Launching an Ace on the roads

Updated: Sep 30 2006, 06:07am hrs
In May 2005, Tata Motors Ltd commercially launched the Tata Ace(Ace), India's first indigenously developed sub-one tonne mini-truck. Tata Motors said the Ace fitted into the hub-and-spoke distribution system as a last-mile distribution vehicle by providing a transport link into interior areas, where roads might not be wide enough to accommodate larger commercial vehicles. The development of road infrastructure had led to an increase in the distribution of goods by road across the country. Tata Motors anticipated an opportunity in the sub-one ton payload segment, and developed the Ace for this market.

The decision to develop the Ace was made after a study that found that customers wanted a last mile-distribution vehicle that had low maintenance costs, higher driver safety, and better driving comfort. In line with these customer requirements, the company developed and launched the Ace, which created a new segment in the market for four-wheel commercial vehicles the small commercial vehicle (SCV) segment, which was earlier the province of three-wheel cargo carriers.

Despite being priced higher than the three-wheeler alternatives, the Ace received a good response from the market. One reason for the success of the vehicle was that customers felt that it looked and performed better than the existing alternatives. Various value enhancements such as car-like features in the driver's cabin, attractive finish and better safety features helped improve the value perceived by customers. The company targeted customers who were willing to pay a higher price in return for lower operating costs. For the future, Tata Motors planned to introduce a CNG version and even a passenger carrier variant of the Ace.

Tata Motors sold around 30,000 units of the Ace in 2005-06. Having launched the vehicle in key markets across India, the company planned to further increase its coverage across all geographical markets. It announced that it was taking steps to ramp up the existing production capacity for the Ace, at its Pune plant, from 30,000 units to 75,000 units. The company expected to set up a new manufacturing plant for the Ace in Uttaranchal, with an annual capacity of 200,000 vehicles, by March 2007. In addition to targeting the domestic market, Tata Motors launched the Ace in Sri Lanka in May 2006. In June 2006, it was reported that the company was preparing to launch the vehicle in markets such as Bangladesh, Africa, South Korea, West Asia (Gulf), and the CIS countries, by 2008.

Analysts expected the Ace to face stiff competition in the near future. After witnessing the successful response to the vehicle, all the major Indian three-wheeler manufacturers and light commercial vehicle (LCV) makers announced their plans to roll out sub-one tonne, four-wheel vehicles for the SCV segment.

Source: Rajiv Fernando, ICFAI Center for Management Research, Hyderabad, India. Visit www.icmr.icfai.org


Ashok K Pundir, associate dean, Nitie
Ace will help companies bring down logistics costs

Launched in May 2005, the Tata Ace is already a Rs 700-crore brand and has more than doubled Tata Motors' LCV sales in the sub 3.5 tonne category. The company sold out its entire year's targetted volume of 30,000 units within 8 months of launching Ace. Ace was to offer a last-mile distribution vehicle that had less maintenance costs, higher driver safety and better driving comfort. Thus was developed a twin-cylinder 700cc, 16 bhp, 4-wheeled goods carrier with sub 1-tonne payload capacity suitable for transportation in urban and rural areas for distances of 5 km-50 km.

Additionally, the cabin was ergonomically designed to cater to the user's needs of ride comfort and ease of handling. More importantly, it re-established the ability of Tata Motors to create new segments as it did earlier with the Tata Indica. It resulted in a new small commercial vehicle segment 'Mini Trucks', an area earlier dominated by three-wheel carriers.

Most new owners of Ace identify themselves with the car-like features which enhances its value proposition. The Ace with its powerful engine and comfortable interiors provides flexibility to the operator to run additional trips up to 500 km per day without stops for refueling. The mini-truck is versatile and adapts seamlessly to different terrains and road conditions. It has the agility to navigate narrow by-lanes owing to its small turning radius.

India's ambitious national road project would be a major sales driver for the little pickup trucks. With an improving road network, there would be a push to improve supply chain efficiency by bringing down the logistics cost. Larger tonnage trucks will hit the road and last mile distribution feeder routes will have to be enlarged to handle more volumes more frequently. Price, fuel efficiency, payload, reliability and maintainability targets at the vehicle and aggregate level will favour Ace, which already has the first movers advantage to its credit.

