It's been tried before. Towards the end of the 1990s, the Firodias of the Kinetic group tried to launch the CityCar which was to cost about Rs 1.25 lakh. The idea, clearly, was to supplant the Maruti 800 as an entry-level car and make CityCar the first drive into four-wheel territory for the Indian consumer. It couldn't be done. Tractor maker Eicher Motors tried to do the same, and failed with its Chatenet project. 

The Tatas have been at it for ages. In fact, the original ambition powering the passenger car foray of Tata Motors (it was known as Telco then) was to make a car that would be roomy, entail low operational costs, and sell at the same price as the 800. Not surprisingly, the Indica managed only the first two objectives. So, the 800 (around Rs 2 lakh) continued to be the preferred choice for first-time buyers. 

But exactly 20 years after its first sighting on Indian roads, its stranglehold over the small, entry-level segment is coming under attack once again. Yet again, car-makers are trying to launch new models that will fight the 800 on price. At the forefront — no surprises here — is Tata Motors, which has been talking about a project that now sounds incredible, to bring out a car that will retail for as low as Rs1 lakh. 

The noise started at the Frankfurt Motors Show earlier this year when Ratan Tata talked about his dream of making a $2,000 car. Explains a Tata insider: "One day someone has to crack the 800 equation. If anyone can do it, we can." In contrast, Toyota Kirloskar Motors is keeping its lips sealed on its small car that's in the works. The model will most likely be based on the same platform as the Yaris, Toyota's better selling product in Europe. 

Then there is General Motors which has acquired Daewoo Motors globally (but not in India). Even as its Indian management fights shy of talking about new products, General Motors president (Asia Pacific) Frederick A. Henderson was more expansive at last month's Tokyo Motor Show: "In India, we haven't been as aggressive as the others because our portfolio was limited. Now (after the Daewoo deal) we have a broader portfolio. It will help us in India."

The indication: GM could also launch a small car. An ill-kept secret is that it may relaunch the deceased Matiz some time next year under the name of Chevrolet Spark. In its last avatar, Matiz was bracketed in the B-segment along with Maruti Zen and Hyundai Santro as far as its pricing was concerned. But given the fact that GM has a lot of catching up to do and the company has been quite open about its thirst for volumes in India, the Spark can logically be expected to carry a very aggressive (read: lower) price tag.

But it isn't just an easy ride and not everyone can make a successful small car. Which is true even globally. But Maruti's parent company Suzuki Motors is one such. Otherwise the fourth largest carmaker in Japan, Suzuki has been the largest seller of mini vehicles in the last 27 consecutive years. Therefore, the slight arrogance in the voice of Shinzo Nakanishi, Maruti chairman and one of Suzuki's managing directors, "I wonder if anyone can make a cheaper car with air-conditioning and meeting the emission norms."

The lure of the entry-level market is easy to explain. On an average, the Maruti 800 sells 14,000-15,000 units every month, often accounting for nearly 45 per cent of Maruti's total volumes. And it is widely accepted that a car costing Rs 2.5 lakh or less won't find it difficult to sell 1.5-2 lakh units every year. "I'm sure nobody needs market research to determine where the volumes are," says Tata Motors' vice-president (commercial), passenger car division, Rajiv Dube. 

The demand for cars can explode if the price gap with high-end motorcycles, which cost Rs 60,000-70,000, comes down. If that happens, one can safely assume that a large percentage of the 5 million buyers of two-wheelers every year would be happy to upgrade to a car. "There is a vacuum there," says K.K. Swamy, deputy managing director, Toyota Kirloskar Motors, in a voice laced with longing.

Still, the odds are against anyone — and that includes the Tatas — pulling it off soon. The problem begins at the first hurdle itself, the price, which, in India, solely defines the market segment of a car. And Maruti has set the entry level at Rs 2 lakh. The margins at this price point are wafer-thin, Rs 2,000-4,000 per car. And that is despite the fact that Maruti's first two plants have been fully depreciated.

For new entrants, the entry level is a chicken-and-egg situation. They can keep the price low only if they sell in large volumes and they cannot generate large volumes unless they keep the price low. But low prices also mean huge losses. There is not much difference in the basic cost of making a small car and a big one. The number of components that goes into each is the same. Which means installing the same facilities: tools, dyes, casting, press shop, paint shop, workers, machines...the works.

