DICV

Chennai plant has been setup with an investment of 40,000 crores, employing 2000

personnel and has a capacity of producing 36,000 units per annum with 85-90% local

content. The company will also provide financing facilities to customers through

banks.

4.2.7 Presently, TATA Motors Ltd has a 56 % market share followed by Ashok

Leyland in India. Bharat Benz trucks are expected to capture 4-5% market share. The

company plans to provide after sales service through 28 dealer networks in India. The

company has planned a long term commitment and is not focusing on short term goals

like volumes. It has decided to continue increasing its investments in the plant for

tooling, assembly line and capacity enhancement to be able to roll out all new

generation compact car models starting from 2014 onwards. The company has fully

geared up for a bigger role in future.

4.2.8 Ford company had commenced its operations as a marginal player in India, in

1995. It became a serious player with the launch of FIGO model in March, 2010. Ford

company opines that hatchbacks are having high volumes in India. It has established

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its manufacturing plants in Chennai and Gujrat with a capacity to manufacture 4.4

lakh vehicles and 6.1 lakh engines p.a. for export and sales in India. In order to beat

its competitors, around 70% local content will be introduced in the low-cost ECO-

Sport SUV car to make it competitive & obtain economy of scale through exports and

sales in India. Ford company has failed to attract customers for the sale of its global

Fiesta Sedan launched in July 2011. Currently, Ford has adopted a multi-pronged

strategy for the years 2012-2014 to introduce new compact models and achieve high

volumes in India.

4.2.9 Recall of 7.4 million vehicles worldwide on 10th October, 2012 by the

Japanese biggest automaker Toyota Motor Corporation has dented the reputation of

the corporation, besides causing its economic loss. However the process of repairing

the driver side power window switches involved only putting heat-resistant grease on

the switches or exchanging them to mitigate the cause of fire. It has been reported in

September, 2012 that the Italian sports car maker Lamborghini is recalling 1500

Gallardo Coupe and Spider auto models from years 2004 to 2006, because the power

steering fluid could leak and catch fire. Lamborghini documents sent to US safety

regulators state that pipes can corrode near the power steering pump. In rare cases,

fluid can leak onto the hot engine and cause a fire.

4.2.10 Japanese Auto Major Nissan Company has established a manufacturing plant

at Orgadam near Chennai . It had sold 33,000 vehicles in 2011 and has planned to

sell 66,000 vehicles in 2012 , besides maintaining its export volumes at 100,000

vehicles per annum. The company has already launched six models (including 3

models manufactured in India). The company has launched a 7 seater vehicle Evalia

in 2012 and it has planned to launch 10 new models including Datsun in 2016.

4.2.11 Volkswagon India has introduced Vento and Polo variant cars in India and has

a market share of just less than 3%. The company sold 6,091 vehicles in August,

2011, but the sales have dropped to 4,410 vehicles in August, 2012. Passenger car

industry as a whole has witnessed a drop of 15% in recent months. Volkswagon

company opines that India is a mature and developing car market. The company has

planned its growth as a customer driven organization. A large number of factors

affect the sales. It is necessary to keep a continuous watch over the car market. If the

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car market continues a declining trend, the industry will experience severe margin

pressures.

4.3 GROWTH OF INDIAN AUTO INDUSTRY

4.3.1 Bharat Ratna Sir M.Visvesvaraya visited the United States of America during

1930’s and prepared a report on automobile industry for starting the automobile

industry in India. As a result, the Italian automobile manufacturer established a FIAT

Car manufacturing plant in Mumbai during early 1940’s. Around the same time Mr.

G.D. Birla established the Hindustan Motor Company in Calcutta for the manufacture

of Hindustan Cars. Sir Jamshed Ji Tata also established the steel industry at

Jamshedpur and TELCO company at Jamshedpur in 1945, which started

manufacturing 3ton Tata Mercedez Benz (TMB) trucks under license from M/s

Merecedez Benz of Germany. Until the decade of 1970’s there were only three cars,

Fiat from Premier automobile Ltd., Ambassador from Hindustan Motors and

Standard from Standard Motors Company were being manufactured in India.

4.3.2 After the entry of M/s Suzuki Corporation in India, automobile manufacturing

industry has witnessed rapid growth since early 1980’s and by the late-1990's the

industry reached self reliance in engine and component manufacturing from the status

of a large scale importer of components and vehicles. Over a period of more than two

decades the Indian Automobile industry has experienced rapid growth driven by the

entry of foreign players and indigenous manufacturers with foreign collaboration.

During 2012-13, 2.7 million cars, 13.8 milion two-wheelers and about 8 lakh trucks

and buses were sold, making India one of the world’s biggest automobile markets.

With comparatively higher rate of economic growth in comparison with the global

powers, India has become a hub of domestic and exports business. In recent years,

automobile sector has been contributing around 12% share to the GDP growth in

India.

4.3.3 Currently, the key players in automobile industry include Hindustan Motors,

Maruti Udyog, Fiat India Private Ltd, Tata Motors, Bajaj Motors, Hero Motors,

Ashok Leyland and Mahindra & Mahindra. A few of the foreign players include

Toyota Kirloskar Motor Ltd., Skoda India Private Ltd., Honda Siel Cars India Ltd.,

Ford Motor Company, General Motors, BMW, Audi, Nissan, Volvo, Force motors,

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Porsche, Chevrolet, Hyundai, Daewoo, Reva, Toyota etc. Foreign companies have

established their plants in India to share the benefits of market growth. Many new

projects are coming up in the automobile sector. Auto-Expo exhibitions are being

organized every year at Pragati Madan, New Delhi to interact and exchange views

with the foreign exhibitors and share their experiences and technological

advancements.

4.3.4 Tata technologies have unveiled a cheap Electric Car eMO (Tata’s Business

Card) at the Detroit show in January 2012 which is priced at $ 20,000. Mr. Kewin

Fisher heads the groups vehicle development team. It weighs 900 kg and according to

Warren Harris, President, Tata Technologies, this vehicle employs intimate

understanding of frugal engineering principles. The vehicle has a steel frame which

meets the existing crash standards and has a seating capacity for four adults.

4.3.5 Domestic players as well as the foreign companies are exporting their products

today. Indian automobile manufacturers including Tata Motors, Maruti and Mahindra

and Mahindra are the major exporting companies to Europe, Middle East, Africa and

Asian markets. After having firmly established themselves in the domestic market the

automobile sector is now penetrating the international arena and vehicle exports are at

their highest levels. Top Ten Players in Indian Automobile Sector include Maruti

Suzuki India, Hero Motors Limited, Tata Group, Bajaj Auto Limited, Mahindra

Group, Ashok Leyland, Yamaha Motor India, Hyundai Motors India Limited, Toyota

Kirloskar Motor Private Limited and Honda Siel Cars India Limited.

4.3.6 Tata Motors Ltd. CNG variant of Nano is going to hit the roads much before

the diesel variant. The diesel variant is expected to be launched after one year. The

CNG model was displayed at the Indian Auto Show 2012. It offers a dual fuel option

of CNG and petrol. At a time, when fuel conservation is becoming an imperative

across the world, Tata Motors is aiming to make a car, Tata Megapixel that can

deliver up to 100 kilometers from a litre of fuel by using a unique combination of

technology. The Tata group has announced in July 2012 the development of a four-

seater concept vehicle which is a global range extended electric vehicle (REEV)

meant for city driving. This new innovation from the Tata group is expected to be

commercially launched in around three years from now.

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4.3.7 In June 2013 TML unveiled ‘Horizonext’, an aggressive customer-focussed

strategy. Passenger vehicle sales had been on a downswing for the last two years and

the number of vehicles sold had been reduced from 22,000 vehicles a month two

years ago, to 8,927 units in May 2013 (reduction of 48.6%). Currently, TML is at an

inflexion point for its passenger vehicle business. People’s car Nano is selling only

around 1,000 units a month against an installed capacity of 25,000 a month at the

Sanand unit. Company has decided to manufacture other small cars at Sanand. Every

manufacturer goes through product life cycles. TML has not introduced any new

products involving a huge expenditure during a downturn.

4.4 NATIONALMANUFACTURING POLICY 2012

4.4.1 The manufacturing sector including automobile industry has emerged as a

science based knowledge intensive high technology area with serious implications for

technical change, competitiveness, growth in employment, trade patterns, location of

manufacturing activities and global division of labor. Moreover, new climate-

responsive technology development is an essential part of attempts to resolve the

pressing environmental problems haunting the human civilization to realize the goals

of transformational growth. The crucial factor for realizing the rising expectations and

aspirations for future auto industry growth in India, is the effective use of modern

science, state of art manufacturing machinery & technology, automation , robots and

infrastructure development.

