India's Tata Motors Ltd. is discovering that there are limits to how cheaply it can make an automobile, according to this Reuters story. According to the report, Tata is developing a car that it can sell for 100,000 rupees (US$2,485.60). But high material costs and production delays might force it to raise the price to 125,000 rupees (US$3,107).
Suppliers, already grappling with volatile raw material costs and softer domestic demand, are baulking at Tata's price and delivery targets. Some have reportedly turned down its orders and others are seeking guarantees on volumes and prices. "The Tatas' demands are pretty aggressive, be it on product, cost or delivery," said one supplier who asked not to be identified. "We're being stretched."According to the story, Tata has encouraged suppliers to set up factories near its plant, and it has invested about $450 million in the project. To save money, it's looking at using recycled plastic as a raw material, and "modern adhesives" (doesn't that mean glue?) instead of welding. Can anyone really build a car that costs about the same as a nice riding lawnmower? We'll find out in a few months. Here's some advice to potential buyers -- you might want to purchase an extended warranty.