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Nano – Staying SmallBY IAR TEAM •   MARCH 27, 2014

The car had the potential of becoming a viable replacement

for the massive two-wheeler population in India, parc

estimated at more than 40 million units in 2008.

Massive Potential

When Tata Motors unveiled the Nano Ultra Low Cost Car

(ULCC) during Auto Expo 2008, there was absolute euphoria

within the Indian and Global media. This was perhaps the

first time that a carmaker had developed an all-new

passenger car from scratch with a target price of INR 100,000

(US$2200, as per exchange rate in early 2008).

“

10Shares

COST CARSIn short, the potential was mind-boggling. Even if the Nano

captured 1% of the two-wheeler parc, this would have made

it the biggest selling car in the Indian market. At INR 100k,

the price seemed reasonable enough as well as the best-selling, mainstream

motorcycles were priced around INR 50k.

Understandably, the media, analysts and forecasters went ballistic. Over the next

many months, the media kept adulating the Nano to the extent that the square

inches of media coverage itself would be worth a few million dollars worth of

comparable advertising buy.

Cut to 2013, and the Nano managed to sell all of 18447 units. This sales volume

is lower than what the Nano’s closest price competitor – Maruti-Suzuki’s Alto800

– sells in a month.

So how did the dream shatter?

To examine that, we need to go back to the very start and the media adulation.

That was the high point for the Nano and things went rapidly downhill after that

in a sequence of events that now, in retrospect, seem like a long unending

nightmare for Tata Motors. We take a look at some of the issues that has killed

limited the success of the Nano.

Like all investments, it’s all about Location, Location, Location…The Singur

Fiasco

To start with, Tata Motors planned to make the car in Singur in West Bengal, one

of the least developed states in India. The choice of Singur was strange, as West

Bengal does not have a pre-existing automotive cluster. Having been ruled by

communism leaning governments for a long time, it is also not the most

enterprising of states, with one of the lowest industrial presence in the country.

Agreed the land was cheap but arguably Tata Motors could have negotiated a

deal as sweet with any other Indian state as well.

The choice of Singur was also strange considering that all Tata Nano suppliers

would have to create costly new manufacturing presence in Singur. Combined

they would have needed to train a few thousand workers in a very short span of

time.

However, all this pales in comparison to what Tata Motors ran into.

The company’s entry into Singur was greeted by widespread protests in the

region, fuelled by mostly political motives and a bit by genuine concerns.

Politicians of opposition parties claimed that farmers had been cheated out of

their land by the state government and Tata Motors. This was partially true

considering the compensation to farmers for land, which was fertile, was

peanuts and decided in a very unilateral, dictatorial fashion.

Tata Motors countered, pointing out the compensation, overall job creation

(arguably not significant considering the Nano’s sales volumes) and the

significant improvement in employment levels in the region, which was one of

the most under-developed in the state.  However, all was not simple chalk-and-

cheese and like many other political dramas, a lot seemed to be happening in

the background.

Eventually, things came to naught, shit hit the fan, and Tata Motors decided to

salvage its reputation by moving the project out of the state altogether. Tata

wanted to get as far as possible from Singur and the new location zeroed on was

diagonally across the country in Sanand region in Gujarat.  The Nano was finally

set to roll out.

Except plants – big automotive plants – don’t sprout out of the ground in a few

weeks. They take long and similar time, and similar effort is also needed by the

suppliers for setting up shops. Logistics and supports systems too take their own

sweet time. Even at a very brisk pace, the Nano factory in Sanand took 14 months

to complete.

Meanwhile, Tata took a look at lost opportunity costs in delaying the Nano launch

further and decided to manufacture the car at its Pantnagar plant. The move

was smart as well as painful. While the company was able to launch the car in

the market, volumes had to be limited to around 3500 units per month for ten

months due to limited production capacity at the Pantnagar plant.