4.4.2 The national manufacturing draft policy promises to create 100 million new

jobs and increase the share of manufacturing from its present level of 15-16% to 25%

in the country’s GDP by 2025. Some states, like Rajasthan, Maharasthra and Gujrat

have already started acquiring land for creating national manufacturing and

investment zones (NMIZ) in their states to boost the growth of manufacturing

industry segment. Central Government is seriously concerned about an impending

slowdown in the manufacturing sector and industrial production. Industry sources are

worried about high cost of credit, investment slow down, skill shortage, high input

cost, hurdles in getting environmental and other clearances and logistics support. A

manufacturer would like to have easy access to infrastructure at reasonable cost, ready

to deploy labor force and the flexibility to align the cost of personnel to the scale of

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operations and provisions for managing the eco system. Special Incentives for Green

Technologies and manufacturing units in NMIZs include the following:

· Low-interest loans for manufacturing to invest in new plans to produce

clean/green technology for investments in new plants to produce green products.

· Creation of a central fund for supporting research in the areas of green

manufacturing

· Provide grants for workers training that will lead to expanded energy efficiency

and renewable energy industry workforce.

· Preference to green units/green products during procurement by State/Central

Government.

· If an SPV in a particular NMIZ decides to have an IPP based on renewable green

technology, an investment subsidy to cover the additional interest cost per mega

watt may be considered.

4.5 SUBSITITUTION OF STEEL BY LIGHTER MATERIALS

4.5.1 In the contemporary world, the spirit to innovate on technologies has become

the central force that transforms emerging economies as their expanding market

potentials, provide enormously challenging environment which breeds innovations.

4.5.2 From Automotive to aviation, no sector can perform without steel industry.

Steel forms 60-65 % of the total weight of the vehicle. Flat products, such as hot

rolled, cold rolled and coated steel sheets account for about 80% of steel products

consumed by the auto makers. However, the OEM’s are still importing their specific

requirements of High strength steels, Advanced high strength steels , Dual - phase

and Trip steels to meet their needs. Currently, steel is being substituted by the use of

aluminum, magnesium, titanium, carbon fiber , non – metallic’s like SRP

composites, plastics, resins ,etc. Even as the automotive industry is growing at a rapid

rate , the demand for steel is gradually decreasing due to the use of newer lighter

materials to effect, value- addition , weight reduction and cost – reduction as well as

to effect improvements in fuel efficiency and emission norms . These substitute

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metals also show good resistance to corrosion and impact . At present, 30-35% of the

auto components are being manufactured out of non – metallics, which would

increase soon to 40-45% .

4.5.3 The overall production volume in the automotive segment is estimated to grow

at a capital CAGR of 10.3 % over the next five years FY -2011-15 as shown in the

graph.

Figure 4.1

4.5.4 The key growth drivers of auto industry are the growing population with

increased income and spending levels and attractive financing options. Government

policies and initiatives are also positive factors. Owing to the availability of skilled

human resources and talent pool, low-cost sourcing abilities and increased domestic

demand, India has become a manufacturing hub for the establishment of both

technology and manufacturing platforms of auto manufacturing and auto components

industry. The restraints for the auto industry growth, include increasing fuel prices,

freight charges, infrastructure bottlenecks, fluctuating rates of interest, emission

norms/levels, aging norms and loading limits for the commercial vehicle segment.

Industry needs to offer the consumers, innovative value-added products in future to

boost its growth prospects. The growth of automotive industry has also provided a

strong impetus to the forging industry, since the newer generation of cars require

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better quality forgings. M/s Amtek, Bharat Forge and Sundaram Fasteners are

providing necessary support to the auto industry.

4.6 FACTORS FOR GROWTH

4.6.1 It is pertinent to understand that S&T inputs and innovations, along with

institutional reforms have the potential to transform the auto sector that is vital from

development perspectives. Quality assurance is essential for manufactured products.

The factors that are presently affecting the growth of automobile industry during

2011-12 include, high interest rates, inflation rates, high petrol prices and the

prevailing negative economic sentiments in the market. During 2011, overall industry

sales increased by 14.25% or 1.69 crore units as against 1.48 crore units in 2010.

· Passenger car sales grew by 4.24% and 19.46 lakhs vehicles were manufactured as

against 18.67 lakhs vehicles in 2010.

· Two wheeler vehicle figures grew by 16.22% and 1.3 crore vehicles were

manufactured.

· Commercial vehicles figures grew around 18-20%

· Three wheeler sales grew around 4.74% and 5.25 lacs units were sold

· Overall sales of Indian automobile sector growth recorded 24-26%

4.7 ESTIMATED GROWTH OF AUTOMOBILE INDUSTRY 2012 – 2013

4.7.1 During 2012-13 interest rates are not likely to increase and the RBI is

excepted to reduce interest rates by 250-500 basis points; fuel prices are expected to

become stable and all the other indicators are positive for growth.

· Car sales are expected to grow by 12-13%

· Two wheelers sales are expected to grow by 11-14%

· Commercial vehicle sales are expected to grow by 12-14%

· Three wheeler sales are expected to grow by 10-12%

· Overall domestic automobile industry is likely to grow by 10-12%

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The forecast of various types of 4-wheelers production in India is shown in Table 4.1

Fig. 4.2 – Market Share – Commercial Vehicles

Commercial Vehicles

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4.7.2 keeping in view the low growth in auto sales during the July- Sep Quarter and

the overall macro – economic situation in India , low sentiments , high petrol prices

and high rates of interest the society of Indian Automobile Manufacturers (SIAM) has

revised the auto sales figures projections on 10th Oct 2012 which were issued during

July 2012 as follows :

S.No LOW GROWTH STATEMENT Oct.2012 July 2012

A Overall auto industry expected sales growth by 5 - 7% 11-13 %

B Passenger Vehicles including cars and utility

Vehicles

8-10% 11-

13%

C Utility Vehicles 50-52% 29-31%

D Two Wheelers 5-7% 11-13%

E Three wheelers 0-2 % Nil

Table – 4.2 LOW GROWTH STATEMENT

September 2012 experienced the steepest fall in vehicle sales growth at 9.43% during

the last four years. The festive season has failed to boost customer sentiment of car

and two wheeler buyers. Domestic car sales in September 2012 declined by 5.36%,

while the Motorcycle sales declined by 18.85%. Total sales of vehicles across all

categories registered a dip of 9.43% to 14.18% lakh units sold in Sep 2012 as against

15.65 lakh units sold in Sep 2011. In December 2008 vehicle sales had declined by

18.25% .The sharpest decrease in two wheelers sales figures was 23% in December

2008.

4.8 POLICY INITIATIVES

4.8.1 Government policy initiatives are necessary to create a vibrant and globally

competitive automotive industry. Enhancement in value addition and local

capabilities of the automotive industry are necessary to achieve significant results.

Government initiatives also act as catalytic agents for growth and development of

automotive components and parts manufacturing industry. Automotive industry is

perceived by researchers as an important sector representing the biggest industrial

sector in the world economy (Helper, 1991). Furthermore, Berdoto (1991) and Wells

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& Rawlinson (1994) in Story et al. (2001) highlighted that significant changes have

taken place in the automotive industry structure. Automotive manufacturers are

always under pressure to switch over to new technologies and processes, cut costs,

shorten lead times for introduction of new product makes and models and resort to

outsourcing of components by devolving to suppliers much of the burden of designing

and manufacturing various components and assemblies.

4.8.2 Indian automotive components manufacturing industry is exporting large

number of assemblies and components to meet the requirements of automotive

industry giants across the globe. Automotive components industry must keep abreast

of latest technological developments for continuous upgradation of manpower skill

requirements, machinery and tools. Industry must adopt cost management techniques

for cost-reduction, enhancing durability and quality of parts and customers’

satisfaction. According to Yoshikawa, Innes & Mitchell (1995), cost management

requires continuous monitoring and vigil for integrated activities during the product

life cycle. Cost management is most effective during pre-production (planning and

design) phases where greatest impact can be achieved. Cost management

effectiveness increases, if it becomes a part of the company policy. Company should

create a suitable environment for this purpose and should ensure availability of

necessary resources. VE principles serve as a strategic tool in cost management and

provide better products or services at lesser cost (David, 1999). Few researchers have

examined how companies adopt value appraisals, technologies and VE tools for their

product development (Lindgreen and Wynstra, 2005). Further research is needed to

examine this aspect.

