Low-priced Nano taps into Indians’ aspirations
The $2,000 vehicle, launched Monday, targets millions of Indians who up to now couldn't afford more than a motorbike.
By Ben Arnoldy | Staff writer of The Christian Science Monitor/ March 23, 2009 edition
Reporter Ben Arnoldy checks out the interior of a 'Nano' for its comfort factor.
Reporter Ben Arnoldy
Mumbai, India
For $60 down, a shopowner in a heartland Indian city can – for the first time – own a set of wheels. That’s the promise of the new Nano, a pint-sized car with an even smaller price tag: 100,000 rupees, or about $2,000.
As he launched the much-hyped vehicle Monday, Indian auto mogul Ratan Tata said the toughest task was to ensure that, for the price, drivers didn’t get a “half-car.” Some might question his success: the jellybean-shaped Nano can’t break 65 m.p.h., and power brakes and even the front cup holder are premium features.
But Mr. Tata has broken a major threshold here, reaching out to an untapped middle class of modest income and no credit history that’s eager to acquire the trappings of their country’s rising prosperity. And he’s doing it at a time when the US automotive and banking sectors are diving for the bunkers.
“The guys who are the true candidates for the Nano are working for smaller outfits in tier-two townships; guys lower down on the economic strata,” says Vikas Sehgal, a principal at consulting firm Booz Allen in Chicago, noting that India’s middle class has been far more insulated from the economic crisis. “You ask these guys about the global slowdown, and they say ‘What slowdown?’ ”
Middle-class focus
Indeed, it’s the middle class in poor nations who will be the focus of innovation for years to come, much as the Internet has spawned new businesses over the past 15 years, says Vijay Govindarajan, professor at Dartmouth College’s Tuck School of Business.
“Innovating in these countries does require a fundamental shift in the price paradigm,” says Dr. Govindarajan. The shift isn’t foreign to America – think Henry Ford’s cheap car for the masses. “I wish Ford, which entered India in 1993, had brought that kind of thinking into India. They could have made this product then.”
Tata calls such talk “serendipitous” for his company.
“All we set out to do was find a safer way to move Indian families at an affordable price,” he said. “All of us have been overwhelmed by the reaction.”
Cheaper than a Yugo
So how did Tata Motors make a car that costs less than the Kelley Blue Book value of a used 1989 Yugo?
The tiny two-cylinder engine sits right behind the rear seat. With a light front end, the steering column can be little more than a thin pipe with no power steering. The car weighs in at 600 kilograms, or about 1,300 lbs., making it the cleanest car in India and a gas sipper to boot – it gets 23.6 km/liter, or 50-plus miles, per gallon.
Instead of being made from stamped sheets of metal, the Nano’s body is formed more efficiently in a mold. A second windshield wiper or the little door for the gas tank are frills (you have to pop the hood to fill ’er up.)
It helps, too, that Indian labor is cheap – workers at the manufacturing plant make some $3,000 a year, executives say.
A new price point
The Nano undercuts the price of the cheapest car sold here, the Suzuki Maruti 800, by more than $1,000. The price falls within a “big blip” on the automotive cost curve, since the market for two-wheeler motorbikes tops out around $1,200, says Mr. Sehgal. Millions of Indians could afford more than a two-wheeler, but not any of the four-wheelers on offer – till now.
In the small cities of India’s interior, these folks are the owners of neighborhood shops and civil servants with the government, says Deepesh Rathore, an India-based analyst with Global Insight. With the cost of living higher in the big cities, customers there may be entry-level engineering graduates at startups, he says. Seghal estimates this total market to be more than 20 million families over the next five years.
Govindarajan says the Indian market has not been as hard hit as the US one. People have money to spend, though they are a little more hesitant now. “It’s more psychological [but] this may be one of those products that brings the cash out,” he says.
Sales of the Nano will depend on extending financing down to this population. Tata officials boasted of agreements with 15 banks already. And the global slowdown may wind up helping Nano sales.
“Six months back, interest rates were at an all-time high – that would have been a bad time to launch the car,” says Mr. Rathore. “Now we are at an economic point where interest rates are coming down.”
Riskier loans
Aggressively extending loans down the income chain has been maligned in the US, but experts balk at any “subprime” comparison, since income will be verified and lenders won’t be far from borrowers.
Still, Tata faces a bumpy road. The biggest question is quality. If the car isn’t seen as reliable, potential customers may opt for used cars they can trust. As reassurance, the Nano offers an 18-month, 24,000-km (15,000-mile) warranty. [Editor’s note: The original version was missing a verb.]
