Tata Nano – The People’s CarMaking the bet..

Carla Kingston

Marc Nisbet

Lindsey Fair

Otilia Vides-Alfaro

Overview of the People’s Car

•World's Cheapest Car

•Only made & sold in India currently

•Launched in 2009

•Designed and manufactured by Tata Motors

What makes it so cheap?

Other Tata Products

Tata's Market Share

Commercial Vehicles

Passenger Vehicles

PESTLE AnalysisPolitical •Tax reductions applied to the specific vehicle segments (utility vehicles and multi-purpose vehicles)

•The growth of exports in the industry are strong specifically in Asia and Africa

•FDI rules have been left quite open to allow business to prosper in the country

•Labour regulations should be closely monitored specifically if doing business with other countries (i.e. any acquisitions, joint ventures)

•Different parts or regions of India offer incentives such as tax and excise duty benefits

PESTLE AnalysisEconomic/Financial •Fastest automotive market in Asia

•Global recession had an impact on the industry and caused for funding to be limited, this would also have an impact on plants that have employees being represented by unions, and therefore eliminating jobs due to low productivity

•Pricing and currency would have an effect on the production of vehicles and would define on its worth of exporting to other countries

PESTLE AnalysisSocio-cultural •India’s population 1.14 billion

•The focus to shift on how to serve the bottom of the pyramid is quite crucial as they represent about 250to 300 million people of the Indian population

•By 2020 disposable income will grow significantly allowing the population to have a greater purchasing power

PESTLE AnalysisTechnological

•India has approximately 4 million vehicles on Indians roads, this shows that infrastructure is there and has a potential for the industry to grow.

•Qualified engineers in India have allowed the industry to focus on R&D initiatives and focus on how to build innovative products

Legal

•The end result of the production of a vehicle has to follow regulatory and safety requirements •In India, the requirement is to achieve Euro 4 emission regulation •Numerous patents related to 'small' car

PESTLE AnalysisEcological

•This industry is building vehicles that are environmentally friendly, which would mean that if a product is cheap it would not attain such requirements. Depending on the country, in this case India there is a specific environmental requirement, and if not will it meet the needs of other countries (the rest of Asia and Africa).

5 Forces Analysis

Threat of New Entrants

•Extremely High Risk in the ultra low cost car segment

Suzuki 800 is already on the marketFord will release at car for $7,600

Toyota will release a car for $10,826Hyundai will release a care for $3,700Dodge will release the Dodge Hornet

Renault Nissan will release a $3,000 car*everything can be duplicated

5 Forces Analysis

Bargaining Power of Buyers

•Moderate Risk

Buyers already forced the closer of one location due to uproar of farming community

With more options being released on the market the customers will have the power to insist on more value added options while going for

low pricing.

5 Forces Analysis

Threat of Substitutes

•Moderate Risk

Walking2 wheel vehicles

Car pooling/sharingAs India’s economy continues to grow a public transit

system may become an option

5 Forces Analysis

Bargaining Power of Suppliers

•High Risk

70% of the suppliers are local and can easily supply the same concept parts to the other manufacturers

Suppliers were heavily involved in the design process of the Tata Nano

Increased demand for parts may result in higher prices

5 Forces Analysis

Rivalry Among Existing Competitors

•Extremely High Risk

It appears that both Hyundai and Renault Nissan are in the same price bracket and making a play for the same target customers

With respect to the Tato Nano going to the US, in order to meet stronger regulations the price will increase and there is already a large supply

of low cost vehicles in the US.

Value Chain Analysis

Firm InfrastructureProduction and warehousing..

Human Resources

Technology

Operations

Lateral recruits + Ravi Kant - marketing

Tata owns tech companies + Strong focus on R&D (2000 engineers)

Strangle hold on inputs for their suppliers

InboundLogistics

Opportunity to learn to access b-o-p

Protected satey of suppliers

R & D

Development of unique drive train

Product

Two cylinder engine, drive train

Rear engine

MarCom

80% of segment chose higher end models of the Nano

Sales / Delivery

Customers pay upfront to book a Nano

Service

156,000Cars on back order

Lost ¼ sales

Profit?

Win-win relationship with suppliers

Cheapest location + supplier co-location

Building on success of ACE

Innovation culture – weekly meetings

Unique features

Cheapest of the low cost cars by 37%

Reliable + fuel efficient

Missed Segment needs

Shaky price point

Promo: 1 lahk promise220 M value

Pre-booking

Traditional delivery

Distributed manufacturing?

Poor response time to customer needs

Diversified Suppliers

Pricing Strategy

Cost Leadership StrategyTrade-Off Concept Strategy

Price Penetration Strategy (vs skimming)

Double the price ≠ Double the value

TOWSExternal Opportunities• recession / hard economic times• BRIC economy growth• demand for smaller cars (congestion and env’t)• growth of local car buying market• opportunity to expand model to other BRIC

economies

External Threats• fuel costs• recession / hard economic times• head hunters / poachers• volitality and pressure of competition high in

auto industry

Internal Strengths• able to up capacity in previous case so proven it’s doable (pg 4 of case)• brand strength / awareness = strong domestic player 64% market share in India, leader in commercial

market)• first to market advantage R & D (37 patents for Nano, over 3000 engineers)• supplier / partner relationships demand driven• large portfolio with global presence

Internal Weaknesses• Safety concerns• inability to produce products to meet

demand in timely manner • People don't want to buy 'worlds cheapest car, customers want

trendy

TOWS strategies

WO Mini-Maxi" Strategy •Minimize weaknesses, maximize opportunity•Form strategic alliances to ramp up production (W2) and address safety concerns simultaneously (W1)•Have first mover advantage but not able to capitalize on it, they have opportunity, so work on building capacity quickly (W2)•If they can do this, then quickly need to go to ST and minimize threat of competition•Keep low price point, same product focus, change positioning (O1, O3, W3)•seek potential other markets to 'try again' (O2, O4)

WT Mini-Mini" Strategy •If they're not careful they may need to fall toretrenchment strategy or merge so they canquickly change and expand to meet marketdemand / opportunity

Financial Analysis  Mar-12 Mar-11 Mar-10 Mar-09 Mar-08

Short-Term Solvency

Current Ratio 0.51 1.02 0.53 1.47 0.44 0.91 0.44 1.51 0.64 0.91

Quick ratio 0.4 0.89 0.54 1.14 0.44 0.68 0.58 1.26 0.66 0.66

Long-Term Solvency

Debt Equity Ratio 0.57 0.07 0.8 0.02 1.12 0.07 1.06 0.07 0.8 0.11

Asset Management

Inventory Turnover Ratio 13.37 22.8 13.86 33.33 13.5 30.47 13.47 30.46 14.44 22.93

Profitabilty

Return On Capital 10.36 13.52 10.19 21.69 10.37 27.89 6.41 17.37 18.96 26.18

Market Value Measures

Earning per share 3.91 56.6 28.55 79.21 39.26 86.45 19.48 42.18 52.63 59.91

Source: http://www.moneycontrol.com Tata

Maruti Suzuki

Case Conclusions

1. Not what they thought. Value Erosion – Egotism & Growth for Growth sake.

2. Ramp Up NOW but unlikely...

3. Exit via merger but probably not viable.... so just....