Can Ratan salvage his Nano dream?

“Though the small Nano uses less gasoline than many larger cars, the enormous potential numbers could mean an equally enormous environmental impact, an exponential rise in carbon emissions as well as other kinds of pollutants. The United Nations’ top climate scientist, Indian economist Rajendra Pachauri said he is already “having nightmares” about precisely this scenario.”
This was a prominent blogger writing soon after the launch of the Nano in January 2008.
And of course, there was the brouhaha over the traffic jams, the pressure on Indian roads and what not. I remember my Editor-in-Chief Arindam being slightly baffled by the extraordinary hype generated in Indian as well as global media in January 2008 when a proud and beaming Ratan Tata wowed everyone by saying “A Promise is a Promise” while unveiling the Nano at the Auto Fair. The promise, he was referring to was the one to keep the price of Nano at Rs 1 Lakh (0.1 million). Arindam was baffled because he was perhaps the only person who had written a stinging article in 2007 lambasting Tata and West Bengal chief minister Buddhadev Bhattacharya for the ugly mess at Singur, the original site chosen for the Nano factory. He had also logically argued how and why a Rs 1 Lakh (0.1 million) car was actually a chimera. Of course, not many alleged pundits of corporate India paid much attention back then. I remember journalists – who otherwise display better sense on some rare occasions – forecasting that Indians will buy more than 1 million Nanos a year very soon.
Sooner or later, reality has a nasty habit of catching up with hype. In early October this year, I sent a fairly long SMS to the Editor-in-Chief basically saying that it is perhaps time for a big story on the Nano since there were persistent, and unflattering reports about the actual volume of sales of the Nano. In my SMS, I pointed out that July 2010 was the best month ever for the Nano with sales of 9,000 units. And sales started heading south after that – even though the Indian auto industry was in the midst of an unprecedented boom. We both agreed that it was time for an analytical story on the seemingly inexplicable inability of Tata Motors to increase volume sales of the Nano despite the hype around the brand.
And then came a clinching shocker when I picked up the newspapers in the early hours of December 2, 2010. Each month, the Society of Indian Automobile Manufacturers (SIAM) publishes the latest sales figures of all auto brands in India. In November 2010, the SIAM report said that 509 units of the Nano were sold. This, when auto sales actually grew by more than 40 per cent. And believe it or not, Nano sales were lower than that of Mercedes Benz which managed 518 units in November. Look at it this way: the cheapest car in the world sold 509 units in a month when close to 200,000 cars were lapped up by the Indian consumer.
Quite clearly, Ratan Tata seems to be pre-occupied with other unsavoury things even as his Nano dreams seems to be on the verge of unraveling. At the moment, he is angry (let me add justifiably) with the Radia tape leaks and has even taken the matter to the Supreme Court. But sooner or later (if he is not already doing so already), Ratan Tata must summon his top lieutenants and strategists to revive the flagging fortunes of the Nano. At Business & Economy, we refused to be swayed by the early hype about the Nano becoming the best selling car of history. And now, we don’t think it is time to pronounce that the Nano is a colossal bomb. But surely the time has come to ask that simple and straightforward question: Can Ratan Tata Salvage His Nano Dream?
Our colleagues and reporters in Business & Economy and The Sunday Indian spoke to dozens of dealers and people associated with the auto industry in Guawahati, Bhubaneswar, Ahmedabad, Kochi, Delhi, Chandigarh and many other places. The first impressions that we gathered was that Tata dealers were stubbornly optimistic about the future prospects of the Nano – now based more on hope rather than hype. Most of the Tata dealers blamed the many incidents of new Nanos catching fire and the negative publicity surrounding it as a dampener on sales and new bookings. Says Dinesh Shukla of Ahmedabad based Swati Autolink, “Few instances of firing in the engine are also a matter of concern. Though you can’t state it as a manufacturing defect, but it has created some impact on potential consumers.”
Talk to auto industry analysts and you get a similar sense of hope being the overriding factor when it comes to the future prospects of the Nano. Says Vaishali Jajoo of Angel Broking, “It will not be right for now to say that the Nano has failed in the Indian market. The unit sales fell in the month of November. It was mainly because of the operational shift at the back-end wherein the company is trying to shift the entire production from its Uttarakhand plant to the Sanand plant apart from many other reasons.”