4.8.3 Global competition and complexity in the automotive sector has also led

companies to employ latest materials, technologies and processes for value addition

in their products. VE employs functional analysis to identify and eliminate

unnecessary cost by introducing cost effective design of products or redesign of

products, processes, projects or services.

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4.8.4 All organizations need to reduce unnecessary cost by identifying and

eliminating waste at the earliest opportunity. Fong (1999) described VE as a creative

group problem solving technique. VE becomes a useful tool in resolving issues in

the organization by identifying the main function of design, product, project or

service. VE has evolved into an innovative tool that develops alternatives through

evaluation of creative ideas and serves as an important tool in the pursuit of obtaining

a competitive edge in the market.

Table 4.3 : Auto Component Industry Sales (Source: ACMA)

4.9 AUTO COMPONENT INDUSTRY

4.9.1 The Indian auto component industry is one of India's sunrise industries with

tremendous growth prospects. From a low-key supplier providing components to the

domestic market alone, the industry has emerged as one of the key auto components

centers in Asia and is today seen as a significant player in the global automotive

supply chain. India is now a supplier of a range of high-value and critical automobile

components to global auto makers such as General Motors, Toyota, Ford and

Volkswagen, amongst others. The evolution of the Euro emission norms also made

the manufacturers rethink their business plans to meet the demand for improved

products. The potential compounded annual growth rate (CAGR) of the auto

component industry is estimated to be around 26 per cent in the period 2010-11.

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Exports from the auto component industry are estimated to be worth US$ 5 billion in

2010-11.

4.9.2 Important Components Manufacturing Companies include the following:-

· Sona Koyo Steering Systems, Rane Madras and Rane TRW Systems are the key

players in steering systems.

· Bharat Gears, Gajra Bevel Gears and Eicher are some of the major players in the

gears sub-segment. Two international companies, Graziano Transmission and

SlAP Gears, have set up their base in India.

· Clutch Auto, Ceekay Daikin, Amalgamations Repco and Luk Clutches are the

major players in the clutch sub-segment. Rane Brake Lining and Rico Auto are the

key players manufacturing clutch-facings.

· GKN Drive shafts (India) and Delphi cater to the drive shaft requirements of

passenger cars and Sona Koyo Steering Systems services to the commercial

vehicle segment.

· Brakes India, Kalyani Brakes and Automotive Axles are the three major brake

system suppliers in the country.

· Rane Brake Lining, Sundaram Brake Lining, Hindustan Composites and Allied

Nippon dominate the brake linings sub-segment.

· Jamna Auto and Jai Parabolic are the major manufacturers of leaf springs.

· Gabriel India, Delphi and Munjal Showa are the key manufacturers of shock

absorbers.

· Lumax, Autolite and Phoenix Lamps are the key players in the headlights sub-

segment.

· Premiere Instruments and Controls is the leading player in the dashboard sub-

segment.

· Jay Bharat Maruti, Omax Auto and JBM Tools are the major players in the sheet

metal parts sub-segment.

· Lucas TVS, Denso, Delco Remy Electricals and Nippon Electricals are the key

players in this segment.

· Phoenix Lamps, Autolite, Hella India and Lumax are prominent players

manufacturing sheet metal parts.

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4.9.3 The government had taken a number of initiatives to promote foreign direct

investment (FDI) in the industry, that include:-

· Automatic approval for foreign equity investment up to 100 per cent of

manufacture of automobiles and components is permitted

· The automobile industry is de-licensed

· Import of components is freely allowed

4.9.4 The Ministry of Heavy Industries and Public Enterprises has prepared the

Automotive Mission Plan 2006-2016, which would promote the growth of auto sector

to achieve the following targets :-

· Increase turnover to US$ 122 billion – US$ 159 billion by 2016 from US$ 34

billion in 2006

· Increase export revenue to US$ 35 billion by 2016

· Provide employment to additional 25 million people by 2016

· The automotive sector would be expected to contribute 10 per cent of the

country's GDP by 2016

4.9.5 The auto component industry appreciated the government's announcement of

excise duty rollback being limited to 2 per cent during the Union Budget 2010. The

government had also announced the increase of deduction limit for Research and

Development (R&D) in the sector from 150 per cent to 200 per cent.

4.10 CURRENT PROBLEMS IN AUTO-INDUSTRY

4.10.1 Indian auto industry is one of the most promising and growing auto industries

across the globe. Indian auto industry is facing a number of challenges in the growing

domestic market. Since last 3 months April-June 2012, car manufacturer’s inventory

has piled-up due to the worsening economic condition in India and across the globe.

Production has dropped in the last two months at Tata Motors Jamshedpur and was

negligible since 23rd June, 2012. Therefore, after consultation with the Tata Motors

employees union, production had been halted for 3 days from 28th – 30th June, 2012.

Inventory has been piling-up in auto manufacturing companies in India since April

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2012. Major auto industry challenges being faced by the auto industry, today include

rising oil prices, alternative fuels technology and skill development.

(a) International price of crude oil is always in flux and had crossed US$ 120 per

barrel. The market experts predict that the crude oil price will plateau around US$

100 per barrel. The skyrocketing crude oil price rise is affected by the

International news & events. Escalation in oil prices creates an adverse impact on

the economic growth of most of the nations. It also creates a negative impact on

the growth of global automotive industry. The prospects of India and China

becoming an economic superpower will be seriously affected due to the rising oil

prices. The use of alternative fuels should be increased to avoid any future glut in

the market. This would require higher investments to be made in R&D, radical

redesigning of engines and establishment of mechanisms to translate R&D results

into products for their efficient manufacturing.

(b) Fuel technology is highly important to ignite the growth of auto industry.

Technology drives the growth for all types of vehicles including four-wheeled and

two-wheeled vehicles. Alternative fuel technology development would ensure a

higher rate of growth in auto industry. Increasing level of environmental pollution

due to rising number of vehicles is posing a greater challenge for auto

manufacturers and all those who are affected by the industry. We need to develop

a holistic and integrated approach to reduce carbon dioxide emissions. Initiatives

required to be taken to reduce the level of automotive emissions, include the

introduction of fuel-efficient cars, obligatory periodic maintenance, and regular

inspection of automotives, use of recyclable materials for the design of

automotives, use of alternative fuels like CNG, LPG, biodiesel, and introduction

of electric and hybrid cars. Maruti Suzuki has already taken steps to use recyclable

substances in the production of its Maruti Suzuki A-Star model car. The company

is planning to use the same concept in the production of all its future car models.

(c) Skilled human resources have always been a key growth driver in any industry,

including the automobile industry. India has a vast pool of talented and skilled

professionals, but the country needs to support and employ these resources to

excel in all areas of industry. Highly skilled manpower is the most reliable source

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for developing a competitive advantage in automobile industry across the globe.

Today, innovative ideas, creativity, expertise in different areas and value

engineering applications are proving to be an important asset in industry. Indian

work force has the capacity to produce better and reliable automotives, but we are

lagging behind to develop the expertise in areas of servicing and maintenance of

automotives in their life-cycle span. Therefore, we need to create a pool of

manpower resources to provide MRO facilities.

4.10.2 Firstly, there are few engineering colleges and technology institutions which

are running automobile engineering courses in India. Many institutions used to

provide training in automotive engineering through well-established Mechanical

Engineering and Internal Combustion Engineering (ICE) departments. However, the

new wave of IT, electronics and communication technology has reduced the

importance of Mechanical Engineering and ICE departments in engineering colleges.

More than 50 per cent of the total components of the current automobiles are using

electronics components and the number of communication technology gadgets is also

increasing. It needs no emphasis, that education and training in electronics and

communication engineering technology should not be made at the cost of education in

the fundamental aspects of auto-engineering and thermodynamics. We need to

redesign our automotive engineering courses to augment the number of auto engineers

for robust growth of auto industry. We also need to develop human resources to carry

out research in the auto sector and achieve the necessary breakthroughs for designing

the next-generation vehicles.

4.10.3 Secondly, we need to improve the quality of skilled and semi skilled

manpower for the auto industry. Existing vocational training institutions should be

upgraded and new institutions should be started. National Knowledge Commission in

its recent report has given several recommendations to improve vocational training in

India. Central Government has accepted all the recommendations made by the

National Knowledge Commission. Major recommendations of National Knowledge

Commission, include rebranding of vocational education by updating the syllabi and

public-private partnership (PPP) in the establishment and governance of vocational

educational institutions. Accordingly, the finance minister has allotted an initial

amount of Rs. 1,000 crores in the budget for 2011 to establish a corporation of Rs.

