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Tata-Peugeot mid-size car plan deferred

Our Bureau

MUMBAI, July 20

TATA Engineering today informed that following the completion of its joint feasibility study with PSA Peugeot Citroen for developing a mid-size passenger car, the two companies have decided not to go ahead with the project at this point in time.

The viability of the business case was found to be affected adversely by the high logistics cost between Europe and India as well as the limited volumes in the Indian market for this type of car, an official statement said.

The cost of the feasibility study was not disclosed.

PSA Peugeot Citroen is Europe's second biggest automobile manufacturer and the joint study was the first such move in cars for Tata Engineering, which otherwise continues to sport a 10 per cent equity stake by Daimler-Chrysler.

Though having several partnerships, PSA Peugeot Citroen was noted as an auto giant yet to have cross border equity holding, a growing trend in the consolidating global automobile industry.

First disclosed in January 2001, the 6 month-feasibility study was to examine the development of a 3-box sedan based on the PSA Peugeot Citroen-2 platform. The proposal was focussed on development (cost borne by both parties) and licence manufacture.

Subject to feasibility being established, the car was to be considered for overseas markets as well. It was indicated then, that if everything went right, then the sedan may be produced by early 2003.

In an interview to Autocar India, published in July 2001, Mr Herve Guillot-Tantay of Peugeot Citroen's Strategy & Product Planning Group, had said that one of the key factors which will determine the Tata-PSA project's success, is indigenisation. But tal ks with Indian vendors revealed two problems - they were not used to Peugeot's quality levels and their prices were not always cheap.

When contacted, Mr Rajiv Dube, General Manager (Commercial), Passenger Car Division, Tata Engineering, said, `` Both companies explored as aggressive an indigenisation level as possible.'' But indigenisation along with the cited low volume and logistics cost impacted the project's fortunes.

Asked why low volume was being cited when domestically players are present in the `C' segment and now the `D' segment, he said the critical issue was not just volumes but volumes adequate for healthy margins.

``How many of them are making money on the cars sold in the segment?'' he asked, emphasising that with the joint study now complete, Tata Engineering was sure of the costs involved.

While the Indian mid-size segment spans models ranging from the Maruti Esteem to the Honda Accord, a model developed on the Peugeot Citroen Platform-2 would logically find slotting somewhere below the Accord. Mr Dube however, declined to peg a right volu me for the car, seeing that as a product of several variables including pricing, localisation, development cost etc.

He said, Tata Engineering is free to attempt a similar feasibility study with any other manufacturer. ``If there is a possibility of any other product, why not?'' he asked.

The joint study with PSA had no bearing on work concerning the indigenous mid-size car, Tata Magna, which Mr Dube said, is on schedule for its slated market debut by mid/end 2002.