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Tata small car throws a big punch

Tata small car throws a big punch
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First Published: Fri, Jan 11 2008. 12 49 AM IST

No small feat: Ratan Tata at the wheel of the Tata Nano, at the Auto Expo in New Delhi on Thursday. (Photo: Ramesh Pathania/ Mint)
No small feat: Ratan Tata at the wheel of the Tata Nano, at the Auto Expo in New Delhi on Thursday. (Photo: Ramesh Pathania/ Mint)
Updated: Fri, Jan 11 2008. 12 49 AM IST
The Tata small car may end up to be a big deal, after all.
Emphatically silencing critics of all hues and ending months of feverish speculation, Tata Motors Ltd unveiled its Rs1 lakh car, dubbed the Tata Nano.
No small feat: Ratan Tata at the wheel of the Tata Nano, at the Auto Expo in New Delhi on Thursday. (Photo: Ramesh Pathania/ Mint)
The car, which becomes the world’s cheapest new car at $2,500, put to rest doubts about the ability of any car company, let alone an Indian company known more for its trucks than cars, to create a vehicle that, even rivals admit, is good looking and relatively state-of-the art for its class, including in its ability to meet India’s new emission norms two years ahead of a government deadline.
“Take it as it is,” said an unapologetic and punchy Ratan Tata, the 71-year-old chairman of Tata group. “Indian families (need) a safe, affordable, all-weather means of transport.”
Tata, whose personal desire for what was billed as the People’s Car, eventually led to the four-seater, 623cc engine car, also took pains to note that multiple variants, including upmarket ones, of the Tata Nano will eventually result in a profitable car line for the company.
“Tata Motors, while being a socially responsible company, is not a philanthropic trust,” he said. “Please be assured that the introduction of this car will be a profitable proposition.”
Tata Motors is still building a factory in Singur, West Bengal, where it can produce up to 350,000 cars at full tilt sometime toward the end of 2008. Thursday’s unveiling of the car is now likely to intensify the debate among other car companies, especially in India, on how to respond.
With the exception of Carlos Ghosn, who heads Nissan Motor Co. and Renault SA, almost all other car companies have openly or privately pooh-poohed the notion of a Rs1 lakh car. But, India, where some 1.4 million new cars are sold each year, is also a hugely attractive market for dozens of car companies and most of them can’t risk ignoring what appears to now be a potent competitive advantage for Tata Motors. India’s car market is expected to touch 2.2 million units a year by 2010, according to the Society of Indian Automobile Manufacturers.
To be sure, Tata Motors will need to convert the initial euphoria into actual sales, especially because the company has had a checkered past in terms of the quality of its now successful flagship car, the Indica, which has already sold 800,000 units.
And Tata Motors is expected to try and ride a growing sense of patriotic support among many Indians about the Tata car breakthrough, as well as a nation where value shoppers are galore, forcing current leaders in small cars, such as Maruti Suzuki India Ltd and Hyundai Motor Co., to rethink their strategy of how they will defend market share.
Indeed, Bajaj Auto Ltd, India’s second largest two-wheeler maker by volume, has already unveiled an indigenously developed low-cost car earlier this week, though it still has no name or a price, and will take four years to show up on Indian roads. Bajaj runs the risk of seeing buyers of not just its two-wheeled bikes, but also drivers of its profitable three-wheelers, or the ubiquitous rickshaws, which cost a little under Rs1 lakh, switch to the Tata Nano. Bajaj, which is developing the car’s engine, is partnering with the Renault-Nissan combine.
On Monday, Rajiv Bajaj, managing director of Bajaj Auto, declined to discuss the Tata Nano, though he was heard on CNBC TV 18 channel calling it a “cute car.” On the same channel, Pawan Goenka, president (automotive), of Mahindra and Mahindra Ltd, also dubbed it a “very impressive demonstration of Indian engineering.”
The closest competitor to the Tata Nano is the Maruti 800, which was India’s largest selling car for almost two decades since its introduction in 1983. It is now priced at about Rs2 lakh. Meanwhile, despite Tata Nano’s length being less than that of the Maruti 800, it is wider and taller, making passenger space 20% larger at about half the price.
“The only way that Maruti can take up the challenge is to redesign the 800 and play around with the pricing,” suggests S. Ramnath, vice-president with SSKI Securities Ltd. Until now, Maruti has said it won’t reduce the 800’s price.
Tata was able to keep the price of the entry-level Tata Nano to Rs1 lakh without significant changes to how cars are generally made mostly by packaging the car effectively in a small space, coupled with trimming costs on components and minor technical innovations. It took some 500 engineers nearly four years to arrive at the Tata Nano, along the way abandoning a plastic body as well as notions of a vehicle without doors. Tata said Tata Motors had filed for 34 patents for the car platform.
“Does this become a platform or is it just a low-cost car?” Tata asked rhetorically before saying: “We believe it will be a platform.”
Indeed, it is only with a variety of models, mostly priced well above Rs1 lakh, and strong sales that it is likely the car maker will start making money on the Tata Nano, on which Tata Motors has invested about Rs1,700 crore so far, including costs for the Singur factory.
Indeed, steel prices alone have risen by 2% in the three months while aluminium prices have shot up by a third in the same period.
“There will come a time when we will not be able to hold to a price that we have emotionally held ourselves to,” said Tata, adding that what he worries about the most is “runaway inflation.”
Tata Motors is already seeking better pricing for car parts from suppliers in return for high volumes and becoming the preferred supplier for various parts. As many as 40 vendors are building factories in Singur for the small car project.
With its entry price point, which will climb to about Rs1.2 lakh by the time a Tata Nano is driven out of the dealer’s parking lot, Tata Motors will target some 50 million motorcycle users, many of whom pay up to Rs50,000 to buy a bike. While average monthly cost of ownership of a bike versus the Tata Nano, which is promising a fuel efficiency of 20km to a litre, will be lower, it will be significantly smaller than the gap between a two-wheeler and a Maruti 800.
“I have nothing against two-wheelers, but statistics show that they have twice the number of fatalities than those (driving) in cars,” said Tata, hours before he formally unveiled the Tata Nano at Delhi’s Auto Expo. “What is the safety of a scooter? A crash helmet?”
“If we do have competition, and it looks like we will have, I think it is a vindication of what we set out to do,” said Tata, who had grown increasingly testy ahead of the launch because of the barrage of criticism involving safety, emissions, fossil fuel and gridlock questions that were being asked of the car.
“I would like to hope that any battle is in the marketplace in an open manner and the best product wins. The market will decide...If that happens, and if we succeed, we will have broken new ground for India.”
Far away from the euphoria, investors drove shares of Tata Motors down by 2.78% to Rs749 a share on the Bombay Stock Exchange on what was a bearish day in the markets. Tata Motors shares are trading well above their 52-week low of Rs616.15 a share set in late August.
Pranav Verma contributed to this story.
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First Published: Fri, Jan 11 2008. 12 49 AM IST