Segment Y Automotive Header  
Can small really be beautiful?
The National, 1 November '08
Segment Y in the press
» India's manufacturing sector benefits from China's challenges
» Uber's tricky vision aims to tempt Indians from car ownership
» Mahindra to buy controlling stake in Peugeot scooter unit
» Luxury carmakers hindered by Indian potholes
» Global car groups to rev up India exports
» Nissan considers introduction of electric cars in Thailand
» Japan disaster affects Indian car production
» Indian auto boom gets bubbly
» India doesn't need green cars: Environment minister
» Superbike sales rise as Harley Davidson enters India
» Micra marks Ghosn's bid to make up for lost time
» Foreign luxury cars: Picking up speed in India
» Maruti Suzuki plans to drive into MUV segment
» In India, 'green cars' look like a hard sell
» Ford makes push to boost Asian presence
» Harley-Davidson plots India sales drive
» Harley-Davidson set to finally ride into India
» Superbike sales speed up in slowing economy
» 25 years later, second small car revolution
» India's car makers see glut
» PSA again exploring India opportunities
» Tough Times for the Tata Nano
» Can small really be beautiful?
» India cranks out small cars for export
» Will Tata's great car gamble backfire?
» Can Tata rev up Jaguar?
» Tata unveils world's cheapest car
» Automakers come knocking
» Coming soon, the $5000 car
» India's automotive plastics use to rise
» China readying new taxes on gas guzzlers
» New cars for under $5000
» At the Beijing Auto Show, signs of a behemoth to come
» Chinese automaker plans assembly line in Malaysia
» Chinese firm plans car plant in Malaysia

When Aniket Deshpande, a shopkeeper from the central Indian city of Aurangabad, saw the first pictures of the Tata Nano earlier this year, he was overjoyed.

"I thought it was a beautiful and wonderful car," he said. "I thought, "when it will be launched I want to be first customer'. It's my dream to purchase a car, and the Tata Nano comes in my budget."

The unveiling of the world's cheapest mass-produced car in January was a worldwide phenomenon, vying with the launch of Google's Android phone and the iPhone 3G for the year's most sensational product launch.

The "people's car", costing just 100,000 Indian rupees (Dh7,460), even made the front cover of Newsweek magazine.

But the fascination of the developed world paled compared with the excitement it generated for the millions of Indians for whom the Nano's launch meant being able to afford a car for the first time.

Within days of the launch, Mr Deshpande, 24, a car enthusiast who recently began studying for a degree in automotive engineering, put his name down on a waiting list at Sanya Motors in Aurangabad. He has been pestering Rajendra Jagirdar, Sanya's general manager, ever since.

"Five or six customers are asking every day," says Mr Jagirdar. Tata has yet to announce how waiting lists for the cars will be handled, but Sanya already has an unofficial list numbering in the hundreds. Dealers elsewhere are just as swamped. Pandit Automotive in Pune and Om Sai Motors in Mumbai both claim to have more than 1,000 customers waiting for the car.

Normally, marketing executives would give their expensively whitened eye teeth for this kind of consumer excitement ahead of a product launch, but for Tata Motors, it is a problem. Because last month, the Nano missed its unofficial launch date.

When Tata chairman Ratan Tata unveiled the car in January, Tata Motors had hoped to sell the first batch of Nanos into last week's Diwali festival – the most auspicious time for Hindus to make large consumer purchases.

That the car was not in the showrooms is not Tata's fault. At the start of last month, Mr Tata decided to pull out of his factory in the village of Singur, 40km outside Kolkata, just weeks before starting production there.

Mamata Banerjee, an outspoken opposition politician, had staged a month-long blockade of the plant, making impossible demands that a large part of the land be returned to farmers.

"If someone had put the gun to my head I would not move away," Mr Tata said ruefully, announcing Tata Motors' departure. "But I think Banerjee has pulled the trigger."

After leaving Singur, Tata quickly found a new home for the Nano factory in the village of Sanand, in business-friendly Gujarat.

The move well may have saved Tata from future heartache. But it has robbed the Nano of its big-bang launch. It will now be at least a year before Tata begins manufacturing the 20,000-plus cars a month needed to fill the orders for for Mr Deshpande and the others like him.

Ravi Kant, the chief executive of Tata Motors, said the company was working hard to get the highest possible Nano production when it launches the car, but was limited by the capacity of plants in Pune and Pantnagar.

"I wish we would have been able to have the Nano much earlier than we have it now, because it would have created more dynamics in the whole industry, it would have brought excitement into the market, it would have changed the whole ball game of the market itself. The delay hasn't been good," Mr Kant said.

The speculation now is that the car will be launched on or near Mr Tata's birthday on Dec 28. Tata's first standard passenger car, the Tata Indica, was launched on Dec 30, 1998, so that date has special meaning.

But the launch will be largely symbolic. The first Nanos will be produced at Tata's factory at Pantnagar, with backup from its plant in Pune. The plant is expected to produce only between 3,500 and 4,000 cars a month – far too few to register on the market.

