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world's cheapest car © Image100/Jupiterimages

Extra6/11/2007 1:01 PM ET

India readies world's cheapest car: $2,467

Tata Motors touts 'out-of-the-box solutions' that slash development and production costs. But competitors are skeptical about the car's price and quality.

By Financial Times

Tata Motors (TTM, news, msgs) is set to unveil the world's cheapest car as early as January as it takes the growing interest in low-cost vehicles to a new extreme.

The Indian automaker will launch its $2,467 vehicle by the third quarter of 2008 and may unveil it at January's Auto Expo in New Delhi, Managing Director Ravi Kant said.

Separately, Tata Motors is developing a line of small hatchbacks and midsize sedans to be introduced next year. India produces 1.3 million cars a year. With the market growing at 10% to 12% per year, this could reach 3 million within a decade.

The four-door car -- a pet project of Tata Group Chairman Ratan Tata -- would be the cheapest by far in its class. The current cheapest, the Maruti 800 produced by Suzuki Motor (SZKMF, news, msgs), sells for more than $4,000.

Tata's progress is being watched by automakers, including Toyota Motor (TM, news, msgs), General Motors (GM, news, msgs) and Ford Motor (F, news, msgs), that are developing, or have launched, cheap cars in India, Russia, China and other emerging markets.

Carlos Ghosn, Renault/Nissan's chief executive, said the group was working on an even cheaper variant of the Logan, the global no-frills sedan it launched in April in India, where it sells for under $10,000.

Tata's car will not conform to European safety and emissions norms. However, Tata, which also sells cars in South Africa and a few European markets, said it could be upgraded should it choose to export.

'A good-looking car'

Competitors are skeptical about the price and quality of the car, which the group says will have a 600-cubic-centimeter engine and come in a range of models. MSNBC reported that the 33-horsepower engine will be capable of 80 mph. Tata developed the car using lower-cost Indian engineers and "out-of-the-box solutions" to slash development and production costs.

Rising prices of steel, aluminum, copper and other commodities raised the car's costs in the four years since Tata announced it, prompting the group to make design changes for the car. However, Kant said: "It will be a good-looking car which you will want to purchase."

Construction on the plant in West Bengal, where the car will be made, was delayed by a land dispute. However, Tata was on track to launch the vehicle in the second to third quarter of 2008, Kant said.

The plant will have a capacity of 250,000 units per year, which Tata aims to reach within two to three years. Large sales volume will be crucial for the car's viability, given its low price target.

This article was reported and written by John Reed, Amy Yee and Joe Leahy for the Financial Times.

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