You might wonder why all this threatens General Motors. If the Tata takes off, then eventually the major automakers will also need to make supercheap cars for developing regions. And most can’t. Every G.M. model bears at least $1,500 in costs just to cover the corporation’s pension and health-care liabilities—a kind of original sin burdening any Pontiac or Chevy. Major automakers have too much invested in factories, labor, and high-end models. This yoke will prevent the large players from competing in the market that Tata is about to ignite. They can no more readily follow Tata’s lead than a newspaper company can abruptly shut down its presses and move entirely to the Web.

In the U.S., there are an average of 2.9 people per car. In India, there are 137.2 people per car. The research firm A.T. Kearney predicts that Indians will buy 300 million under-$3,000 cars by 2020. (There are 900 million cars in the world today.) Similar demand will explode across China, Southeast Asia, and Africa: all markets to which Tata plans to export the one-lakh car. If the big carmakers aren’t a part of that growth, they’ll be as vulnerable as mainframe-makers were at the dawn of the PC era—churning out elegant, high-end machines for an increasingly narrow market segment.

Few auto executives seem to get it. One exception is Carlos Ghosn, the C.E.O. of the Renault-Nissan alliance, who’s pushing to develop an under-$3,000 car by 2010. “If we are not present in this sector,” he said recently, “we risk losing some of the know-how to compete.” On the other hand, G.M.’s plans for India entail rolling out an S.U.V.  Even brash startups are staying away from the supercheap-car segment. “I thought about doing one myself many times,” says Bill Gross, who runs the tech company Idealab, “but then I saw the beautiful one from Tata and gave up.”

Tata’s car could create serious challenges—chiefly traffic and pollution. Add a few hundred million autos to India’s roads and pretty soon you’ll be able to travel faster by pogo stick. Yet a one-lakh car “is important to create an equitable society,” says Vani Kola, a Bangalore venture capitalist. “When we can’t breathe anymore and cannot get anywhere,” Kola says, “it will force the Indian government to be serious about its policies to create the infrastructure needed."

Shaking up the auto industry, lifting a nation’s vast underclass, threatening the planet—this little car could leave quite an impression. Makes last year’s iPhone hype seem very last year.