And despite the flurry of enthusiasm for the car, the cheapest model probably won’t yield profits unless Tata breaks the sales record for a new model, say analysts. “My gut feeling [is] in two months … they’ll raise the price,” says Rathore. “That’s common practice for car manufacturers in India.”
That could be problematic for the company, which made some big-ticket purchases – including the troubled Jaguar and Land Rover brands – during the height of the economic boom. The company also failed to get many Nanos off the assembly line before launch, thanks to protests that caused the company to relocate a factory.
First 100,000 cars in July
Tata plans to start delivering an initial batch of 100,000 cars starting in July. In the meantime, it plans to hawk Nano watches, T-shirts, earrings, even an online game – “all the things you would want to keep as a memento while you wait for your car,” joked Rajiv Dube, president of Tata’s passenger car division.
The problems meeting expected demand means that Tata is not considering the Chinese market yet, Tata said, though plans are in the works for a European and US version within a few years.”
Tata also faces the danger that it’s provided a handy road map for its competition. And it’s likely to be constrained by the country’s lagging infrastructure. In cities like New Delhi, there’s limited space on the roads for more cars, and in smaller, interior towns there’s not much road at all – not to mention parking spaces.
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Comments
3. Ian Shaw | 03.23.09
You have to know that people here in North America are laughing at this silly little car. Gas prices are lower and catastrophic sales numbers have resulted in consumers buying minivans and SUVs at deeply discounted prices. Well, H. L. Mencken said it best: “Nobody ever went broke underestimating the intelligence of the American people.” Gas prices have no where to go but up and will once again render these behemoths obsolete. People will once again write to the editors and the politicians demanding something be done about the price of gas.
Cars like the Tata are the cars of the future for all of us. India is indeed fortunate to be at the forefront of this innovation.
4. Mark Manning | 03.23.09
This is a great idea. The only things I would have done differently is to make the vehicle more like the Model-T Ford. Slightly larger, but thinner wheels and more like a Tuk-Tuk which can be made to look like a mini-truck, car, or even a dump truck. Tuk-Tuks use a two cylinder engine also. The original Model-T used solid rubber wheels so they would not become flat, it too had a two cylinder engine, you had to roll the windows up/down, had one windshield wiper, and got around 50mpg. So welcome to the past - but with a new look.
Someone like myself though (6′5″ tall) would never be able to use this vehicle. Sad really - if it does come to the US I might have liked to try it out! 
5. Bhikhu V. Raval | 03.23.09
My hearty congratulations to Mr. Ratan Tata and his business team. He has made India a proud and innovative country. The world is now envy to India’s economic success. Mr. Tata has proven that if the businesses are not overburden by Government regulations, the enterprenures can deliver the best products at the reasonable prices. Let Indian Government and Indian voers learn that if India adopts full-fledge capitalism and allows free market economy, India will achieve tremendous economic growth. Let Government give incentives to the businesses by reducing taxes and by abolishing stupid Government controls and regulations.
Businesses produce the wealth, not the Government. If Indian government will shrink its size and will allow people to manage their economic activities, India will become an affluent country pretty soon. Indian voters, please crush the Socialist and Communist Parties and do not elect Mayadevi and such other hypocrite leaders.
6. climate myth watch | 03.23.09
I believe the CS Monitor showed its true colors in the writing of this story. When it first broke the story last night, the lead-in was about the concern the car raises among environmentalists. Now the lead-in emphasizes the how the car taps into the aspirations of the Indian people. The story now does not contain any environmental references–where did they go? Though often unstated, a major aim of the global warming crowd is population control–energy is fertilizer to population growth, and a tax would slow growth. The advent of a new gas guzzling machine in a billion person market is clearly anaethma to those who would like to social engineer a population reduction. Editor, what say you? Am I hallucinating or did you change your story?
7. Baba | 03.23.09
Lord Siva bless holy Mata Bharat
and Tata for making reasonable priced transportation
for ahimsa Hindu on foot or bike.
8. jimmy | 03.24.09
That`s cool~~!! I definitely agree that the innovation is going to focus on the middle class in developing world~!!!
9. Prashant Malhotra | 03.24.09
Firstly - God Bless Indian roads when Nanos would come on road. Its like two cars on road for a price of the till now cheapest car on road..and with lack of infrastructure situation would only worsen out.
Secondly, if govt raises/reduces taxes on cars; impact would be +ve for Nano.
i.e. if govt raise taxes coz it would be the 1st option for middle class to reach upon.
And by any chance, govt reduces taxes; it would open lower middle class segment for nano but middle class would go for higher options
So in both cases, govt goes for a toss.
