Indian carmaker does distribution deal and plans $2,000 car, reports John Griffiths.

Tata, India’s second-largest and longest established conglomerate, and Phoenix Venture Holdings, owner of British carmaker MG Rover, have signed a second co-operation agreement under which the British group will distribute some Tata vehicles in the UK and Ireland.

The move represents another step towards what Tata is now openly acknowledging as its goal of becoming the principal strategic partner for MG Rover.

Last year the two companies signed a deal under which Tata would provide MG Rover with a new small car, based on the Indica, so far sold only on the Indian market.

Tata is seeking a ‘much deeper’ relationship through which the two groups would develop new models jointly, along with major components such as engines and transmissions, Ratan Tata, chairman, said.

MG Rover is to start selling the Indica based vehicle, badged as a Rover, in the UK in September, with a price tag of about pounds 6,000 ($ 9,600). Planned volumes are higher than indicated previously. Under the agreement, Tata will provide up to 170,000 units over the next five years.

Phoenix has set up a new company. Phoenix Distribution, to handle distribution of Tata’s Safari Sports utility vehicle and Loadbeta pick-up, which will retain the Tata brand.

Tata also put on display at the recent Geneva motor show a new small estate car, the Indigo, as well as another utility vehicle, the Sumo, which Tata believes could fill further market niches.

Senior MG Rover executives are declining to be drawn on the prospects for a full strategic partnership with Tata, although they described the relationship so far as "progressing positively".

The current deal also gives MG Rover non-exclusive rights to sell vehicles in Europe, although Tata will retain its own existing sales networks.

It is clear that Tata regards itself as a potential replacement partner for China Brilliance, the Chinese automotive group with which MG Rover signed a partnership agreement more than a year ago. That pact provides for both market and model sharing, with its most important element being the joint development and production of a lower-medium hatchback, one size up form the Indica, to replace MG Rover’s current Rover 25 and MG ZR models.

Despite China’s Liaoning provincial government seizing control of Brilliance in December – after its chairman, Yang Rong, was accused of economic crimes – MG Rover executives say the pact is still in place. Disclosure of Tata’s partnership bid with MG Rover came as Mr. Tata made clear that he was pressing ahead with a project to bring to market a "$2,000 car", which he believes could revolutionise personal transport in India and some other Asian countries.

He conceived the idea several years ago – to use components from the region’s large scooter and motorcycle industries to create a basic four-seater, four-seater, four-door car to which the region’s millions of scooter and motorcycle riders, plus the many three-wheeler Tuk Tuk users, could aspire. "It is my greatest dream to make the car reality within my five years remaining as Tata’s chairman," Mr. Tata said.

The project has become more ambitious as it has entered trial engineering phases, most notably with the cutting of the target retail price by one-third from the originally envisaged $3000. Total material costs for the vehicle are claimed to have already been pared down towards the $1,200 mark. The vehicle might not be acceptable to Western consumers but "it would not need to be a poor substitute for a car," he said.

"It will look like a car and have proper seating – stretched canvas seats would – not, for example, be acceptable. It would be all right for it to be a bit more noisy than an ordinary car, but it has to be both simple and safe."

Despite the projected price being less than half that of the cheapest car on the Indian market – a basic Suzuki model - Mr. Tata said it was not unrealistic and would not need to be subsidised. The vehicles would be produced primarily in kit form for assembly at several locations around India, to create local employment.

They have a potential market in other Asian states such as Vietnam, Malaysia and Indonesia, Mr. Tata said, in addition to bridging the gap for 2m to 3m Indians between powered cycles and cars.