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15,000 crore outlays through PPP model. This corporation is expected to

revolutionize and transform the vocational education in the interest of industry.

4.10.4 Thirdly, we need to address the problem of shortage of human resources in

auto design. The creative human resources in India need to be trained to design

contemporary products in general and autos in particular. National Institute of Design

at Ahmedabad is playing a seminal role in producing good designers. However, the

output of this institute is very small. Therefore, in order to meet the current demand

for designers, we need to establish a number of such institutes, either through public-

private partnership or solely by private sector. Advancements in technology and inter

active media learning processes should be employed to achieve excellence in drivers

improvement training programs and their behavioral skills.

4.11 ELECTRICITY OPERATED VEHICLES

4.11.1 National Electric Mobility Mission Plan 2020 is expected to be released in

2012. This plan is likely to focus on laying down the broad policy guidelines for

starting a substantive level of customised mass manufacturing of low-carbon vehicles

in India. India is largely dependent on imported crude oil and is vulnerable to price

volatility in the global oil market. Government has conducted a comprehensive survey

in collaboration with Society of Indian Automobile Manufacturers (SIAM) to

ascertain the market potential for production of the requisite number of electric &

hybrid vehicles as well as the manufacturing capabilities of the indigenous industry.

4.11.2 M/s Mahindra and Mahindra company is manufacturing electric four-wheeled

vehicles and M/s TVS Motor, Hero Electric and Electrotherm companies are

manufacturing electricity operated two-wheeled vehicles in India. Electric bicycles

are being produced by M/s Atlas, Avon and TI cycles. India can learn a lot from the

initiatives taken by the French government for promoting the manufacture of low-

carbon vehicles in France.

4.12 FRENCH AUTO INDUSTRY

4.12.1 It is worthwhile to consider the case of French automobile industry. A large

fleet of 15,000 electric passenger and lightweight utility vehicles (LUV’s) are plying

in France. France has the third largest fleet of LUV’s in Europe after United States

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and Japan. Invest in France Agency (IFA) offers a platform for foreign industrial

players who are keen to develop low-carbon vehicles in an environment which highly

conducive to innovation with top-tier training for engineers.

4.12.2 Battery operated electric cars and hybrid rechargeable cars with extended

battery life or fuel cells are at the core of French manufacturing policy. Around 30%

of new vehicles manufactured in France would be electric vehicles by 2025. However,

20% of new vehicles manufactured in France must be electric vehicles by 2020.

French industrial houses and policy makers are providing support to the government

initiative, since there is a growing need to address environmental concerns across the

globe. It is necessary to boost the production of low-carbon vehicles to enhance

competitiveness of this sector and secure its autonomy from fossil fuels. Industry

professionals should make a commitment to produce low-carbon vehicles, that can

meet the necessary customer requirements of quality standards, high performance,

smoothness of handling and safety standards etc.

4.12.3 Lithium-ion batteries are being manufactured by M/s SAFT and Lithium

polymer batteries are being manufactured by M/s Batscap-Bollore in France. M/s

Renault was expected to start manufacturing electric engines in 2013 and start

manufacturing batteries in 2014 to increase production of electric and hybrid vehicles.

M/s BMW in partnership with M/s PSA would start a hybrid vehicle components

manufacturing plant in Eastern France in 2014. Parts manufacturers such as M/s

Valeo are involved in the electrification of the traction chain power electronics and

vehicle-weight reduction value engineering product.

4.12.4 Government has allocated euro 100 million for the development of low-carbon

vehicles and emission reduction to four innovation clusters. R & D efforts are

receiving a boost through government’s research tax credit and the active role being

played by the innovation agency OSEO. France is committed to the policy of

development of low-carbon vehicles. Vehicle development project for rechargeable

electric and hybrid vehicles was started in 2009. A multi-year land-transport program

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of euro 400 million, allocates an average of 50% of its funding to electric and hybrid

vehicles.

4.13 CHANGING SCENARIO

4.13.1 National Automobile Policy was released in 2013. Passenger and commercial

vehicle segments have become highly competitive in India with the entry of

international brands like Ford, GM, Fiat, Audi, Mercedez Benz, Volvo and Navistar.

TML is likely to introduce a new line of highly competitive, fuel-efficient vehicles to

face the competitors challenge and garner a higher market share. Market share of

TML had reduced during 2011-12. In order to regain its earlier higher market share

and develop a competitive edge in the market, TML has planned to start the

manufacture of cars with indigenously developed higher powered and more fuel-

efficient engines.

4.14 GROWTH OF TATA GROUP

4.14.1 Initially, Tata engineering and locomotive company (TELCO) started with the

manufacture of 3ton TATA MERCEDS BENZ (TMB) trucks during 1940’s for

military supplies. These trucks were manufactured under license. Diesel engine and

steel for the truck chassis were imported from Germany till 1950’s. Life of TMB

truck was more than 2 lakh KM. Later on, M/s TELCO started manufacturing the

engine under license from Mercedez Benz and the chassis steel was substituted by

Indian steel. Indian steel did not have consistency in its composition and the life of the

chassis was reduced to around one lakh KM only.

4.14.2 Gradually, the manufacture of TMB trucks was fully indigenized and

Mercedez Benz license was not renewed after its expiry. M/s TELCO introduced 7ton

trucks and diversified into the manufacture of 15ton trucks, cranes and other

specialized equipments. M/s TELCO established the second truck manufacturing

plant at Pune to meet the growing demand for its trucks. An Engineering Research

Centre (ERC) was established at Pune to support the design and development

activities of the company. The company has diversified into the manufacture of diesel

and petrol cars. INDICA pickup van was first introduced during 1970’s. These pickup

vans had number of defects including breaking of leaf springs & chassis cracking etc.

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An improved INDICA V-I model diesel car was introduced, but its performance was

further improved through R & D efforts and a new V-II model was launched, which is

giving an excellent performance and the company has created a loyal customer base.

TML has also entered various segments of auto industry and its vehicles are giving

satisfactory service to the customers.

4.14.3 Mr.Rattan Tata, while addressing the 67th AGM 2011-12 stated that the

fundamental economies of Nano car in the Indian market, which was globally

acclaimed in the EXPO 2008, will be strengthened by providing a wider sales and

service network. The potential market for such a small and affordable car is enormous

throughout the developing world. Although inventory is piling up in all auto

companies, since April 2012, TML needs to address the customers demand for market

preferences with its newer fuel efficient, value added and aesthetically improved

models to garner higher market share in the Indian small car segment.

4.14.4 Despite the slowdown in auto industry there is a continuous increase in

demand of automobiles from global customers. Meeting the customer demand is of

high importance and reduction of lead time plays a vital role for continuing and

improving the business. The long lead times and high work in process inventory are

eating into the vitals of the industry and are reducing the profit margins. We are living

in an increasingly globalised world, where growth is slowing down in large markets

including US, UK and Europe. Uncertainty has increased in this challenging

environment, which has affected the customer’s confidence. Companies should

change their focus from growth to increasing efficiency, maintaining stability,

employment and risk prevention. Index of Industrial Production (IIP) has reduced

between 0.7 – 2.4% during the period ending September 2012. Therefore,

manufacturing companies should start focusing on increasing efficiency instead of

growth in the slow growth market.

4.14.5 Tata Motors Ltd. Karl Slym new MD and Shri Ranjit Yadav President

Passenger Vehicle Business (PVB) joined their duties in October, 2012 and they

planned to put the passenger vehicle business on fast track. They made plans to

introduce dynamic product planning in TML to boost Nano sales. In recent months,

TML had lost its market share to Mahindra & Mahindra Motors. ACE model of TML,

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which was introduced in India, a few years ago is having good sales volume in the

market. Jaguar Land Rover sales are also on the rise. But, both Nano and Indica are

facing challenges, today. Nano was introduced three years ago, but it has not achieved

volume sales, as yet. Brand image of Nano car had been impacted adversely, since its

launch in 2009, due to various incidents of fire and other unsafe incidents. Customers

do not want to be associated now with a cheap or unsafe car and have moved on to

buy the premium hatchbacks. There was no reason to fail for the Nano, as a low-cost

People’s car. Nano is being branded today as the Rs. One lakh car, eventhough the

prices have since increased. Sanand plant was designed to manufacture around 30,000

Nano vehicles per month in three shifts , but at present Nano sales are not averaging

even 10,000 units per month. Valuable time was lost in re-locating the manufacturing

facility from Singur (W.B) to Sanand (Gujrat), which had affected the marketing plan,

in which real customers for the Nano were expected to come from smaller cities and

towns. Auto industry experts believe that, if TML had not faced problems at the West

Bengal Singur facility it might have just clicked, since a loyal base of customers was

waiting to buy the Nano. There is no doubt that TML has a huge advantage in its cost-

competitive manufacturing base, which can be leveraged to quickly roll out new

models of cars . This is the main reason, why FIAT Co. is not changing its alliance

with TML. Mr. Karl slym new MD, should focus on introducing new products

sandwiched between the price tags of Nano and Indica by employing Fiat’s 1.3 lt.

multijet diesel engine which is ideally suited to achieve high volume sales.

