Segment Y Automotive Header  
25 years later, second small car revolution
Livemint, 24 March '09
Segment Y in the press
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» Tough Times for the Tata Nano
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» Tata unveils world's cheapest car
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Tata Motors announced the launch of the Nano, its much awaited low-cost car, at a glittering ceremony in Mumbai, keeping its entry sticker price at the promised Rs1 lakh without levies.

With taxes and duties, the base Nano model would retail for Rs. 123,000 (US$ 2,460) in New Delhi and at least Rs. 113,000in Pantnagar, Uttarakhand, where the car will first be manufactured. Other variants, featuring air conditioning and power windows, will sell for Rs. 151,000 and Rs. 172,000 each in New Delhi.

Prices at other cities farther from Pantnagar would be higher. At Mumbai, the entry Nano model would sell at Rs. 134,000 and go up to Rs. 185,000.

"A promise is a promise and I am pleased to say the promise is kept ," chairman Ratan Tata told a 2,000-strong crowd at the Parsi Gymkhana lawns at south Mumbai. But only the first 100,000 buyers of the Tata Nano will have the option of buying the base model at Rs. 100,000, said Ravi Kant, managing director of India's biggest auto maker.

Kant, at a meeting with editors early afternoon, chose not to answer a specific question on whether this model would make money for Tata Motors and said that in the long run, it would. Later, at a press conference, he said the "Nano project is not just commercially viable but very profitable".

The Nano hits the road 25 years after another car, the Maruti 800, made in collaboration with Japan's Suzuki Motor Co., expanded India's car market. Some 2.5 million Maruti 800s have been sold to date.

The Rs. 172,000 price tag for the top version puts it at a less competitive position vis-a-vis competing models, said B.V.R. Subbu, chief executive of auto company Argentum Motors and former Hyundai Motors India managing director. The Maruti 800, for instance, starts retailing at Rs. 200,000 and an air-conditioned version sells for Rs. 204,000-just Rs. 53,000 more than a Nano with air conditioning.

"It takes the Nano into the Suzuki Alto territory and it remains to be seen whether people want to buy it over the Alto," he said. A Maruti Suzuki India executive said it was too early to comment on prices but was categoric that the firm would not "get into the ultra low-cost segment". Tata Motors has "stuck to what they promised and we feel a lot of two-wheeler users will migrate to cars. This will help us as a company," I.V. Rao, chief executive (engineering), told.

Another auto expert didn't think the price would hurt Tata Motors. "There will be enough people buying the Nano because it is a Tata car and they made good the Rs. 100,000 promise; look what happened with the Indica (when it was launched)," said Paul Blokland, director at Segment Y Automotive Intelligence. The Indica, when launched in 1999 received 100,000 bookings, and has since sold 900,000.

Tata Motors has decided to take as many bookings as possible between 9th April and 25th April, it will choose 100,000 allottees at random within 60 days of close of booking. The remaining applicants have the option of retaining their bookings and earning an interest of up to 8.75% a year on booking prices from at least Rs. 95,000 to Rs. 143,000.

Application forms will cost Rs. 300 each and registration will start at Rs. 2,999.

Tata Motors has tied up for car loans with several banks such as State Bank of India, Punjab National Bank and Axis Bank that have a large network across small towns and cities across India. Forms will also be sold and accepted at the outlets of Tata group brands such as Titan, Tata Indicom, Westside and Croma.

Deliveries of the car will begin in July and it will take Tata Motors at least until July next year to make these 100,000 cars, said Kant.

That’s because Tata Motors’ small car plant at Singur, a village about 45km west of Kolkata, had to be shifted to Sanand in Gujarat in the face of political opposition in West Bengal. The Gujarat plant, near Ahmedabad, is expected to start producing the car late this year or early next year, said Tata. The capacity of that factory will be 250,000 a year.

Meanwhile, deliveries will start from the company’s Pantnagar plant, with a capacity of 50,000 units.

Initial reactions from those that have test-driven the car suggest it has lived up to the hype. “The genius of the Nano is that they’ve spent money where they should,” said the editor of one of the country’s top-selling auto magazines. He’s test-driven the car and believes Tata could get as many as a million bookings. “The car is a triumph of pocket science over rocket science.”

Powered by a two-cylinder aluminium, 624cc engine, the Nano will, at first, be offered in a petrol-only version. It has a top speed of a 105 kmph, the firm said. Available in three variants, it gives 23.6 km a litre, shows data from Automotive Research Association of India (ARAI).

Tata said he still thought he could sell a million Nanos a year, based on studies done by the company a few years ago where it had looked at the number of scooters and motorcycles sold in India.

He said initial demand would be met quickly. “We really don’t want somebody to wait too long for this car as it’s like waiting for a very pretty woman. If you wait for her for too long she becomes old and probably fat,” he joked.

The Nano comes with a 18 month, 24,000km warranty, whichever is earlier. This deviates from the industry norm of at least 50,000km. Said an analyst, “While this does not mean that Nano has a quality issue, it definitely bespeaks of the low confidence levels of the engineering team at Tata Motors,” he added.

The past few months have been rough for Tata Motors, which has sunk in a little over Rs. 2,000 crore in the Nano project. Truck sales, the firm’s mainstay, have crashed in the last five months. It had also borrowed heavily to finance its purchase of marquee brands Jaguar and Land Rover in March 2008. This June, the company is slated to refinance or pay back a US$ 2 billion bridge loan it had taken to finance their purchase.

When the company first came up with the idea of the “people’s car”, Tata had said that the company could consider selling the car through small entrepreneurs, who would build the Nano from kits supplied by the company. He said the company could still do this but only after its manufacturing operations had stabilized and it had a separate “kitting operation” in place.

The future of car manufacturing would see more multi product contract manufacturers, Tata said, with the car companies themselves focusing only on design and manufacturing.