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Tata Nano Seeks Footing as World's Cheapest Car

By Nick Kurczewski February 15, 2011Comments (1)

The Tata Nano should have been an instant homerun. It was billed as the world¶s cheapestcar, and it was going on sale in India ² one of the world¶s most explosive economies, where

 buyers seemed ready to trade two wheels for four.

However, the Nano has barely made it to first base.

Violent protests forced Tata to abandon its original location for much-needed factorycapacity. Unexplained fires prompted re-work of already-sold Nano cars and forced someredesign of those in the pipeline. The 200,000-plus customer waiting list the car had in spring2009 before it officially went on sale evaporated. And Nano sales were sent on a wild andwooly roller-coaster ride, plummeting to a paltry low of only about 500 in November. In themeantime, the competition for cheap cars is mounting, and Tata¶s plans for global expansionto the United States and Europe are in question.

The People¶s CarAfter a much ballyhooed public unveiling and heavily covered media test drives, the Tata

 Nano hit the market in India in summer 2009 wearing a rock-bottom pricetag ² theequivalent of about $2,200. The brainchild of Tata Group founder Ratan Tata, the Nanowould replace two-wheeled scooters and motorcycles that were often dangerously overloaded

with multiple members of Indian families. The Nano was likened to India¶s People¶s Car inthe way the Volkswagen Beetle was in Germany of the 1930s or the Model T in the U.S.

Timing appeared perfect. In summer 2009 when the Nano went on sale India¶s economy was booming, as were overall car sales. At the same time the rest of the global economy, particularly that in the U.S., was buried in a prolonged recession, decimating sales for mostautomakers. The low-cost, no-frills Nano ² even proposed higher-spec versions to beexported to Europe and possibly the U.S. ² suddenly made sense with newly budget-conscious consumers trading down to smaller, cheaper transport.

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But Tata quickly ran into obstacles. Violent protests by farmers forced Tata Motors toabandon its original plan to build a sprawling assembly complex in West Bengal. A new plant

was subsequently built in Sanand, in the western Indian state of Gujarat.

The production delay forced existing Tatafactories to build the Nano until work at Sanand was finished. Faced with its ownconstruction as well as the normal teething problems ² not to mention ramping up for anannual production of 250,000 units ² the Sanand factory found itself with more than 70,000cars in need of fixes to their wiring and exhaust systems.

Most embarrassing and damaging were a series of unexplained fires that dramaticallydestroyed a handful of Nano cars. The fires forced Tata Motors, which never formallyrecalled the cars, to retrofit previously sold models ± about 77,000 of them ± with upgrades tothe electrical system and a complete shielding of the catalytic converter. In addition, TataMotors enacted a four-year/60,000-kilometer (37,282 mile) warranty covering all current and

 previously sold Nanos.

Tata Motors also had to increase the ease with which buyers could finance a Nano, despite itscheap price. The company established financing arrangements with about 28 financial

institutions with good rates and quick processing promised. In addition, Tata Motors beganoffering customers a maintenance plan for the equivalent of less then $2 per month. TataMotors insists the fires were attributable to owner modifications, not any inherent designdefect in the car.

³The Tata Nano is a safe car with a robust design, state-of-the-art components and built withan uncompromising attention to quality in all aspects,´ Tata Motors representative DebasisRay told AutoObserver.com. ³The investigation (into the fires), by a team of internal andinternational experts, has concluded that the reasons for the incidents in few Tata Nano carsare specific to the cars which had such incidents.´

 Nevertheless, damage was done. Tata Motors¶ own data shows sales dropped to only 509

units in November ± down from a high of roughly 9,000 in July. Sales dropped in four consecutive months, reaching their nadir with those paltry November figures. ³To put it in thecorrect perspective, the Nano fires are as big here as the Toyota unintended acceleration caseswere in the United States,´ Deepesh Rathore, managing director with IHS Automotive andexpert on the Indian automotive market, told AutoObserver.com in an interview.

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Seeking Stable FootingTata has recovered from November¶s low. Sales rebounded dramatically by more than 1,000

 percent for December with the sale of 5,784 unit. January sales came in at 6,703 unitssold.However, the tiny Nano still faces big challenges if it¶s to become a long-term successfor Tata Motors. ³The present (sales) problems with Nano may be more temporary in nature

 but I can say that the confidence in the Nano has been badly shaken and Tata would need to be vigilant about the future of the car,´ IHS¶ Rathore said.

Indeed, the December sales bump indicates Tata Motors has taken the situation seriously ² though 5,000 units is still but a fraction of original sales estimates. Bringing the Nano to ruralcustomers is now part of a renewed sales strategy. ³We are setting up Special Nano AccessPoints (as of now about 289 across the country) where customers can experience, test-driveor test-ride the car,´ Ray said. Test-rides are important as many Nano buyers have never driven a four-wheeled vehicle. Print and television advertising is being bolstered throughoutIndia.

The Nano has lost its head start, though, as the world¶s cheapest car. Others are moving intothe low-cost vehicle market. Renault-Nissan is committed to building a city car for India thatis more fuel efficient and potentially even cheaper than the Nano. General Motors, Toyota,Volkswagen and Maruti-Suzuki (the latter of which commands 50 percent of the Indian car 

market) are all forging ahead with their own bargain-priced vehicles.

Tata Motors confirmed plans to export the Nano to Europe will not occur this year ² despite previous indications that sales were scheduled for 2011. U.S. sales remain even more indoubt, and are almost guaranteed not to happen before the second-generation Nano arrives inseveral years. Before it exports, Tata Motors must first find the Nano a sustainable market athome, while making certain customers are reassured they¶re buying a quality product.

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Building the cheapest car in the world makes great headlines, but it doesn¶t guarantee car  buyers will want to own one.