How Tata Nano became ammunition for Mistry’s broadside against Ratan Tata
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Mumbai: Tata Nano, a product of Ratan Tata’s dream project, is in the news once again for the wrong reasons. This time around, it is caught in the crossfire arising from a boardroom coup.
In a strongly worded five-page letter to the board of directors of Tata Sons Ltd, Cyrus Mistry, the ousted chairman of the group holding company, said Nano’s development costs were always above the threshold in the product concept, resulting in mounting losses.
“The Nano product development concept called for car below Rs1 lakh but the costs were always above this. This product has consistently lost money, peaking at Rs1,000 crore,” wrote Mistry, pointing out that “there is no line of sight to profitability for the Nano and any turnaround strategy for the company requires to shut it down. Emotional reasons alone have kept us away from this crucial decision”.
Under Mistry, Tata Motors made two bold attempts to revive the Nano. After failing to woo the original target customer, the two-wheeler owner who cannot afford a car, theauto maker repositioned Nano as a smart city car in March 2014. That did little to help. In May 2015, the car came full circle in terms of price and positioning. Renamed GenX Nano, it was relaunched at an aggressive price (the basic variant came at Rs1.99 lakh) as an entry-level car for the youth.
Neither helped. Nano sales dropped to 4,459 units in the first seven months of 2016-17 against 11,321 units in the year-ago period, according to the Society of Indian Automobile Manufacturers.
Mistry said the historical practice of aggressive accounting to capitalize a substantial portion of product development expense is also creating a future liability for the firm.
Analysts said it’s not unusual of firms to do that. “Given the small share of the domestic entity in the overall business, no one has bothered to check the extent of capitalization. But it is not unusual for auto companies...,” said an analyst at a domestic brokerage who asked not to be identified.