The Shrinking of the small car

While Tata Motors claims to have delivered over 71,000 Nano cars to date,in November this year,after the company agreed to install additional safety features to stop the cars from catching fire,it sold a mere 509 Nanos. Thats a sixth of its October sales of 3,065 units. This is also a dramatic decline from the 9,000 units sold in July this year. So,what has gone wrong with the Nano?

HICCUPS AT THE START

Against all odds,fearing charges of predatory pricing by the Competition Act,Ratan Tata unveiled the Nano three years ago in January 2008. As Tata proudly shared the spotlight at the launch with his three gleaming Nanos,experts agreed that he had managed to pull it off. Despite what the critics said,despite what our antagonists did,we pursued our vision to give India an affordable peoples car that had not been produced anywhere in the world. A car that most people said could not be manufactured for that kind of price. But we never took our eyes off our goal, Tata had said then.

But Tatas troubles began soon after,with Mamata Banerjee launching her power campaign in West Bengal by targeting the

Rs 1,500-crore plant in Singur,claiming farmers had been forced to part with their land.

Finally,in October 2008,Tata Motors had to shift out of its near-ready plant at Singur,which had a capacity of 3 lakh units,and move to Sanand in Gujarat. But in the interim,while the Sanand plant was being set up,Tata Motors moved its Nano operations to its existing facility at Pantnagar in Uttarakhand. However,the Pantnagar plant had a limited production capacity and could roll out only 50,000 cars a year.

The initial craze about the car got Tata Motors thinking about innovative distribution models. But delays due to shifting of production facilities resulted in the company putting aside plans for an open sales launch through dealerships and instead launching the car through the booking route in April 2009. This only compounded their setbacks, says Abdul Majeed,leader,automotive practice,at PricewaterhouseCoopers.

Over six lakh people stood in lines at State Bank of India branches across the country to fill out booking forms for the Nano. Of them,two lakh managed to have their bookings registeredonly a third of those seeking to ride the middle-class dream. But even with two lakh registrations,Tata Motors seemed to have bitten more than it could chewit was in no position to deliver.

But the Nano continued to arrest peoples imagination. The company held a draw of lots to begin deliveries of the Nano in a staggered manner from July 2009. That didnt help because even people who had their bookings registered had to wait endlessly.

Tata Motors,however,says the November data that shows a drastic fall in sales is not indicative of the lack of buyers. The sales that auto companies report,as you know,are those to dealerships. The November number is what we sent to dealers. This being the year-end,we would not like dealerships to have too much stock, said Tata Motors in an email reply to a questionnaire that The Sunday Express sent.

WHY A NANO?

Nano rode peoples imagination with its Rs 1-lakh tag. But they soon realised that the car cost more. I booked a Nano CX in March this year for about Rs 1.72 lakh. It took about a month to be delivered,which was fine. However,I now wonder if it would have made better sense to have gone in for a Maruti Alto. Though an Alto would have cost a bit more,I hadnt imagined that I would end up paying so much for the Nano, says Ajay Gaur,a Delhi-based doctor. The Nano was his first car,but he is now trying to sell it and pick up a sedan.

But is the Maruti Alto,priced at about Rs 2.7 lakh in Delhi,a better alternative to the Nano?

No,says Autocar India editor Hormazd Sorabjee. While the Maruti Alto may be a more sophisticated car when it comes to automotive technology,there is no comparison to the Tata Nano when it comes to space. For its price,the Nano offers a tremendous amount of space. I dont think the price of the car is too much. It may have been called the Rs 1-lakh car,but you cant expect that to remain. For its price,I think the Nano is a complete package and I am very optimistic about its future.

PwCs Majeed shares Sorabjees optimism about the prospects of the Nano. While cost is an important factor in the mind of the buyer,Nano has a market of its own, he says.

In the emailed response,Tata Motors said,The Tata Nano is the most affordable car. Our customer studies indicate that while being the most affordable,in terms of mileage,styling,comfort etc,it scores over comparable cars.

UP IN FIRE

Since it began delivering the Nano to customers,there have been seven reported incidents of the cars catching fire. From March to August this year,three more fire incidents were reported. What made matters worse was that in these incidents,the cars were completely burnt. This played on public perception about the cheapest cars safety.