10. Greg Rossel | 03.24.09
It was not that long ago that cars like the Nano regularly traveled American roads and were celebrated. Rear engine, high gas mileage, no power steering, manual roll down windows, standard transmission, no air bags, radio as an option, lift the “hood” to fill the gas tank. Sounds a lot like a 1962 VW bug. Practical, fun to drive, easy to park, efficient, and affordable.
True, there will be serious environmental consequences to outfitting a nation with a zillion little gas consuming cars but before we sniff at the little 50mpg Nano, we should consider the true costs and practicality of our own SUVs, full size pickups and Hummers.
Greg Rossel
Troy, Maine
11. shopa | 03.24.09
There is talk of the Nano coming to the USA. It will never be allowed on US highways because it won’t pass US Crash Test Standards.
I have invented a way to make small cars safer in collisions.
Please help me promote this invention.
12. editorial | 03.24.09
To the writer of “climate myth watch” below:
“I believe the CS Monitor showed its true colors in the writing of this story. When it first broke the story last night, the lead-in was about the concern the car raises among environmentalists. Now the lead-in emphasizes the how the car taps into the aspirations of the Indian people. The story now does not contain any environmental references–where did they go? … Editor, what say you? Am I hallucinating or did you change your story?”
I’m not sure what you mean by “lead-in.” I was the editor who put the Nano story online, which was originally edited for the paper. I did not change the story from the version that ran in the paper. I did change the headlines and added divvy headlines in the story, but there was no mention of the environment in either the paper or online versions (or the article itself, for that matter).
The headlines in the paper were: Low-priced car taps into Indian aspirations; The tiny Nano, launched Monday, costs $2,000.
The headlines online are: Low-priced Nano taps into Indians’ aspirations; The $2,000 vehicle, launched Monday, targets millions of Indians who up to now couldn’t afford more than a motorbike.
These stories go through many hands, however. So if you can further define lead-in, I’ll be happy to look into it.
Laurent Belsie
Economics Editor
The Christian Science Monitor
13. Jonathan | 03.24.09
Once again, India reminds us that innovation and an upwardly mobile middle class are two keys to economic growth.
14. Dave Benjamin | 03.24.09
I disagree with the readers claiming adverse impact to the environment. This car could get people off motorbikes, many of which pollute a great deal. From the sounds of things the engine in this car is low emission. I wish the company great success. This is exactly the type of vehicle that would be nice in large urban environments. You don’t need to go fast in cities. And it takes a fraction of the space to park compared to normal cars. Let’s hope the concept spreads.
15. climate myth watch | 03.24.09
Laurent, thank you for the reply. No need to look further as I can’t recall the exact wording. I appreciate CSM for its independence and just try to keep it honest in terms of agendas.
16. Allen A. Smith | 03.25.09
Most American families need two cars. One car must be capable of going 70 mph on superhighways (even if only on vacations). The second car is generally only for shopping or communting to work. It is unlikely to ever go over 45 mph. The Nano, or something like it, would be ideal for the partner with the shorter commute.
17. Ted Quirk | 03.26.09
This is pretty neat - basically an enclosed motor scooter.
For those of you thinking about polution - note the 2 cycle engine - the best bang for buck but polution well rrrreally not so good!!
For 25 years I have lived in SE Asia and watched Indian Hype - some is really good but others is pure BS.
Lets hold judgement on this one.ayd
18. David | 03.29.09
So what’s with looking down on a car with no power steering, windows, brakes or a/c? I learned to drive in my mom’s 57 Chevy which had none of the above niceties and it got her (and me) to where we wanted to go. A good principle is to buy what you can afford, but sadly, most Americans don’t live that way and especially those who got us into this financial mess.
19. Davido Hermoso | 04.03.09
I see the important fact of the story was that U can buy a Suzuki for $1000 more than the Tata, and with the Suzuki U get a car that one knows the reliability and resale value. Buying the Tata is a gamble.
On another topic, I am surprised how often I see grammar errors in the CSM. Don’t the writers use a word processor to write their stories that would catch the errors?
20. editorial | 04.06.09
Davido,
Thanks for your comments. We try hard to catch all mistakes but some do sneak through. At least on the Web, you can let us know and we’ll fix them.
Best,
Laurent Belsie
Economics Editor
belsiel@csmonitor.com
21. Torres | 04.19.09
One of my favorite cars ever was a 1980 Ford Fiesta w/ zero options. No A/C. No cassette deck. Windows rolled up and down. Interior rear view mirror had no night time adjustment nob; exterior was adjusted by hand. To squirt the windshield you pressed a button on the floor w/ you foot…squirted like a squirt gun. Bring Nanos to the US.
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1. prakash | 03.23.09
The I Phone in India when launched officially was listed at MRP Rs.35000/-
Three I phones is equal to one TATA NANO.
Beat that?