WASHINGTON—With a population of 1.1 billion, an expanding economy, and a rapidly growing middle class, India seems to be the perfect market to introduce an inexpensive automobile.
With much media coverage, Indian automaker Tata Motors Ltd. rolled out the Tata Nano at the New Delhi Auto Expo 2008. The Nano will become the world's cheapest and smallest car with a sticker price of around $2,500, which is more than $1,000 less than the next cheapest car, the Maruti 800.
Tata said that the model will be sold only in India for the first few years, and shipments to emerging markets such as China, South America, and Africa may follow soon after.
Tata's competitors quickly jumped into the fray. Baja Auto Ltd.—considered to be the second largest motorcycle producer in India—announced that it will build its own small car in partnership with Renault S.A. and Nissan Motor Co.
in about three to four years. Ford Motor Co., with an investment of $500 million, also promised a small car in India within two years.
Tata Motors is a member of the Tata Group, the largest conglomerate in India. The group consists of 98 companies that operate in seven business sectors, including information systems and communication, professional services, consumer products, metal products, chemicals, and energy. Tata Steel Co. Ltd. and Tata Motors are the largest companies within the group.
Keeping Costs Down
The Nano is meant to replace rickshaws, motorcycles, and scooters, according to remarks by Ratan Tata, Tata Group Chairman, in a report published on the Tata Motors Web site.
The company projects to build and sell at least 1 million cars a year. To achieve this goal without investing billions of dollars, Tata looked for an unconventional way of building the car.
It hit upon a concept from the insurance industry, where outside contractors are "trained and certified" to build the Nano. The independent contractors receive the technology and the know-how—similar to franchising—but must bear all costs, including building and maintaining the manufacturing facility.
"We looked at a new kind of distributed manufacturing, creating a low-cost, low-break-even point manufacturing unit that we design and give to entrepreneurs who might like to establish a manufacturing facility," said Tata.
Cheapest Car Comes With a Price
The Indian media hasn't bought into the cheap price of the Nano yet. "In fact, the figure is an introductory offer excluding taxes and local duties; on the road, the car will actually cost between $3,310 to $3,819," claimed Dinesh Mohan, a transportation expert and professor of biomedical engineering at the Indian Institute of Technology in New Delhi.
His speech appeared in the Asia Times article titled, "India's 'Cheapest Car' Comes at a Cost."
To consumers looking for a cheap car that can be easily parked, the Nano might seem like a godsend, and the downsides may be overlooked. The car is made of relatively low-grade aluminum, has a small dashboard, no airbags, no anti-lock braking system, no spare tire, and the engine is situated in the back of the car behind the passengers. With the engine in the rear, there is little protection during a front-end collision.
Safety and Environmental Concerns?
While there are many benefits to owning the Nano, it may be the least safe car in the world, according to InfoDB Mag, an online-based Indian magazine. Considering urban India's nightmarish traffic and driving patterns, accidents could be fatal.
This car "already fails the current Western emission and safety standards and will soon fail Indian standards too as India adopts the 'Euro-IV' emission norms," said Mohan. The Euro-IV, which will come into effect in 2010, sets limits on the amount of pollutants emitted by automobiles. For now, the Nano meets current Indian regulatory requirements and exceeds Indian emission requirements.
Currently, India's infrastructure is underdeveloped, and few funds have been earmarked toward building and improving roads. There is little room for additional vehicles on India's already overcrowded and congested road system, according to a recent University of Pennsylvania study.
Global Ambitions
The Tata Group has been on an acquisition spree since 2000, buying up 39 companies in the process, according to its Web site. In 2000, Tata bought beverage company Tetley Group Ltd. of the United Kingdom. Over the years, Tata has acquired companies in many countries across different industries.
In addition to becoming a recognized global player, Tata's rapid expansion allows it to take greater risks, understand different market conditions, and improve living conditions for people in third-world countries.
"India has people with skills. And it has people with considerable intellectual capabilities who have been leaving India because the opportunities were not there. We have to create these opportunities," said Ratan Tata in a 2005 interview with McKinsey & Co.
Struggling U.S. automaker Ford Motor Co., is divesting Jaguar Cars Ltd.
and Land Rover Group Ltd. Analysts believe the brands can fetch around $2 billion, and Ford is currently in exclusive negotiations with Tata Motors. The potential acquisition allows Tata to gain valuable insight into the latest manufacturing, marketing, and quality control processes.
"We do not know whether it is Ratan Tata's personal ambition that is driving the [Jaguar and Land Rover acquisition] or whether it is a strategy that has been thought out for the good of the company," said Nandan Chakraborty, head of research at Enam Financial, in a recent Knowledge at Wharton interview.
At this point however, there are more questions than answers. How many Nanos can Tata sell? Will the luxurious marques of Jaguar and Land Rover be affected as a result of Indian ownership? Regardless, the emergence of Tata as a global industrial heavyweight may finally signal the arrival of India as an economic superpower.
