The Tata Ace was a small four-wheeled commercial vehicle launched by Tata Motors in

May 2005 at a price of 225,000 rupees (Rs.) ($5,000)1 with a payload capacity of 0.75 tons2

The Ace cost 50% less than any other four-wheeled commercial vehicle in India and was
significantly cheaper than pickup trucks with similar payload capacities found in
international markets. Unlike other commercial vehicles, the Ace, with its compact size
and shorter turning radius, could maneuver through India’s narrow urban streets and
cost-effectively transport small loads to villages and towns in rural areas.

By offering a niche vehicle that met the unique needs of the Indian transportation sector
at a price comparable with that of a three wheeler, the Ace created an entirely new
product category

The annual target of 30,000 vehicles was sold in less than a year, despite the product’s
being available in only approximately 25% of the country.

India had a nonmotorized- vehicle sector that included

bullock carts, bicycle rickshaws, horse-drawn carriages, and
manual pull carts. The size of this nonmotorized segment was
large but undocumented.

By world standards, India’s road network in 2006 was

considered to be inadequate and underdeveloped. While India
had 3.32 million kilometers of roads, only 2% were national
highways and only 12% of this 2% were four lanes (two lanes
in each direction) or more.12 Within urban areas, particularly
near commercial and retail markets, roads were very narrow
and congested. Traffic was further exacerbated by the lack of
adherence to traffic rules and the presence of multiple vehicle
types, pedestrians, and animals on the road. Road conditions
often prevented trucks from reaching retail markets, and final
goods delivery had to be completed via three wheelers, bullock
carts, or human labor. These delivery methods often resulted
in damaged goods, longer lead times, and shrinkage.
In 2001,18 Tata Motors posted a loss of Rs. 5 billion ($111 million), which was the largest
loss in the history of any Tata company and the largest loss ever recorded for any
private-sector company in India. This was due to cyclical downturn in the commercial-
vehicle segment and an economic recession.

Kant, head of Tata Motors’s Commercial Vehicle Division, and other executives realized
that the company would need to take drastic measures and outlined three focus areas:
cost reduction, quality improvement, and new-product introduction

The company realized that its core business could be

threatened by the absence of larger (greater than 45-ton) and
smaller (sub two-ton) vehicles in its product portfolio. The
smaller commercial vehicle would also be attractive to Tata
Motors in light of the financial loss of 2001, since smaller-
commercial-vehicle demand was historically less cyclical than
that of medium or large vehicles.
The Ace team was also the first at Tata Motors to implement cross-functional teams for
product development as well as the first to make extensive use of the production
preparation process (3P).

Wagh’s task would be further complicated by the strict cost controls for the project. The
total development budget was not to exceed Rs. 2.2 billion ($49 million). For
comparison, the budget for Tata Motors’s Indica was Rs. 17 billion ($378 million),

The Ace was conceived as a product “from the customer, for the customer.”

Interviewees were looking for a vehicle that offered the price, fuel efficiency, and
maneuverability of a three wheeler but with the safety, durability, additional payload,
and comfort of a four-wheeled truck. Ideally, the customer wanted a scaled-down
version of Tata’s four-ton 407 truck.

Market research suggested that being a three-wheeler driver was not a desirable
occupation.

With three wheelers selling in a price range of Rs. 100,000 to

Rs. 200,000 ($2,222 to $4,444), the team set a price target of Rs.
200,000 ($4,444) for the Ace. Above this level, market research
suggested that demand would fall off precipitously.
Combining this price target with the budgetary restrictions
would make designing the Ace even more challenging and
force the team to think creatively to create a product that
offered trucklike features at the contemplated price point.
One way the transportation market could be segmented was based on the functional
needs of different customers.

The Ace’s core market would be customers looking to

transport 750 to 1,500 kilograms over a distance of 100 to 200
kilometers. Based on this target market as well as the
opportunity to grow the total market pie, the team estimated
that 45% of the Ace’s customer base would come from people
planning to purchase three wheelers, 15% from potential
pickup and light-commercial-vehicle purchasers, and 40%
from first-time commercial-vehicle purchasers.

Within the functional market segment above, one could

further segment customers into four groups (estimated percent
of the market): performance sensitive (7%), balanced
perspective (25%), return-on-investment (ROI) sensitive (55%),
and acquisition price constrained (13%) (see Exhibit 5).