LAST TWELVE MONTHS HAVE BEEN SEVERE FOR THE NANO

In automotive sales parlance, this was missing the sweet spot on the car lifecycle

bell curve.

But this is Tata Motors and lifecycle bell curves are manageable. The original

Indica platform is now 16 years old and still continuing.

However, even with scant regard to lifecycle issues, Tata Motors missed the most

euphoric period of Nano sales when people had to wait a long time for

deliveries. After closing initial bookings, Tata Motors offered the car to only

100,000 customers selected through a lucky draw. The rest could wait and get

interest on their deposits while others could cancel and get a refund.

Managing even 100k bookings was a tall order for the company with the limited

production capacity. It finally took 21 months for the company to supply the 100k

bookings.

However, by the time the company could supply the first 100k Nanos to the

original buyers, the car had already started struggling in the market.

The Singur fiasco caused a delay, which allowed other manufacturers to recover

from the shock of the Nano’s pricing and the fact that Tata Motors could actually

design and produce such a product at an incredible price point. Some of these

manufacturers listened to analysts and forecasters and shat in their pants ran

to their drawing boards. In a few months, the media was reporting Nano killers

being designed by Bajaj Auto (with Renault-Nissan), General Motors and Maruti-

Suzuki. Even Piaggio unveiled a funky concept at a motorshow and everyone

labeled it as a Nano competitor.

None of the conceived perceived rivals has made it to the roads.

Technical Issues – Designed for Cost Means Designed with Constraints

The Nano has been designed with a strict price point in mind. That means that

the engineers had to innovate in nearly every thing, every component and every

design aspect. Now some of these are truly innovations, others were – for want

of a better word – shortcuts.

People were happy with three lug nuts (and not four), they could live with thin

seats, they could digest the single wing mirror, they could tolerate the single

windscreen wiper, no air-conditioning in the base model, no airbags and they

absolutely were okay with the absence of any power steering.

However, the car’s limited top speed, perceived flimsy build, a boot that could be

opened from the inside only and an engine mounted over the rear axle and

below the rear passenger seat were irks that customers didn’t like. You also had

inaccessible fuel filler that needed the front hood to be opened to operate.

However, the real frightener was the several cases of the Nano catching fire. The

company blamed it on customers retrofitting the car with foreign electronic

equipment like central locks and they causing a sparking. However, just to be

sure, the company offered to retrofit the exhaust and electrical systems. All

Nanos on the road were recalled though Tata Motors never termed it as a recall,

considering the recall word was considered taboo till a few years back.

The Nano’s fire incidents caused a lot of media speculation and arguably had a

severe negative impact on sales. Some customers with a sense of humor

adorned their Nanos with ‘Caution – Highly Inflammable” tailgate stickers.

Even worse, the word-of-mouth on the other aspects of the Nano was hardly

positive. Customers found the build quality short of expectations, the fuel

efficiency mediocre and the car not holding itself well with age. The highway

performance was short of required and the acceleration sluggish. Further, a

small boot and a 15-liter fuel tank made the Nano strictly a city car.

In short, the Nano was somewhere between a car and a two-wheeler, both in

terms of price as well as performance. That was not what the customer had been

expecting.

Missing the sweet spot of pricing

While the initial lot of 100k customers was offered the base version of the Nano

at INR 100,000, not many bought the base version as it was offered without air

conditioning. The middle and upper end variants were preferred more and they

were significantly expensive. As of today, the Nano’s on-road price in Delhi is

between INR 163,000 and INR 288,000. In comparison, the Maruti Alto800’s lower

end variant with air-conditioning is priced at INR 299,000 on road. In many

aspects the Alto800 scores much higher than the Tata Nano, is perceived as a

highway worthy proper car and Maruti-Suzuki has a much higher respect with

the customer as compared to Tata Motors.

Emotions

Emotions in business bring significant influences, either positive or negative. In

the case of the Nano, Ratan Tata’s deep emotional connect with the product was

instrumental in the way it turned out finally.