4.14.6 Presently, Nano sales are following a decreasing trend. A contemporary

shaped Nano fitted with a diesel engine keeping in tune with the market trends is

likely to achieve volume sales in India. By using their experience in brand image

building and marketing, Mr. Karl Slym and Mr. Ranjit Yadav can reposition the Nano

as a smart car and project its lower price as an important factor in its favor.

4.14.7 Tata Motors Ltd. is in the forefront of new technology applications. TML has

developed the worlds first air powered car (Zero emission ).Tata motors Ltd has

scheduled the Air Car to be launched by the end of 2012.The air car developed by ex-

Formula One engineer Guy N, for Luxembourg-based MDI, uses compressed air to

develop the necessary engine power for running the car. This car is called ‘Mini CAT’

and is expected to cost Rs. 3,65,757 or $8,177. The ‘Mini CAT’ is simple, light, urban

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car which has a tubular chassis and its body is made of fiberglass, which is glued and

not welded. A Microprocessor is used to control all electrical functions of the car. One

tiny radio transmitter sends instructions to the lights, turn signals and every other

electrical device on the car. The temperature of the clean air exhaust is between

0-15C° below zero, which makes it suitable for use by the internal air conditioning

system without using gases or any other power sources. There are no keys, just an

access card which can be read by the car from the owners pocket .It costs less than Rs

50 per 100Km, that’s about a tenth of the cost of a car running on gas. Its mileage is

about double that of the most advanced electric cars, which is useful for city

motorists. The car has a top speed of 105Km per hour and would have a range of

around 300Km between refuels. Refilling of the car can be done at adapted gas

stations with a special air compressor .A fill up will only take two to three minutes

and costs approximately Rs 100 .This car can also be filled at home with its onboard

compressor. It will take 3-4 hours to refill the tank during sleep hours, because there

is no combustion engine. Oil changing requires 1 litre of vegetable oil every 50,000

KM and due to its simplicity very little maintenance is required .

4.14.8 Auto sales have come down during 2012-13, despite attractive schemes and

discounts, mainly due to the overall market sluggishness, higher interest rates,

inflation, ownership cost, fuel prices and subdued economic growth. According to

SIAM, this is the longest continuous stretch of decline over the last 16 years. Car

sales fell by 7% and most of the car manufacturers reduced their production. Ashok

Leyland CV sales fell by 10%. TML sales fell by 52.7% in April 2013, in comparison

with April 2012 figures.

4.15 NANO DEVELOPMENT

4.15.1 Mr. Girish Wagh (33) and his team of 500 engineers did a marvelous job in

designing the Nano car. Team work was crucial in the success of this project. Team

work entailed a compilation of innovation in design and development, component

engineering and the skilful management of more than 200 vendors who are supplying

important components including the engine control unit (ECU) computer and parts

required for the car engine.

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4.15.2 Initially, Tata Motors gave an engineering team, led by 33 year old engineer

Girish Wagh, following three critical requirements for designing the Nano Car :

· It should be low-cost.

· It should adhere to regulatory requirements, and

· It should achieve performance targets such, as fuel efficiency and acceleration

capacity.

4.15.3 Firstly, the design team produced a car which had bars instead of doors and

plastic flaps to keep out the monsoon rains. The first proto-type was closer to a

quadri-cycle rather than a car. The bigger engine, which boosted the power by nearly

20% was an embarrassment. Failure of the first proto type acted as a catalyst for M/s

Tata Motors to decide and build a proper car instead of an upgraded scooter on four

wheels or anything flimsy or cheap-looking. The creation and design of Nano

involved the use of innovative ideas and ingenuity, both from internal sources (Tata’s

own organization) of the plant and external sources including vendors and after sales

service providers. Ratan Tata called a meeting of his top components and parts

suppliers and after showing them the early flawed proto-types asked them to lend

their helping hand. Companies including a German firm which makes the engine

computer for the car as well as the local Indian players were skeptical at this stage

regarding the future of the car. But Mr. Ratan N. Tata persisted in realizing his dreams

and finally the people’s car has not only helped the Tata Group to make history, but it

has also improved the company’s business and bottom lines. Most of the Tata Motor’s

traditional suppliers came forward on board after the meetings to help the company.

4.15.4 In this manner, the biggest hurdle for the company was sorted out. The price

of raw materials like steel had more than doubled in the past four years and the

company had to follow new tighter automobile industry regulations. In the case of

Nano Car, every component price had to be decided to adhere to the target cost.

Coordinating the vendors with the Tata Motors’ team involved an intricate exercise in

logistics. The Nano development team had realized right in the early stages itself, that

it was necessary to bring everyone on board, otherwise it would lead to last minute

heartache and delays.

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4.15.5 Initially, every morning all persons involved including designers,

manufacturing teams and vendor development people assembled together to

accelerate decision-making and problem-solving on day-to-day basis. Overtime, the

team members increased to comprise some 500 engineers, an impractically large

group to gather on a daily basis. Therefore, only a core team of five engineers

gathered every day at 3 p.m. to discuss the latest developments. Every engineer

represented a different part of the car engine & body, vehicle integration, industrial

design, safety and regulation.

4.15.6 Focused attention to details produced good results. Fitting the parts of the car

together required lots of little, heart-burning details. The engine, for instance, was

designed three times. Initially, it was decided to buy an off-the-shelf engine.

Therefore, all the small capacity engines available in the market were studied. They

were found to be unsuitable. Therefore, in early 2005 it was decided to build a new

engine. The body had to be changed because Ratan Tata over six feet tall himself

wanted it to be easy for tall people to get in and out of the car. The automobile world

appreciated the fact that the designers had produced an excellent model low cost car

using innovation technology. Engineering talent is focused in India to produce

products that have higher value and lower costs. It requires a mindset change, but the

younger managers are keen to break away from a hidebound corporate environment.

4.15.7 TML should continue to make efforts for establishing the fundamental

economies of Nano, which was globally acclaimed in 2008 Expo, by providing a

wider sales and service network. The potential market for such an affordable small car

is enormous throughout the developing world. In the current slow growth

environment, inventory is piling up in all auto manufacturing companies. TML,

therefore needs to address the problems of customer demands and market preferences

more effectively with its newer fuel efficient, value added and improved aesthetics

models to garner higher market share in the Indian small car market segment.

Presently, Nano sales are following a decreasing trend.

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4.16 INNOVATIONS IN MANUFACTURING

4.16.1 Identification of customer’s needs & demand constitute an extremely

important factor in value addition. It has to be supported by using alternative

materials, innovative tools, techniques and out of box ideas. Manufacturing plant

facilities must remain flexible enough to meet the ever changing demands of

customers and introduction of new models and types of the car. Introduction time for

the new variants of the car should be optimized to face the existing or emerging

competitor’s challenge.

4.16.2 At the SANAND Nano plant facility the manufacturing team has innovated,

devised and employed a quality-centered flexible system called Body in White (WIB)

manufacturing process. Here, different sheet metal body panels are using a “Geo

Pallet” conveyer system. Manufacturing line facility is capable of ensuring very high

body transfer speed, where a best quality product can be manufactured in 53 seconds.

The transfer time taken including clamping is only 8 seconds. Transfer time or wasted

time is kept low and the available manufacturing time is high.

4.16.3 This new flexible technology introduced at the manufacturing plant can

manage any anticipated changes in the product with precision. The application of Geo

Pallet Conveyer system serves as an enabling innovation which is effective &

efficient and is suited to keeping the future car model introduction time low and

investment costs lower enough to ensure better profitability and productivity in the

plant. The innovative Geo Pallet system has resulted in drastically reducing the

manufacturing time as well as the investment cost.