The Ace team faced three major challenges in creating a

vehicle that met customer needs and the price target.
Overloading capability As part of its market research,
the team conducted tests to see how three-wheeled vehicles
were being used in the field. Based on these results, the team
created a “duty cycle” that represented the aggregate
hypothetical usage for the vehicle (see Exhibit 7 for duty-cycle
data). Average tonnage and speeds were measured. The data
suggested that the vehicle would be overloaded, since quick
acceleration was not of prime importance on India’s slow-
moving roads and speed considerations were outweighed by
the desire to reduce the per unit cost of transportation through
large loads. As a result, the team focused on how to design a
product that could withstand the strain of overloading. Using a
computer-aided design (CAD) prototyping system, the design
team, guided by R. R. Akarte, vice president of the Engineering
Research Center, was able to rapidly iterate and isolate stress
points. By limiting the use of higher-strength steel to just these
stress points, the team was able to ensure a lower-cost yet
durable design. Overloading considerations also determined
the selection of a rigid front-axle design and rear-wheel drive.
While most Indian vehicles, including three wheelers, offered
body-on-frame construction (the cabin was a separate structure
and bolted to the frame), the Ace would offer a
semimonocoque body that would provide the ride quality of a
car or Japanese minitruck but prevent the cracks that typically
resulted when monocoque vehicles were overloaded.

Engine selection Customers had indicated a preference

for a diesel-engined vehicle due to the fuel’s greater efficiency
and lower per gallon cost in India. One option would be to
offer a one- cylinder engine similar to that found in a three
wheeler. However, this engine would not be powerful enough
for the contemplated payloads and desired speed and would
also fail in meeting the stringent emissions and noise,
vibration, and harshness (NVH) targets for four wheelers. At
the other end of the spectrum, the company considered
sourcing a four-cylinder diesel engine from a multinational
company. Using an existing engine would save time and
would already be proven in the field. However, even the
smallest foreign-made engines were 40–50 horsepower, which
was more than twice the level needed in the Ace, as well as
double the cost target.

Under the guidance of Akarte and P.M. Telang, president of

Light and Small Commercial Vehicles, A.V. Lakshmi Pati, a
veteran in engine design and development, created an
innovative two- cylinder diesel engine concept based on the
Indica passenger car’s four-cylinder engine. Costs would be
minimized due to parts sharing, and the performance levels
would be just right for the vehicle. The team then altered this
engine to fix the excessive noise and vibration levels and
worked with a supplier to develop a rotary fuel-injection
pump that could meet emissions standards without electronic
systems, thereby reducing costs and after-sales service
complexity.

Safety, comfort, and aesthetic considerations Early in

the design process, the team decided that the Ace should meet
the higher M1/N1 class safety norms instead of the less
stringent quadricycle norms on which most of the European
minitrucks were based. Since the Ace would be a Tata-brand
vehicle, it was decided early on that it should conform to the
highest safety standards. Furthermore, if Tata Motors could
offer a safer product to the consumer, the Indian government
would have no reason to adopt the quadricycle norms for its
highways and could take a positive step in vehicle-safety
standards.

The most straightforward way to meet these safety norms

would be to design a vehicle with a semiforward face (engine
in front of the cabin akin to a passenger car). However, market
research indicated that customers preferred a flat-face vehicle
that looked more like a large commercial vehicle and allowed a
greater percentage of the length of the vehicle to be used for
goods transport without “wasted” space. The engineering
team used crash-test computer simulations and developed a
cabin that met full-frontal-crash requirements while still
maintaining a flat-faced stance. In addition, the front
windshield was pasted to the steel window frame instead of
attached using a rubber seal so that it could add structural
strength.

Through a process called aggregate outsourcing, Tata

Motors would source the entire rear axle, frame, and
front axle from third parties instead of assembling these
modules in-house from outsourced parts
The team also leveraged the power of the Internet by
making the Ace the first Tata Motors product to
extensively use e-sourcing with its suppliers.
In order to control costs, the team decided to manufacture
the Ace at an existing underutilized Tata Motors plant in the
western city of Pune. Locating in Pune would also allow the
Ace to tap into Tata Motors’s existing vendor base and save on
outbound freight costs, since it was estimated that 70% of the
demand for the Ace would come from the western and
southern states of India. The entire Ace production line would
be built within the existing commercial-vehicle plant.

Through creative design, using existing facilities and

aggregate outsourcing, the team was able to meet the Rs. 2.2
billion ($49 million) budget.

Based on these rational and emotional considerations,

the marketing team developed a few key messages that it
believed would resonate with customers. The Ace would
be advertised as “India’s first minitruck.”

The team decided that the Ace rollout should be conducted

in phases beginning with five states in the western and
southern parts of India. These regions were selected because
market research suggested they were regions where three-
wheeler demand was strongest.

Based on this data, the company developed a new

dealership format called 1S (3S was the traditional
dealership that offered sales, service, and spares). The
dealership would only be responsible for sales and
included a 400-square-foot building, one or two vehicles,
plus a desk and a phone (no additional vehicle inventory
would be on the premises).

In order to avoid the cost of providing service bays at

its dealerships, the company created a program called
“Suvidham,” which means “convenience” in Hindi.
Through this program, Tata Motors trained existing rural
mechanics free of charge on how to complete simple
maintenance procedures on the Ace. In addition, each
mechanic received a free set of tools and a sign to display
at their garage. The company also launched a “mobile
workshop” that would travel to small villages and
construction sites on a predetermined schedule to
provide spare parts and lubricants to mechanics and
customers.