In May this year,after an internal investigation,Tata Motors claimed nothing was wrong with the car and offered Nano owners a free check-up of their cars. But on November 10,Tata Motors announced that an investigation by a team of internal and international experts had noticed instances of additional foreign electrical equipment having been installed or foreign material left on the exhaust system by owners. The company then decided to make the car more robust by providing enhanced features in the exhaust system and the electrical system.

This will ensure that such incidents do not recur. All new cars being delivered to customers come with these enhanced features. At the same time,existing owners are being offered the option to install these in their cars,at no extra cost, said Tata Motors.

These incidents fires can take place; the point is to not consistently allow these to happen. Tata Motors has managed the situation as best it could. Yes,the cases may have hit public perception. But a company that comes out and admits its mistake and takes steps to rectify problems will be more appreciated by the public. The Nano is a sound car,it is safe as well. The problem for Tata Motors will be how to communicate that, points out Majeed.

That is one area where the company may need to rethink its strategy.

Car-owner Dr Gaur is not worried about the cars safety,but feels he is finding few takers for his Nano because of the fires. I dont drive the car that much but I am not worried about it catching fire. However,there are not many people approaching me for the car and I think it may be due to the previous incidents.

FINANCING

The company has financing arrangements with public sector banks,private banks,non-banking finance companies and cooperative banks that give out car loans. Recently,Tata Motors announced that Nano customers can avail a 90 per cent loan within 48 hours from its subsidiary,Tata Motors Finance. But bankers paint a different picture.

Atul Gautam,general manager at Oriental Bank of Commerce,says,The fire incidents have not only changed the mindset of customers but of banks as well. They have become more cautious about disbursing auto loans to Nano customers. I think they have slowed down the process. But its not that banks arent ready to finance people in the lower-middle class or lower-class segments. Our bank has never discouraged any Nano customer.

But its true,Gautam says,that banks prefer giving loans for bigger,more expensive cars. Another reason why banks are cautious could be because of the quantum of the loan. To get a better portfolio in their auto loan books,they always opt for bigger loans rather than offering small loans of around Rs 75,000-1,00,000 for cars like Nano.

THE WAY FORWARD

Rural penetration: After the companys Sanand unit was inaugurated in June this year,Tata Motors started open sales through dealerships,not the booking route it took earlier for the Nano in Kerala,Karnataka,Maharashtra,Uttar Pradesh,West Bengal,Chhattisgarh,Madhya Pradesh,Andhra Pradesh,Bihar,Jharkhand,Gujarat,and Punjab. Now that we have begun open sales,we are proactively creating infrastructurelike the Special Nano Access Pointswhich will allow us to penetrate the hinterlands, the company said.

Tata Motos has also announced that the Nano will come with a four-year/60,000-km warranty at no extra cost. Buyers can also avail of a comprehensive maintenance contract at Rs 99 a month.

It will take a lot of effort for Tata Motors to market the Nano in rural areas. First,they have to build on their own infrastructure. Forget about the rural road network,fuel supply,etc,the company needs to reach people living there. That is going to be a mammoth task. There is a lot of work that needs to be done,but I am optimistic because there is a mass market waiting to be tapped, says Majeed.

Changing perception: There are a lot of softer issues that go beyond the Nanos pricing and perceived safety. Till a few months ago,the companys marketing strategy was to target the urban populace,which it had managed with great success. The damage control that Tata Motors adopted following the incidents of fire was debatable,but in the end,the company managed it adequately. As the Nano drives into newer markets,the challenge lies in the strategy it adopts to market the car.

They have to increase capacity,create confidence among the people. All this means a change in the way they are selling the car, says Majeed.

The new Nano advertisement makes a beginning. The ad,created by Rediffusion Yamp;R,shows a little girl eagerly waiting for her father to drive home the Nano,a yellow beauty that effortlessly manoeuvres its way through tricky terrain and basks in all the attention it gets on the way. Once home,the girl dabs her Nano with a spot of her kajal to ward off the evil eye.

The advertisement might just be that shift in gear that Tata so desperately needs for its small car.

With inputs from George Mathew and Madhusudan Sahoo>/i>