The time taken too is the same. The battle therefore has to be fought, and won, - inside the factory. In India, even making a car that sells for less than Rs 4 lakh is daunting. GM still has not been able to do it. Ford keeps saying it is planning to, but there has been little visible progress. Honda is not even giving the idea lip service. Says Honda Motors' general manager for South West Asia, Yukihiro Aoshima: "The volume (in the small car segment) is very attractive. 

But upgradation is the normal route in any country. Not at once, but with time, there will be similar volumes for big cars." He's probably taken the wise route, since the one foreign carmaker, Fiat India, that priced its Palio below Rs 4 lakh is bleeding. The existing challengers to the M-800 echo the same sentiments. Toyota's Swamy says his company has met the quality level in its project, but meeting "the cost level is still proving to be a challenge". 

Tata moved heaven and earth to keep the price of Indica (its current model) down. Still, it couldn't price it lower than the 800. "Everyone knows there is a market out there to be tapped. Everyone would be out there with a product if only keeping the costs down were easy," admits Dube Little wonder then that Tata's $2,000 car project is still understood to be in the ideation stage. "Tata Motors will find it very difficult to make that car. 

It can be done if you maybe take the roof off or something," says Autocar India editor Hormazd Sorabjee. The high taxes on cars — about 48 per cent even after last budget's excise reduction from 32 per cent to 24 per cent  — doesn't make things any easier. However, regardless of Tata's dream car, the entry-level market itself could shift further downwards. In other words, the prices of existing low-end cars would anyway move southwards. 

Maruti itself has pulled out all the stops to cut costs by 30 per cent and increase productivity by 50 per cent by 2005. According to Nakanishi, 10 per cent of the benefits accruing from the 30 per cent cost reduction has to be ploughed back into the company as investments and another 10 per cent ought to go to the shareholders. The remaining 10 per cent will be set aside to fight competition. "The last could mean giving more features or cutting the price," he says with a smile.

Maruti's avowed intention is to narrow the gap with high-end motorcycles, which is evident in the company's recent initiative to accept two-wheelers in an exchange programme. During the roadshows for Maruti's IPO last summer, managing director Jagdish Khattar used to show potential investors a photograph of a typical middle-class family — father, mother and two kids — perched on a two-wheeler. 

He then juxtaposed it against another photograph of another family, similar to the first one, looking much more comfortable seated in a Maruti 800. To raise the ante, Nakanishi also adds that if Tata can indeed make that Rs 1 lakh car, "we will have to match (it)". Maruti's competition is counting on regulation to change the rules of the small car game. The grapevine has it that India could soon have safety norms similar to those in other countries, requiring all new vehicles to undergo a crash test. 

Automobile analyst Murad Ali Baig is emphatic that the M-800 will not clear it, in which case they will "not be able to upgrade it even slightly since any change in the car will require it to clear that test". Besides, the dies for making Maruti 800 brought from Japan when the plant was set up were considered good for churning out a million of these cars. Production of the car is closing in on the 2 million-mark now. 

The dies can be replaced, but that will push up the costs sharply, which may not be viable given the thin margins. A lot of people therefore believe the reason behind the recent sharp cut in the price of Alto LX (by Rs 23,000 in September) and the phase-out of Maruti 800 DX is that the company is preparing for life after the M-800. If the Alto were to indeed replace the Maruti 800 as the entry-level car, it will give some breathing space to rivals, since the Alto cannot be manufactured at the cost of an 800. 

The jokers in the pack could be TVS Motors and Bajaj Tempo. The former is setting up a three-wheeler manufacturing capacity while the latter already has one. Word has it that both could make quadricycles, which are three-wheelers that acquire one extra wheel and axle to masquerade as a car that will fit somewhere between the high-end motorcycles and the entry-level cars. Carmakers express concern over the hectic lobbying in play to have softer emission and safety norms for the quadricycles. 

Such vehicles already exist in Europe, made by French company Aixam. But they remain an exotic small production job. In the midst of all this frenzy, it's only the consumers who can sit back and relax as the drama unfolds. In addition, though, they'll do well to watch this space.