4.16.4 In auto manufacturing industry, body in white (BIW) is a process where

different body panels (Sheet metal) are welded together to form the body shell. To

facilitate the manufacturing process, several work stations as per the car geometry &

building sequence are defined after considering the geometric dimensions and

allowable tolerances of the manufacturing process. This process requires a system to

transfer the car from one work station to the other without changing the dimensional

properties. Different technologies are available to carry out this process. The

traditional concept employs a technology in which the body is clamped and de-

clamped at all work stations. Too many mechanical arrangements are involved in this

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process and cycle time is high, which can cause damage to the under body or the

quality of the product too. Both the manufacturing company as well as the customers

are equally affected by the quality of the product. The “Geo Pallet” system has a

pallet with four sublevel clamps that hold the body in the desired position at all work

stations. It has only one motion-guided-hole in which the shaft is pushed to give

motion to the pallet. No up-and-down mechanism is involved and the chances of body

damage are avoided. In case a body is required to be de-clamped, the pneumatic

system gets automatically connected to the pallet. The motion of the body must be

precise enough for accurate location of the pallet on the work station in order to

facilitate the robotic spot welding at the correct position with precision repeatability.

Two heavy duty servomotors are being used to ensure precise motion of the body.

Compressed air or electrical energy is not required in any other operation.

4.17 VENDOR’s ROLE & INNOVATIVE IDEAS

4.17.1 Around 80% of the cost of the car is out sourced. Outsourcing department has

a strength of around 200 persons and includes supply chain management (SAM),

supplier quality inspection group (SQIG) and new vendor development sections.

4.17.2 Vendors played an important role in keeping the cost of the car within reach of

the masses. For example;-

· Rane Group, which makes a rack and pinion, focused on reducing the weight of

the materials used. The company replaced the steel rod of the steering with a steel

tube as a major cost-reducer. Typically, the product is made of two pieces, but it

was redesigned as one piece to save on machining and assembling costs. Industry

has used technology for this sort of integration of two pieces into one part but in

this case they were applied differently for Nano car where it has been used for a

new car to reduce costs.

· GKN Driveline India, manufactured the drive shaft which acts as the component

that transfers power from the engine to the wheel. The company spent a year for

developing 32 experimental variants of the component to create a perfect drive

shaft for the Nano Car. It roped in designers from the company’s French and

Italian plants that changed the design to make the drive shaft lighter and easier to

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manufacture. For the Nano Car rear-wheel drive system, GKN designed a smaller

diameter shaft, which was lighter and saved on material costs. Every other car

manufacturer would want to adopt such an innovative design.

· The Engine Control Unit (ECU) is a small computer that controls all aspects of

engine operation. It has to deliver an acceptable spread of power, return an

acceptable level of economy and still more. Tata motor worked with Bosch

company to bring the ECU price down to an unprecedented level by reducing the

sensors (down to half the usual number) which are used by the ECU to govern the

engine.

· Small wheels are lighter and produce a positive impact on price. Further, these

wheels are mounted with only three lugs which have resulted in reducing the

costs. This modification done to a feature has resulted in automatically improving

the economy in car design.

· There is no power steering in the car. Further, the design team split the tyre sizes

to provide a slightly more inner space in the front, while keeping the driven

wheels flatter. This has resulted in balancing the impact of the wider track at the

front, and in driving terms it would endow the car with mild under steer at the

limit, which provides a safety feature. The engineered under steer helps in

developing a balanced neutral car. But smaller tyres are using lesser rubber and

they prove to be cheaper.

· The non-opening hatch provides cost reduction. No costs are incurred in terms of

beading, hinges and locks. The whole panel can be manufactured relatively

cheaper in addition to the mono coque which provides additional strength to the

chassis without adding to the costs.

· Nano Car uses a light gauge metal body and the lean production process aims at

minimum wastage.

· The four-stroke parallel twin cylinder 624cc engine has created a number of

patented inventions for the Tata company. The single counterbalance equipped

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motor is being labeled as a world’s first for a car application. The engine is fuel-

injected and it has a two-valve single overhead cam design.

· Placement of engine at the rear helps in reducing the cost. The rear-engine, rear-

wheel drive format eliminates the driveshaft and saves money. The engine is

packaged in an excellent manner. The motor is fitted behind, under the rear seats.

The hatch does not open. The engine is accessed by flipping the rear seats

forward. The engine is quite reliable. The engine’s non-intrusion into the

passenger cabin liberates interior space and provides 21 per cent more interior

space than the Maruti 800 Car. The 624cc two-cylinder petrol engine is

manufactured from aluminium.

· Nano Car employs Central instruments and dashboard. The central meters and the

dashboard on the Nano Car eliminates the need to adapt the large plastic assembly

for right and left hand drive markets. Tata Nano car provides a speedometer,

odometer and digital fuel gauges plus lights that are spartan, but they include

complete instrumentation. There is no glove box in the car.

· Nano car provides a petrol filler cap and a single driving mirror. The filler cap is

actually located under the nose. The body does not need a hole in the body for the

filler cap which saves on cost. There is only one mirror on the right side and left

side mirror is an optional extra.

· The tubular design of the car instead of the conventional ‘rod’ design definitely

helps to cut costs, particularly in the processes involved.

· Costs were cut by using regular bulbs that meet the regulations instead of long life

bulbs.

· Catalytic converter is used for a cost-effective emission reduction solution. The

BASF Catalysts have developed a catalytic converter for the Nano car to meet

India’s current emission standards. BASF operates a catalyst manufacturing plant

in India at Chennai and their local experts in India were supported by their

colleagues from USA to achieve a cost-effective regulatory compliance. Nano car

has an air intake manifold which is manufactured by Tata VISTEON COMPANY

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using BASF’s Ultramid glass-fiber reinforced engineering plastic. Air intake

manifold supplies the engine with the air it needs for combustion. Generally, air

intake manifold is made of aluminium. By replacing it with Ultramid material, it

leads to 40% weight saving, which results in better fuel efficiency and produces

lesser emissions which is an essential feature for the Nano car.

4.18 IMPLEMENTATION OF INNOVATIONS

4.18.1 Introduction of new decisions is always met by resistance from status-quoists

· Top management has to be convinced for any innovation/radical change in the

manufacturing process. A comparative frame work of seven different options and

calculations of cost per car must be prepared. The standard Kaizen methodology

of using seven ways for each alternative must be employed. The investment cost,

maintenance, cost of operation, manpower, quality, flexibility and

safety/ergonomics must be appropriately calculated. Logical approach was

adopted to convince the top management, introduce and implement new

technologies.

· After convincing the top management for technical problems involved in using the

new concept was worked out and management support was readily available for

provision and installation of automatic machinery of BIW equipment to control

the dimensions of the BIW in mass production. In order to meet this requirement

the company decided to use sub-level clamps to hold the BIW at its desired

position. This innovation proved to be successful and resulted in maintaining

much better dimensional accuracy as compared with the competitor’s vehicles.

· Brain storming sessions and suggestions received from suppliers etc. were used

judiciously to solve technical problems.

· Adoption of Radio-frequency identification (RFID) methodology was decided as

the best option available. RFID was installed on each pallet and RFID readers

were installed on important work stations. RFID was connected to the line PLC

which was connected to the Manufacturing Engineering Systems (MES) server to

track each body in the BIW shop. This innovation resulted in energy savings and

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created a flexible manufacturing system which is expected to save around Rs. 100

crores and can be used for future introduction of new models.

4.19 FAVOURABLE & UNFAVOURABLE FACTORS

· Data were collected from multiple sources of evidence and was analyzed to

determine, how the favourable & unfavourable factors were taken into

consideration and how the hurdles were crossed for maximizing the value of

various components, assemblies and the total product by using Value Engineering

methodologies.

· Following favourable factors were identified for Nano’s growth:-

o Mr. Rattan Tata Chairman Tata group and TML management provided

continuous support to Nano Product Develop project from 2003 to 2008. TML

management continues to support and provide all types of required resources

for the Nano project till date.

o V.E. engineering experts were associated with the design team in the initial

stages of Nano concept design and development. This resulted in finding

alternative materials, technologies and processes necessary to meet the target

cost of Rs. One lakh for the people’s car.

o Ramp up phase was started in 2011 to boost the sagging Nano sales. 350

SNAP’s were opened to tap the market in rural areas. New Team of Mr. Carl

Slym MD and Mr. Ranjit Yadav President Passenger vehicles business have

initiated the program “Horizonex4t” in June 2013 to boost the sales of eight

refurbished models of TATA vehicles.

o TML management and employees are working collaboratively and

cooperatively to achieve the company objectives.

o TML organization structure, strategy and policy framework is supportive for

the smooth functioning of production and marketing operations.

o TML organization provides a conducive atmosphere to its employees for

activity specialization, product quality improvement and productivity

enhancement.