When the Tata engineers were developing the Nano, the key brief was to target

the INR 100k price point to ensure two wheeler buyers switch to the Nano. So

close was the entire planning to the INR 100k price point that the entire design

happened around it.

However, the strict INR 100k price-point meant that the development team often

cut corners as explained earlier. As a result, the Nano ended up as a ‘less

capable than a car’ kind of concept, limiting its appeal.

In retrospect, had the brief been different, like ‘Design a Maruti Alto killer’, the

engineers would have enjoyed greater flexibility and not cut corners. The output

would have been different. Typically such a car from Tata Motors would have

been beaten the Alto on specs, size and just a bit on price.

And Tata Motors would have been able to sell 25000 of these cars every month,

considering it was selling nearly 15,000 of the much larger sized Indica

hatchbacks in a good month.

Image

If the product had limits, the communication, or lack of it, spoiled the Nano’s

party further. When Tata Motors opened the bookings of the Nano, the first

buyers were the curious cats. These were the fashionistas, typically guys who

wanted to buy a Nano as their third car for the milk-and-bread run. Only a few

genuine buyers as per Tata’s target audience of a two-wheeler owner, actually

bought the Nano initially.

The Contenders that weren’t: Maruti-Suzuki went off on an

important underground mission to reduce the costs of the Alto

significantly to bring it down to the level of the Nano. Ordinary

Alto suppliers were whipped and shaped up into suppliers for the

‘Alto Cost Down’ (YG4 CD) with Maruti-Suzuki working hard

everywhere to ensure that the supply chain was much better

optimized than ever before. However, lukewarm reaction to the

Nano stopped MSIL to go further with reducing the prices of the

Alto. The increased efficiency translated into better margins and

managers at MSIL haven’t stopped grinning since. The media also

reported that GM was working on a ultra low cost car. Nothing

was ever revealed, even as a concept. Piaggio unveiled the NT3

city car concept at EICMA in 2010. Post that no efforts to

productionize the same for India as and ultra low cost car have

been made. Perhaps the closest anything has come to the Nano

in terms of the overall concept is the Bajaj Auto’s planned ultra

low cost car RE 60. This was earlier developed by Bajaj Auto to be

jointly marketed with Renault-Nissan. However with Renault-

Nissan walking away from the project, Bajaj now wants to

position the RE 60 as a quadricycle to replace Bajaj’s three

wheelers in the market. 

×

So healthy was the response to the Nano and so caught up was the company

with limited production capacity that Tata Motors left the job of brand

development to the media. The media coverage was still healthy and Tata Motors

was getting universal accolades for the Nano’s frugal engineering and good

looks.

However, somewhere down the line, the media had branded the Nano as the

‘World’s Cheapest Car’. While the media was mostly complimentary with the

statement, analysts feel that a number of customers found the tag ‘cheapest car’

negative. Car buying in India is half utilitarian and half emotional. Car buyers

have a sense of happiness and pride when they buy cars. The cheapest car tag

failed to connect with the emotional aspect of car buying and buyers moved

away from the Nano.

Limitations

A number of Tata Motors products succeed as they find great acceptance in the

fleet / taxi market. The Nano’s size and very limited boot space turned into a

shortcoming here as fleet operators did not find the car practical. The

unavailability of a diesel engine was another reason why fleet operators could

not be turned into Nano buyers.

Excitement, or the lack of it

Most manufacturers resort to offering newer variants, colours and options on

cars to keep the excitement levels high. Tata Motors did little of that with the

Nano. The much rumoured diesel engine variant is still to hit the roads and the

CNG fuel option was launched only 45 months into the lifecycle. Clearly, even

this failed to generate any excitement as sales levels hardly improved post the

CNG variant launch.

To sum it up, the Nano is a package that falls short of customer’s expectations

from a car. At the same time, it also falls short on the customer’s expectations of

pricing. Correcting either the pricing or the package itself may have changed the

sales numbers significantly.