I can add dozens of quotes that we gathered about the Nano over the last month or so. But they will serve little purpose apart from filling up space. The real reason for the below par performance lies in what Dinesh Mehta of Swati Autolink says, “At the time of launching, the company announced that this dream car will be priced at Rs.1 lakh (Remember Ratan Tata’s globally acclaimed words “A promise is a promise”?). Later on, the actual on road price reached around Rs 1.63 lakh (0.163 million).” And thereby hangs a tale.
Pundits and analysts can go on and on about “other things”. But it really doesn’t take rocket science to figure out two key strategic reasons for Ratan Tata’s dreams threatening to become a nightmare. The first is the inexplicable inability to identify and engage with the core consumer of the product. The second is the even more inexplicable inability to identify the real competitors of the Nano.
Let's look at the first strategic blunder. In an endearing interview before and during the launch of the Nano, Ratan Tata had very clearly identified the core customers of the Nano. According to him, it was the sight of a couple with two children navigating the roads of Mumbai on a two wheeler that inspired him to kickstart his Nano dream. His vision was very clear. The Nano was meant for the aspirational Indian who owned a two wheeler and wanted to graduate to a four wheeler but found existing cars on the road way beyond his budget. Through the Rs 1 lakh (0.1 million) Nano, Tata was aiming to bridge this seemingly unbridgeable gap. It was the promise behind this strategic promise that captured the imagination of the whole world, including visions of millions of Nanos clogging up Indian roads.
In reality, that promise turned out to be a dud. As the Ahmedabad based dealer admits, the distance between the promised price point of Rs1 lakh (0.1 million) and the actual price point of Rs 1.6 lakh (0.16 million) is virtually unbridgeable. Look at the chart accompanying this story that compares the price of the Nano with the prices of some well known two wheeler brands. Almost all two wheelers in India sell for less than Rs 50,000 a unit. In fact, all the best selling motorcycles from Hero Honda, Bajaj and TVS definitely retail for less than Rs 50,000. The simple question that Ratan Tata and his strategists seem to have failed to ask and answer is: how will someone who can just about afford Rs 50,000 (and that too after taking a two wheeler loan) manage to generate at least another Rs 1 lakh (0.1 million) to fulfil his Nano dream? Please remember, this absolutely does not mean that the potential consumer dislikes the Nano. In all probability, she yearns to buy it. But the sad fact is: the Nano is beyond her and his reach. Sometime during late October and early November, Tata Motors unleashed a fairly large campaign that encouraged potential customers to trade their two wheelers for a Nano at a Tata showroom. Despite this campaign, Nano managed sales of just 509 units in November. Says the manager of Concord, the Nano dealer in Kochi, “People are well aware of the “bring the two wheeler and take back Nano scheme”. But the buyers of Nano belong to higher profile strata. So in reality, the exchange business hardly takes place” In fact, every Tom, Dick and Harry knows that a large number of people who have bought a Nano so far are ‘trophy buyers’; people who already own two cars and have added the Nano to their stable as a lifestyle statement. Even Ratan Tata knows that lifestyle statements don’t create mass markets. At the moment, Tata Motors has launched a nationwide campaign to tie up with public sector and even cooperative banks to try and provide loans to the core consumers of the Nano. But I can’t help asking: why did they not do this two years ago? Was it complacency or incredible incompetence?
Even stranger is their inability to identify the real competition: the second hand car market. By now, we know that someone who can just about afford Rs 50,000 can only dream about the Nano. A Nano can be purchased only by those who can cough up between Rs 1.5 to Rs.2 lakh (0.15-0.2 milion) – either from their own pockets or through a car loan. Just have a look at the infographics in the story that shows the kind of second hand cars you can buy for the price of a Nano. This is what is killing the Nano in the marketplace. I have personally talked to dozens of people who were adamant about buying a ‘bigger’ or ‘better’ second hand car rather than a Nano. Perhaps the Tata strategists simply forgot that the second hand car market in India is one of the most potent and powerful, and is rapidly evolving from being a cottage industry to an organised business with serious
players.
The blunt fact is: the Nano is caught in a pincer: the core consumer cannot afford the Nano. And for those who can afford it, the second hand car market offers genuinely better products and deals.
Sure the Nano is still alive, though struggling to kick. But unless Ratan Tata and his strategists figure a way out of this common sense strategic cul de sac, the Nano might end up belonging to the category of massively hyped products that eventually sputtered to a halt.