Ramesh Khare, a dealer at Pandit Motors, said: "If the Tatas produce 40,000 Nanos a year, I will be able to sell them all just in Pune itself. That much demand is there."

It will take more than a year for Sanand to begin production at 250,000 cars a year, and longer for it to reach peak production of as many as 500,000 cars a year.

Until it gets there, Tata has given no clue as to how it will select which of the enthusiasts such as Mr Deshpande get to own the trickle of cars coming off its production lines.

"I don't have much of a handle on how they're going to satisfy such huge demand with such a small number of cars," said Paul Blokland, of emerging markets car consultancy Segment Y Automotive Intelligence.

Experience may make Indian consumers more tolerant of the delay than consumers in the West would be.

Mr Blokland points out: "In the past – only 10 years ago really – when a new vehicle was launched, if you wanted to book a vehicle you had to make a fairly substantial up-front payment, and then wait for as much as a year for the car to appear. In the case of the old Ambassador and Padminis it could take five years."

But Tata may opt instead to use a lottery system, perhaps bypassing dealers and involving the internet.

"The whole booking thing smells so much of the planned economy that they may wish to avoid that," Mr Blokland said.

When the Nano programme was launched, it rapidly came to symbolise both the "frugal" engineering that India is getting a name for, and the vast potential market the country offers manufacturers who can cut prices deeply enough.

The Singur factory blockade debacle means it will also become a symbol for the way India's rowdy democracy, with its frequent strikes and rabble-rousing protest groups, can make land acquisition for industrial projects a grim process.

Tata was right to move. Even if enough of an agreement was reached to end the protests, Ms Banerjee would never have let Singur die as a potential rallying issue. And if Tata and the West Bengal government had granted farmers the huge improvements in terms she was campaigning for, that would have meant rewarding her for her populist stance.

"It's not that difficult to get it right," says Roddy Sale, an investment banker based in Mumbai, who advised BHP Billiton and other mining companies on setting up in India, of buying up the land. "But once you've got it wrong, even in a small way, then it's almost impossible to correct it."

Mr Tata lamented in an open letter to the people of West Bengal after the move that "our dream of contributing to the industrial revival of West Bengal has been shattered by an environment of politically motivated agitation and hostility".

Aside from its shattered dreams, Mr Tata argues the move has not hurt the firm too much.

He said at the launch of the Sanand plant: "We would be retrieving most of our costs out of Singur and I don't believe that there will be a need to have any appreciable loss reflected in our financials in the current year."

Tata didn't pay for the land, and the machinery for the factory can be used in the new plant, so all the company has lost is the cost of the huge building covering the production line.

Analysts at Indian bank Kotak suggest that this, plus the cost of relocation, would not come to much more than US$60 million (Dh220.39m) of the $300m invested in the facility.

But it's not just customers who have been left waiting. German car-parts manufacturer Bosch had nearly finished an extension to its production facility in Bangalore to provide fuel-injection systems for the Nano. Now that capacity could lie idle for as long as a year until Sanand starts up.

Others have invested even more heavily. The UK's Caparo, for example, which is providing body parts for the car, had already built a plant at Singur and shipped in its machines.

The suppliers will need compensation. Tata held a meeting for them on Oct 16 in Mumbai and asked them to provide detailed accounts of their costs involved with Singur, as well as the added cost of moving.

One member of the ruling Communist Party of West Bengal. a state where conspiracy theories thrive, has even gone so far as accusing Tata's rivals, Suzuki and Bajaj, of funding Ms Banerjee to scuttle the Nano, which will take a huge slice of their motorcycle, scooter and small-car markets.

Bajaj chairman Rahul Bajaj has issued a firm denial, but the fact remains that with the Nano, Tata will be the sole manufacturer in a newly created market segment.

A year's delay means losing a year of that privileged status and there are at least six global car makers working on low-cost cars, including Renault and Nissan, which have teamed up with Bajaj, General Motors, Ford, Toyota and Honda.

As many as 400,000 of the the Renault-Bajaj-Nissan ultra-low-cost, or ULC, cars are to roll out of Bajaj's planned plant in Chakan, near Pune, by 2011. The move from Singur has effectively halved Tata's lead.

Then again, it's not as if Tata was planning to use its first-mover advantage to hit consumers with high prices. Indeed, if Tata manages to keep the price tag of the Nano below $3000, it is unlikely that any of its rivals will manage to match it.

So the most precious thing Tata risks losing is momentum – the level of excitement that had built up around the car.

At the time of the Nano's launch in January, Mahesh Chauhan, the chief executive of Rediffusion, the advertising agency that handled it, said the car was enough of a celebrity to pretty much sell itself.

Familiarity may start to change that over the next year. But the shortage of demand could work the other way. Anant Rangaswami, the editor of Campaign India, said: "Even before the problems that they had, I didn't expect them to do a high decibel launch. In many ways, because it's going to come out in a phased manner, what they need is less. They will have a backlog."