As of now, nearly five years into the lifecycle, opportunity exists more for a

change in the package than change in the pricing.

Should Tata really be worrying about the Nano?  

With its small volumes, the Nano makes a very small impact on Tata Motors’ top

line and bottom-line numbers. A back-of-the-envelope calculation by EMMAAA

reveals that the Nano accounted for only 0.21% of net revenues for the company.

It is unlikely that the platform is profitable at all.

Even if the Nano did met its initial lofty sales targets, the impact on Tata’s top

line would have been to the extent of 2%-3%. However, at those volumes, the

Nano program would have been profitable.

So why does Tata persist with the Nano? Is it an enormous, collective company

ego or Ratan Tata being there in the picture maintains a strong emotional

connect?

Enough for the company to keep persisting with the existing template.

Why Nano is Significant

While discussing Nano resurrection, we need to examine the car’s indirect

impact on Tata Motors and the Indian automotive industry. In the last decade,

Tata Motors made two strategic moves that won it instant recognition as a global

player. One was the acquisition of Jaguar-Land Rover; the other was the Nano.

With the Nano, Tata earned a name for itself in frugal engineering. The car

brought a new way of thinking in the automotive industry and even global

suppliers like Bosch designed low-cost components specifically for the Nano,

something they had not done for the automotive business elsewhere. A lot of

this development happened in research centers in India as global research

center just did not have the culture, confidence or capability to develop ultra low

cost components. A lot of that know-how will flow into future Tata models as well

as cars from other Indian manufacturers.

That learning may just be the biggest takeaway from Nano.

Can the Nano be resurrected?

Anything in the world can be changed provided we change either the pricing, or

the positioning or the packaging of the product. In the case of the Nano, literally

everything may need to change.

Including the name.

There are two ways of changing a painting – rub off bit by bit and redraw new

lines or dump the entire canvas completely and start afresh. The Nano’s

resurrection may work better if Tata Motors chooses to use the second strategy.

However, the above mentioned emotional connect means that they are likely to

stick to the first strategy.

Painful.

Also as a strategy, it is, at best, stopgap and Tata Motors is barely trying to make

the Nano relevant before eventually killing it and replacing it with Nano Gen-2

with a different name. That would be the new canvas then.

Tata has started by changing the positioning of the car. From an ultra low cost

car designed to bring mobility to millions, the Nano is being re-positioned as a

second or third car in the household, as a fun car and as a car that will appeal to

the youth. A new power steering version (Nano Twist) and brighter colors convey

the message.

As a short-term strategy, this makes a lot of sense. Since the launch of the Twist,

Nano’s sales have come back to 2500 units a month for the first two months of

2014, from the 559 units it sold in December 2013.

However, as a long-term strategy, it relegates the Nano to mediocrity. From being

a car for the masses, the strategy will result in the Nano ending up as another

few thousands a month model.

Which would be a pity.

 

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Related Posts:No related posts.

Nano’s Data Reporting Problems: 3718 units. That is how many Nanos

Tata has sold more than they have made. Sounds funny? You see, when

analysts look at SIAM data charts we expect a gap between production

and sales numbers. Normally the production numbers are slightly more

than the sales numbers with the gap (logically) representing the

inventory in the system. However in the case of Nano, the sales

numbers are actually higher than the production numbers. Simply put,

Tata has sold more Nanos than it has made. Which is ridiculous. In fact,

right from the very first month of sales, throughout its lifecycle, Tata

was making less Nanos than it was selling. In July 2009, Tata sold 2475

Nanos and made only 2000 units. This means that nearly 500 Nanos

were underreported in the first month of production. While a few

months of such data inconsistency can be attributed to wrong entry, in

the case of the Nano, this inconsistency has been present throughout

the lifecycle. We would love to have a comment on this data

discrepency from someone in SIAM / Tata Motors 

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LEAVE A REPLY4 RESPONSES

AJAI

MAR 28, 2014 - 03:15 AM

Very insightful analysis. Great job!