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o TML organization fosters innovative and creative ideas among its employees.

o TML organization promotes teamwork, trust, integrity and organizational

entrepreneurialship.

o Open communication channels and information system are provided for the

employees.

o TML organization provides quick response to employees feedback and

suggestions.

o TML organization provides training facilities to its employees to develop their

capabilities to meet the competitors challenge.

o TML organization pursues customer-centric policies and provides efficient

after sales service to its customers. Warranty for 4 years/60,000 Kms is

provided.

o TML organization has complete faith in V.E. methodologies to reduce-cost

and improve the quality of product.

· Following unfavourable factors were identified for the stunted growth of Nano

and downslide in its sales:-

o Due to its novelty factor more than one lakh customers had registered their

bookings for Nano. One year delay was caused due to shifting of TML plant

from SINGUR (W.B.) to SANAND (GUJARAT). Many customers cancelled

their bookings and bought alternative brand cars available in the market.

o In the initial Nano supplies to the customers, ten cases of fire in the starter

motor and three cases of black smoke coming out of steering column were

reported. This dampened the customers confidence in Nano and has adversely

affected its sales.

o Nano basic model does not have enough attractive features. The lower middle

income group (MIG) customers also prefer to buy value added cars. Therefore,

TML should focus on adding extra features in Nano to meet the competitor’s

challenge and improve its market share.

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o Indian customer’s psyche is a complex phenomenon to understand. Therefore,

TML’s market research efforts should be undertaken as a continuous process

to retain its market share.

o Nano body and aesthetics have not found favour with customers in India.

o TML’s Petrol version cars have not found favour with customers. TML choice

to introduce a petrol version of Nano first was a mistake.

o Indian customers buy a car to show off their higher status in society, but Nano

was dubbed as a cheap car.

o Global downslide in economic growth has also affected auto sales in India.

4.20 HURDLES CROSSED

4.20.1 Many Hurdles were crossed during the initial stages of Nano development :-

· Mr. Rattan Tata Chairman Tata Group himself called a meeting of his top

components and parts suppliers and after showing them the early flowed Nano

proto-types asked them to lend their helping hand. All local suppliers as well as

the German firm were quite skeptical at this stage regarding the success of the

prestigious dream project of the Chairman Tata Group. But Mr. Rattan Tata

persisted and finally most of the traditional suppliers came forward and started

making necessary efforts to design & develop the components and parts for Nano.

In this manner, the biggest hurdle was sorted out.

· Every component price had to be controlled within the target cost. All vendors

were required to coordinate their supply schedules with the TML. A large area of

375 acres was reserved for the vendors factories at SANAND to avoid last minute

delays.

· Over time the Nano development project team strength increased to 500 members.

Every engineer represented a different part of the engine and body, vehicle

integration, industrial design, safety and regulation. Focussed attention to details,

coordination and integration of efforts in fitting of the Nano car parts together

avoided lot of problems for the team.

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· After lot of experimentation and search for off-the shelf engine, early in 2005,

TML decided to design and produce an all aluminium, new fuel-efficient 624cc

engine at the TML factory.

· BASF catalysts developed a catalytic converter to meet the current emission

standards.

· Rane Group replaced the steel rod of the steering with a steel tube as a major cost

reducer in the parts supplied by it.

· GKN designers team changed the design to make the drive shaft lighter and easier

to manufacture.

· Bosch company reduced the number of sensors in ECU to cut down its price .

4.21 CHALLENGES AHEAD

· Challenges for the Nano project underscore the fact, that the Tata group which has

invested Rs. 3,000 crores in the Nano project cannot abandon it, even though

volumes are still sub-par. Petrol Nano volumes are yet to achieve the break-even

point and suppliers are worried. Diesel car can bring volumes, but the company

wants to be doubly sure about performance of the car. Turnaround time with the

rural consumer is three or four times higher than the urban consumer. Selling

Nano at the rate of 10,000 cars per month requires at least 2,000 sales people and

the company must remain aware, that the ramp-up process takes time. The

company is focusing, firstly on leveraging the entire potential of the gasoline

engine. Since its launch in July 2009, Nano project has not progressed smoothly,

and it is not getting back on track like any other new car model. The company

hopes to improve its sales of cars in 2013 and subsequent years. Presently, the

Sanand (Gujarat) plant is producing 250-300 units a day working in single shift,

but it has the capacity to produce 1,000 cars per day working in 3 shifts.

· Rival car makers including Bajaj Auto, Fiat, General Motors, Ford Motor,

Hyundai and Toyota Motor have all expressed interest in building small cars in

India, that are affordable for middle-class consumers in the emerging markets.

The bulk of Indian demand is for small cars, because people are highly sensitive

to fuel prices.

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· Honda and Toyota are leading the way on cleaner gasoline-electric hybrids. We

need to reduce prices of these new technology cars. Eco-friendly electric-cars like

Tara Tiny (which has an engine producing 4 hp), Oreva Super and REVA electric

cars are posing a significant challenge to the Nano .

4.22 SUSTAINABLE DEVELOPMENT

4.22.1 Nano car plant at Sanand (Gujrat) is a green industry. The Nano car emissions

are following Europe-IV standards. The company has adopted lean manufacturing

system and wastages in raw-materials/finished product rejects are reduced to a

minimum. The company is planning to introduce hybrid Nano models in the near

future. All care is being taken to ensure sustainable development in the plant.

4.23 APPRECIATION AND AWARDS

4.23.1 A stylish and affordable small car has huge potential for sales in the current

environment of rising fuel prices. Tata Nano received great praise during the

Automobile Expo-2008 at Pragati Maidan, New Delhi and higher sales volumes

were expected to be achieved. Tata Nano, the people’s car has won several awards

that include:-

· Tata Nano won the Indian Car of the Year 2010 award at Business Standard

Motoring Awards 2010.

· Tata Nano won the car of the year of Bloomberg UTV-Autocar awards.

· Tata Nano won the first place in 2010 Edison Awards under transportation

category.

· The company is planning to win the TPM Excellence Award by 2014.

· The company is planning to win the British 5 Star Rating by 2014.

· The company is also planning to win the Deming Award by 2016.

· TML has registered 34 patents during PDP of Nano car.

4.24 ACCOLADES RECEIVED

· World’s oldest and most coveted GOOD DESIGN award for 2010. Museum of

Architecture and Design together with The European Centre for Architecture Art

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Design and Urban Studies. Tata Nano won the Gold Prize in the 2010 Edison

Awards.

· Car of the Year and the Small Car of the Year Award at the Bloomberg UTV

Autocar Awards.

· Aaj Tak Viewers Choice Car of the Year in 2009 in Auto Bild India Golden

Steering Wheel Awards.

· Micro Car of the Year Award at the NDTV Profit Car & Bike of the Year Awards

2010

· Car of the Year Award & Compact Car of the Year Award at ‘CNBC TV18

Overdrive 2010

· Tata Motors, India’s Most Innovative Company: Business Standard Tata Motors

won 2 spikes Asia Awards

· Three Emvies Awards for Tata Nano launch advertising

· Tata Nano game campaign won Global Brand Excellence Award

· BS Motoring Jury Award 2010

· Indian Car of the Year (ICOTY) award 2010

· Frost & Sullivan 2009 Innovation Award for the Tata Nano

· Jury Award at the “Business Standard Motoring Car of the Year (COTY)

Awards”.

· ZigWheels Car of the Year 2009 award for Tata Nano

· ZigWheels Entry Level Mini Car of the Year: The Indian Automotive Design of

the Year 2009 and the Most Value-for-Money Car of the Year 2009

· ZigWheels.com Viewers Choice Car of the year 2009 Award

· Best launch of 2008 in Brand Derby, a study by Business Standard

4.24.1 Despite the fact that Nano car received huge appreciation and number of

awards, the sales were below par. In November 2010 CEO and MD Carl-Peter-Foster,

India MD, Prakash Telang and Mr. Girish Wagh Head of Manufacturing, informed

Mr. Ratan Tata, Chairman, Tata Group that Nano Cars sales had fallen to new low

and the dealers had not been able to push its sales and the expected sales volumes

could not be achieved. Initial bookings of Nano cars were also being cancelled by the

customers. The new manufacturing plant at Sanand in Gujarat has the capacity to

manufacture 10,000 cars per month working in single shift or 20,000 cars per month

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working in three shifts. The company had fixed the target to sell one million cars per

annum or 83,300 plus cars per month. The Singur (West Bengal) episode had created

a long gestation period and the initial momentum had been broken. Initial buyers who

had been attracted to buy the Nano car due to its novelty factor had shifted to

alternative car purchases for the following reasons:-

· Firstly, the mass market does not represent any longer the bottom of the pyramid,

· Secondly, the company did not advertise till it was too late,

· Thirdly, the company had brushed aside initial ten cases of fire incidents and three

cases of steering combination switch short-circuit smoke

· Fourthly, the Nano car no longer remains a Rs. One lakh car. The base model is

now selling at the price of Rs. 1.63 lakh and

· Fifthly, the introduction of the Nano petrol version first was a mistake.