The impact of its launch can be attributed by taking a look at the segment sales. Tata Motors' Ace impacted 3-wheelers, mostly in the 1.5 tonne goods category, where all players showed a dip in sales ranging from 1-16% during 2005-06. After Ace, almost all the three wheeler manufacturers and low-end LCV makers have announced plans to roll out one-ton, four wheeler vehicles by 2008.

A lot would now depend on whether the customer agrees that the Ace's pricing and any premium therein is justified. There is a big price difference between a 1-tonne 3-wheeler and Ace. So the step up for the core 1-tonne (lower pay load-price segment ) user will not be easy. More importantly, easy financing is available to buy three- wheelers. New 3-wheelers come with a CNG/LPG engine, which further reduces the operating cost.

With ramping up of production capacity from 30,000 to 75,000 at the Pune plant and setting up of a new manufacturing plant for Ace in Uttaranchal reflects Tatas grand plans for Ace. In 2004-2005, total domestic sales of 3-wheeled goods carriers stood at 1,36,007 units or 44.2% of total 3-wheeler sales. The remaining 55.8% reflect the passenger carrier segment that Ace can cater to by offering a 8-seater passenger vehicle. A higher payload version with a bigger engine for international markets will further improve its deliverability. Customised variants can also be offered to distributors as per demand.

In the next few years, Ace may enjoy market share due to the lead time it offers. A reduction in price may be compensated by increased volumes by targeting the customers lying below the 2 lakh-price barrier. It would be interesting to see Tata Motor take on competitors when the Ace's introduction coincides with a period of high input costs.


Abdul Majeed, principal consultant, PriceWaterhouse
Tata Motors uses first movers advantage

The Indian road system is characterised by short and narrow roads, especially in rural areas. These unique road conditions impact the choice of commercial vehicles available. For example, there was a gap in the market for smaller commercial vehicles, especially in the sub-one ton mini trucks. Tata Motors Limited, Indias largest automobile company with revenues of Rs. 24,000 crores (USD 5.5 billion) in 2005-2006 answered the unmet demand for a smaller commercial vehicle by developing Tata ACE. As Indias first indigenous mini-truck, ACE can transport goods rapidy and in a cost effective manner. At the same time, the Tata ACE also boasts of features such as comfort, easy maintenance and small exterior belies with a technologically superior engine resulting in high power and high loading capacity.

The introduction of the ACE is likely to change the competitive landscape for small commercial vehicles. Some of the drivers behind the success of ACE are the features of versatility, cost savings, style, better performance, comfort and safety. This vehicle can be used in cities and in rural areas; with its small turning circle, the vehicle can be safely and easily navigated through narrow streets and dense city traffic. This vehicle can travel 500 km a day and has a lower operating cost.

On the performance front, 700cc engine delivers a power of 16 HP at 3200 rpm and a torque of 3.8 at 2000 rpm. The vehicle also meets the emission norms, including BS II and BS III standards. In addition to performance, ACE also offers features to enhance comfort, such as ventilation ducts, seats with soft cushions and is encased by a fully built sheet metal cab with the doors, roof lining and floor mats that protects occupants from heat, cold and rain. The ACE is also a safe vehicle-it meets the Indian safety norms such as frontal crash, roof crush, seat belts, front disc brakes, rear drum brakes, etc.

While ACEs price is higher than other three wheeler alternatives, it has received a positive response from the market due to its unique features, value for money and superior performance. Just ten months after its launch, Tata Motors has sold 30,000 units. With this success, the company plans to double the annual output of ACE at its Pune plant from 30,000 units to 60,000 units. Tata Motors is also planning a production of 225,000 units per annum at its new facility in Uttaranchal. The company has launched this vehicle in Sri Lanka in May 2006 and is also preparing to launch in additional markets like Bangladesh, South Africa, South Korea and other CIS countries.

The success of the ACE has incented players to explore the opportunity in this segment; there are reports suggesting that the second largest commercial vehicle producer, Ashok Leyland, is planning some new products for this segment. A mini truck from Ashok Leyland may well be in offering.

Tata Motors has gained a first-mover advantage in this niche segment. With the entry of new players in this segment, the competition will intensify. Initiatives such as how quickly the product will be rolled out across India and what value addition the company will offer will determine if Tata Motors will be able to retain its dominant position.