REPLY

SRINI

MAR 28, 2014 - 06:51 AM

Deepesh, good analysis, but here are my two bits:

1. Tata’s reputation

The Indica, Indigo and Marina had already sealed Tata’s reputation as a

manufacturer of unreliable cars. If Tata had built up a track record of making

well-engineered cars and being able to take care of them via good after-sales,

the Nano would have had it slightly easier. But neither their passenger cars

were reliable nor was their ability of their service network to handle it. So their

reputation had already sealed the Nano’s fate. Conversely, if Maruti had made a

Nano, it would have been successful. Of course, it is another thing that Maruti

didn’t enter the segment because they thought Indians were graduating to

bigger, better cars.

2. Hubris

The Nano’s reputation brought worldwide attention to India. But that also meant

the spotlight was on Tata and they thought they were on top of the world. The

hubris blinded them. They could do no wrong, as after all the Tata Group now

owned the crown jewels of the so-called British empire (JLR, Corus, Tetley).

3. What happened to that two-wheeler customer prospect?

In the process of global acclaim, they forgot the core, noble essence of the Nano

– get that two-wheeler rider and his family off the bike and into a vehicle that will

offer protection and comfort. So what have they done to get that man? He is

bothered about running costs, which the Nano did not match. Going to a fancy

showroom with salesmen wearing trousers and spotlights meant he felt out of

place to visit the showroom. And the showroom did not come to him earlier.

Then of course, Tata did not pay attention to how the customer will perceive the

Nano – that of a cheap car. And what about easy finance schemes to get him on

board? How about a Equated Daily Instalment paid in cash instead of a fancy

EMI debit and a bank account? I don’t know if the Nano marketing guys at Tata

went out of office into the heat and dust of India’s hinterland to carry through

RNT’s dream of the Nano. Tata Motors should have hired good guys from

Hindustan Unilever! If they had done that, and that too successfully, they would

have realised that it is important to make that two-wheeler customer prospect

1. La innovación frugal y el caso del Tata Nano

LEAVE A REPLY

feel good that he made the decision to buy a Nano. They should have made the

Nano buyer the hero, and not the car – “Here is the brave man, who has spent a

bit of his savings, just so that he can take his family out in comfort and safety.

What a guy!” He needs to be emulated, he needs to be honoured. His

neighbours should take pride in him, his children’s school teachers should praise

him, his co-workers should try to follow suit. Where was the pride in owning a

Nano?

4. Compromise

The essential question of the Nano product was not answered: “Am I making a

compromise by buying a Nano?” Why should the customer compromise when he

could buy a practical alternative, like the Maruti 800 or Alto? Or even a second-

hand one? Why should he forsake all the utilitarian attributes just to buy a Nano?

You have mentioned all the compromises in the car, but what about the

compromise in his mind – There was no compelling reason to buy one. Did he

feel the need for it? Shouldn’t Tata have tried hard to perceive the gap and fill it?

5. The internal Nano effect

In the whole worldwide acclaim the Nano received, Tata took their eyes off the

ball. They ignored their SUV and UV business. The Sumo platform is still going

on, the Aria was a flop, and the Safari Storme is old wine in a barely new bottle.

What happened to the core Tata strengths? They left Mahindra to occupy it,

leaving M&M to replace them in the passenger vehicle pecking order.

It is easy for us to comment on what Tata did not do right in retrospect. Also we

were never inside Tata House to know what problems they faced or are facing,

and under what pressures they made their decisions. We will never know. It is

easy for us to pass judgment – but it must be done, simply because others and

even Tata can perhaps learn from it.

REPLY

RESILIENT AND RELAXED TRICYCLES

OCT 07, 2014 - 08:22 AM

Excellent blog post. I absolutely appreciate this site.

Thanks!

REPLY

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