4.24.2 Ten cases of fire incidents of starter motors in Nano cars have been reported.

The company has since provided replacements for the starter motors in all earlier cars.

Three cases of Nano’s steering wheel assembly producing black smoke have been

reported, which were attributed to fire-retardant material used in combination switch

inside the steering column assembly that produced short circuit caused by faulty

connection inside the switch. The company has provided an improved combination

switch in the new cars.

4.24.3 The company has started the ramp-up-phase and has planned to improve car

aesthetics, fuel efficiency of petrol engine (raising it to 25 KPL from 23.6 KPL). The

company plans to develop a diesel engine for the car and develop a micro-hybrid car

operated with a battery and petrol engine. The company plans to penetrate the rural

market by opening 300 plus exclusive dealerships and 350 odd SNAP (Special Nano

Access Paints) and using some of its 1,000 odd commercial vehicle outlets to sell the

Nano.

4.24.4 Exclusive dealerships are low-cost (Rs. 10-30 lakh) sales, service and repair

facilities. SNAP’s are only sales and finance outlets. Cars would be serviced through

weekly visits by service vans. Tata Motors planned to open 1,200 sales points to

promote sales in rural areas. The new exclusive dealerships had to become viable on

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their own count with selling only 3 variants of Nano cars. Tata Motors has developed

the largest service network in the country. In comparison, Maruti Udyog had only 802

sales outlets in 555 cities and towns and 2,740 service outlets as on March 2010 and

Hyundai had only 320 dealers.

4.25 VOLUME SALES OF NANO (JULY, 2009 - DECEMBER, 2013)

Month Car No’s.

July, 2009 2,475

August, 2009 2,501

September, 2009 2,524

October, 2009 3,018

November, 2009 3,406

December, 2009 3,610

January, 2010 4,001

February, 2010 4,105

March, 2010 4,710

April, 2010 3,525

May, 2010 3,550

June, 2010 7,704

July, 2010 9,000

August, 2010 8,103

September, 2010 5,520

October, 2010 3,065

November, 2010 509

December, 2010 5,784

January, 2011 6,703

February, 2011 8,262

March, 2011 8,707

April, 2011 10,012

May, 2011 6,515

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June, 2011 5,451

July, 2011 6,572

August, 2011 1,218

September, 2011 3,035

October, 2011 4,485

November, 2011 6,401

January, 2012 7,723

February, 2012 9,217

March, 2012 10,475

April, 2012 8,028

May, 2012 8,507

August,2012 1,202

October,2012 4,004

December,2012 2,216

January,2013 1,504

March,2013 8,903

December,2013 554

Table 4.4

NOTE

1. The figure for the month of November, 2010 is an aberration. Reports are giving

figures of whole sales and not retail sales. Nano sales represent the number of cars

dispatched to the dealers. Sales from the dealers are different.

2. Average Nano sales during 2010 are 4,964. The opening of SNAPs has resulted in

improving the Nano sales volume. Average sales during 2011 are 7,600. From

April-December,2013 total Nano sales are 13,828, witnessing a drop of 72% sales

over the corresponding period. The company is giving easy financing facility for

the customers including Rs. 15,000 down payment and balance cost to be paid as

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EMI’s. Tata motor offers a Rs. 99 per month annual maintenance contract to boost

the car sales in rural areas.

3. Tata Nano offers a warranty clause for four years or 60,000 km.

4. Nano sales are witnessing a decreasing trend and Nano has not achieved the

breakeven point.

4.26 NANO MARKETING PROGRAMME -2012-2013

4.26.1 Tata Company is offering a New Year gift for brand new Tata Nano Model

2012 exchange offer for old vehicles. Exchange bonus for any old two-wheeler is Rs.

20,000/- in addition to its re-sale value. Exchange bonus for any four-wheeler vehicle

is Rs. 25,000/- in addition to its re-sale value. Down payment for Tata Nano Model

2012 starts from Rs. 15,000/- only and the balance payment can be made through

EMI’s. Tata Nano Model 2012 is the most fuel-efficient petrol car giving 26 kmpl. It

is spacious, stylish, has best in class Air Conditioner and is being produced in 10

exciting colors. After sales service warranty is 4 years or 60,000 km. Tata Nano

Company has recalled all previously sold vehicles for replacement of starter motor.

4.26.2 Increased global competition and complexity in the automotive sector has led

companies to find ways to maximize value of products, processes, projects, or

services within a total system. The maximized value is approached from a customer

viewpoint and the related function is expected to operate at the least cost, without

affecting its quality and reliability. The literature on Value Engineering covers all the

issues involved, but it is necessary to consider all the related aspects too, that focus on

maximizing values from the customers’ point of view in a comprehensive manner.

Value Engineering has evolved into a strategic and an innovative tool that has the

potential to search alternative materials, technologies and processes through

evaluation of creative ideas. An in-depth case study of TATA Company NANO car is

of topical interest, where Value Engineering experts were associated at the design and

planning stage itself to identify alternative materials and manufacturing processes to

achieve the target cost of a Rs.1 lakh small car development project for the Indian

masses.

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4.27 DATA COLLECTION

4.27.1 Data were collected from multiple sources of evidence and was analyzed to

determine, how the favourable factors were taken into consideration and how the

hurdles were crossed for maximizing the value of various components, assemblies and

the total product by the application of principles of Value Engineering. The team of

engineers and other company employees had the requisite knowledge and skills to

perform their duties. The team members worked in unison collaboratively and

cooperatively to achieve the company objectives. TML’s Human Resource was found

to be an asset and the entire workforce was working whole heartedly to achieve the

set goals. Research findings have identified the favourable factors that include top

management support and initiatives, relative advantage of the team leader and his

team of innovative and hardworking five hundred engineers, creative ideas,

competitive pressure, and customer’s requirements.

4.28 NANO EXPORTS

4.28.1 The company has targeted to export Nano cars to five large developing

markets that include SAARC & ASEAN countries and Latin America, where

drivability expectations are limited and emission & safety norms are not that

stringent. In Brazil flex-fuel model is required. International market needs two air

bags and an anti-lock braking system. Nano Pixel export model was exhibited at

Geneva Motor show in January, 2011. Nano Europa has a number of improvements

over the standard Nano, which was exhibited at the 2009 Geneva Motor Show. Nano

Europa has longer wheelbase, a new 3-cylinder engine and improved interiors and

exteriors. It is more expensive, heavier and less fuel efficient than standard Nano and

has a price tag of $6000. It conforms to EU safety and emission standards. TML is

targetting Nano exports to U.S.A. Mega Pixel like Maha Pixel was expected to be

launched by end of 2013.

4.28.2 TML market share has been showing a decreasing trend in recent months. The

new head of Tata systems Mr. Cyrus Mistri is facing a major challenge due to

uncertainty and unpredictability of India's market environment, which inturn depends

on the economic environment. To boost Nano sales, he has decided to introduce a

1000 cc diesel version in March,2014 to offer competition to SUZUKI's 796 cc

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ALTO. In the current fiercely competitive market environment, all major international

players are introducing diesel versions of their popular models to retain their market

share. However, if the Govt. suddenly decides to increase taxes on diesel fuel, further

difficulties can arise. At Tata ERC Pune, all modern facilities are available and has a

strong team of designers, who are wearing 3D glasses to view designs and prototypes

on 10 metre TV screen for developing new models.

4.29 CONCLUSION

4.29.1 Automobile industry including auto-components manufacturing industry is

expected to witness higher rates of growth in the coming decades. From a low-key

supplier providing components to the domestic market alone, the industry has

emerged as one of the key auto components centers in Asia and is today seen as a

significant player in the global automotive supply chain. India is now a supplier of a

range of high-value and critical automobile components to global auto manufacturers.

Major auto industry problems include rising oil prices, introduction of fuel-efficient

cars, development of alternative fuel technology and designing of automotives with

recyclable materials.

4.29.2 The potential market for an affordable small car is enormous throughout the

developing world. In the current slow growth environment, inventory is piling up in

all auto manufacturing companies. Auto manufacturers, therefore need to address the

problems of customer demands and market preferences more effectively by

introducing new fuel efficient vehicles, value added and improved aesthetics models

to garner higher market share in the world market.

4.30 REFERENCES

The serial numbers refer to References.