A promise is a promise and with these words Ratan Tata, Chairman of Indias $100 billion steel to salt conglomerate pulled the curtains off Tata Motors recent offering Tata Nano- at Auto Expo 2008 in Delhi. Dubbed as the small wonder, Nano, with its launch price of INR 100000 or $1500 was expected to be the Peoples Car of India. Heralded as the cheapest car in the world, Nano was expected to be available in September 2008. In addition to paying INR1 lakh buyers were also to pay 12.5% value-added tax along with charges such as road and transportation taxes. The car was launched with a petrol-powered engine with a diesel version to be followed later.
Nano was one of the most fuel-efficient cars of the world having a fuel economy of 21.9 Kmpl and 23.2 Kmpl on highways. Measuring 3.1 metres by 1.5 metres, it also became one of the worlds smallest Car but still had 21% more legroom than its closest rival in India in the form of Maruti 800.
Company History Tata Group is a multinational conglomerate and holding company headquartered in Mumbai, Maharashtra, India. It was founded in 1867 by Sir Jamshedji Tata and has gained international recognition after purchasing several global companies. It is India's largest conglomerate and in 2015-16, the revenue of all the Tata companies was $103.51 billion and has assets worth more than $120 billion. These companies collectively employ over 660,000 people and have diverse field of operations from steel to salt.
Tata Motors Limited (formerly TELCO, short for Tata Engineering and Locomotive Company) is the automotive manufacturing organization headquartered in Mumbai and is an arm of the of the Tata Group as their foray into automotive manufacturing sector. Though initially focussed on heavy vehicles, it has subsequently diversified and its products now include passenger cars, buses, trucks, vans, construction equipment, coaches and military vehicles. Tata Motors has manufacturing plants in Jamshedpur, Pantnagar, Dharwad, Lucknow, Pune and their newest one in Sanand. Moreover, it also has offshore plants in Great Britain, Thailand, Argentina and a research centre in Spain. Founded in 1945 as manufacturer of locomotives, it came out with its first commercial vehicle in 1954 and it became the first Indian company having the technical knowhow of manufacturing a commercial passenger vehicle when it came out with Tata Sierra in 1991. In 1998, it came out with its first big passenger car success in the form of Tata Indica and followed it up with brands like Indigo and Safari. In 2004, it acquired Koreas second largest automotive company, Daewoo for $102 million and made waves internationally when it purchased the iconic British company Jaguar Land Rover from Ford Motors Company for $2.3 billion in 2008. Indian Automotive Sector The Indian auto industry is one of the largest in the world. The industry accounts for 7.1 per cent of the country's Gross Domestic Product (GDP). The Two Wheelers dominates the Indian Automobile market with almost 81% share of the market due to an ever-increasing middle class and a young population which has recently joined the work force. Moreover, the increasing purchasing power of the rural markets has further aided the growth of the sector. The overall Passenger Vehicle (PV) segment has 13 per cent market share. Indian Automotive sector has been a great exporter to Latin American and East Asian countries and during the last quarter of 2015-16, the sector witnessed a growth of 18.35% YoY and government has taken various steps towards promoting the sector.
The economy car segment dominates the Indian market with it having the largest market share. Homegrown automotive giant Maruti Suzuki dominates the passenger car segment with 52.6% market share and Tata Motors has a share of over 5.6% in the highly competitive Passenger Car segment. With a growing middle class population and median age of population being less than 25 years, passenger car segment has been growing with a CAGR of over 30% YoY.
Two-Wheeler Market
The two-wheeler industry has the greatest share in the Indian Automotive sector with it having a market share of more than 78% market share making India Asias second largest two- wheeler manufacturer behind China. The two-wheeler industry recorded a sale of 1.45 million units in 2015-16 and has been growing at a CAGR of more than 26%. Motorcycles make up the bulk of the two-wheeler production in India having a share of more than 65% of the two- wheeler market with scooters being a distant second.
Used Car Segment
The used car market, although having been around for some years, has gained traction of late with more players increasing focus on it. Indian customers have slowly but surely woken up to used car segment and are now not averse to buy a pre-owned car since it provides them with higher flexibility and purchase cars which otherwise would have been out of their budgets. The economic price point of pre-owned cars has been lucrative to customers across segments with first time buyers now able to have a technologically advanced and wider range of cars at a lower price point. According to estimates in the US, for every new car sold, around three used cars are sold. In Europe, this ratio is 1:2, while currently in India it is 1:1.3. In Europe and other mature markets, the number of new car buyers is increasing, while the number of used car buyers is declining. While in India, its a reverse trend with used cars being available at less price having longer life due to technological advancements and better maintenance, the used car industry has now grown up to 3 million cars per annum, with organized players enjoying 18% of the pie. Tata Nano
Nano is expected to change the automobile market in India. It would cater to
a typical middle-income Indian family of four who wants to avoid rain, wind, and dust Its freedom for four. - Dilip Chenoy, Society of Indian Automobile Manufacturers
The launch of Nano had taken world by surprise and wonder and it was expected that it would become the Peoples Car to India and to the much of developing countries where Tata could later export the car too. Tata had plans to launch the car in Europe too at a later date where it could fill in the space of an eco-friendly city car which does not take much space to park. Tatas original plan was to produce 350,000 Nanos the first year; it had plans to set up three additional plants to achieve its goal of selling one million units annually. Before launching the car, Tata expected that its upcoming INR 1,500-crore plant at Singur in West Bengal would take care of the bulk of the demand for Nano with other plants in Pantnagar and Pune pitching in; but construction of the Singur plant was abandoned when the farmers whose land the government had acquired for the project began protesting on the grounds that they never agreed for the acquisition. In response, Tata Motors decided to shift production to another facility, and to reduce its production from 40,000 to 10,000 cars per month during the first few months of production.
Initial Response
The Initial response to the launch of the car was met with worldwide admiration with the media and car reviewers hailing it as miracle of Indian Engineering and heralding Nano as the Cheapest Car in the World. The response of prospective customers at Tata Motors dealers too was positive with the general perception being that with the car being so cheap, why would people go with unsafe two-wheelers? It was expected that lower middle class families would be highly attracted by Nano as it costs just a bit more than a new two-wheeler but provides a lot more security, moreover, it was expected to be perfect ride for the family as they would not have to drive while tripling on a two-wheeler. Since the Nanos on road price was coming to INR 130, 000, it would have brought down the cost of buying a new car by at least 30% vis- -vis its nearest competitor Maruti 800. Maruti too responded by cutting the price of its 800 model by 20%, anticipating a drop in sales due to Nanos launch.
Nano Sales
During initial booking period, Nao had a booking of 100,000 cars, however, with its Singur plant having run into trouble, the project had run into a waiting period of more than a year. Nevertheless, it opened for sale in September 2008 with the first customer Mr. Ashok Vichare getting his car personally delivered by Mr. Ratan Tata himself. Speaking on the occasion, Mr. Tata said, "I hope the Tata Nano will bring motoring pleasure to those who will be buying their first car as also those who currently own cars but want a modern, contemporary, emission-friendly city car."
But the companies expectations of the car being a runaway success soon came to crashing reality when they could not meet their target of 250000 cars in the first year. Adding to their troubles were the reports of the first batch Nano catching fire while on the road which led to company coming out strongly in support of their product stating that car is safe, is fit for customer use and is not vulnerable to such incidents. But it could not stop the sales from falling and things came to such a pass that production in sanand plant came down to 16943 nano per annum in 2014-15.
What were the reasons for Nanos failure to live up to its expectations? Exhibit 1: Tata Nano
