Instead of conquering India's roads, the much-hyped Tata Nano -- the world's cheapest car -- is struggling to find buyers.
- By Sadanand Dhume<p> Sadanand Dhume is a resident fellow at the American Enterprise Institute. </p>
Two-and-a-half years after its glitzy launch, a car that was meant to revolutionize personal transport in India — and perhaps all of Asia — remains stuck in first gear. August was the second-worst sales month ever for the Tata Nano, the world’s cheapest mass-produced car and a flagship product of India’s giant steel-to-software Tata Group. Tata Motors, whose plant in the western state of Gujarat has the capacity to turn out 250,000 cars a year, shipped only about 1,200 Nanos to dealers in August, compared with slightly more than 8,000 in the same month last year. Clumsy marketing, a rash of mysterious electrical fires, and an unusual design (e.g., a welded -shut trunk, only one side-view mirror) have all dented the car’s appeal. The Nano was projected to be selling 20,000 to 25,000 units a month by now, and some of the car’s more enthusiastic boosters had even predicted a market in Europe and the United States. Instead, only about 129,000 Nanos ply Indian roads.
Although it’s too early to rule out a comeback for the Nano — Tata Motors has proved naysayers wrong before — the car’s failure thus far is illuminating. For Tata, it raises a question mark over what was meant to be one of the Mumbai-headquartered conglomerate’s great strengths — frugal innovation, or products designed specifically for the developing world’s vast number of poor and middle-class people. But more broadly, it shows that developing-country multinationals — often praised for their hunger and agility — aren’t necessarily world beaters, even on their home turf. For every Embraer or Infosys, there’s also a Cemex or Satyam. Indeed, local subsidiaries of Japan’s Suzuki and South Korea’s Hyundai dominate India’s fast-growing passenger-car market. For India itself, the Nano’s somewhat oversold promise as an engine of industrialization and prosperity remains unfulfilled.
By now, the Nano’s conception is the stuff of legend. The brainchild of Ratan Tata, the 73-year-old multi-millionaire chairman of the holding company that controls the $84 billion Tata Group, the car was allegedly inspired by a ubiquitous sight — a family of four piled atop a scooter in Mumbai traffic. Mopeds, of course, have long been a popular mode of transportation in urban India: cheap, efficient, and reliable — but dangerous, particularly during the monsoon season. As the story goes, the thought of providing such a family with the comfort and safety of four wheels and a roof set Tata off on his quest to give India its first authentic people’s car. It was to be priced at 100,000 rupees, or about $2,200, when announced in 2008, approximately half as expensive as the cheapest offering of the Suzuki offshoot, the Maruti 800. That’s still a lot of money for most Indians — yearly per capita income is only about 55,000 rupees — but a growing middle class has created a booming economy, clocking double-digit growth rates. Passenger-car sales grew nearly 30 percent last year to 2.5 million.
So why has the Nano been such a bust?
Rarely are a concept and a company so perfectly matched on paper. The idea of a people’s car meshes with the Tata Group’s carefully burnished image as a business empire imbued with a larger social purpose. Tata Steel, which virtually runs the manufacturing town of Jamshedpur in eastern India’s Jharkhand state, has long held a reputation for cradle-to-grave paternalism. Tata Group companies shun such morally questionable businesses as alcohol and tobacco. In line with an avowed nation-building ethos, during the course of its 143-year history the group has given India its first airline, as well as the first Indian-owned steel and power plants. Charitable trusts own about two-thirds of the Tata holding company, Tata Sons, and the group’s philanthropy — in medicine, science, and education among other fields — has long set it apart from its peers.
And yet the sprawling Tata empire is no stranger to luxury. The group owns India’s largest high-end hotel chain, the Taj Group, and in 2008 Tata Motors plunked down $2.3 billion for British luxury-car maker Jaguar Land Rover. But in an era when flashy tycoons build billion-dollar homes or flaunt an image of Richard Bransonesque excess, Ratan Tata, arguably India’s most powerful businessman, is widely known for his down-to-earth demeanor and spartan personal habits. Unlike most scions of Indian business dynasties, he owns only 1 percent of the company that bears his family name. Tata reputedly drives himself to work in a simple sedan and lives in a relatively modest apartment surrounded by books and CDs. He’s easily India’s best-known businessman not on Forbes magazine’s list of the country’s 100 richest people.
But misfortune has plagued the frugal tycoon’s pet project from the start. In 2008, Tata abandoned a 1,000-acre factory site in West Bengal state after coming under attack from a rabble-rousing politician — Mamata Banerjee, currently the state’s chief minister — upset by the government’s acquisition of land for the project. The factory relocated to the business-friendly western state of Gujarat smoothly enough, but the Nano’s worst troubles lay ahead.
To begin with, the lack of dealers in small towns — home to much of the car’s presumed market — cut off the Nano from potential customers. The absence of a trunk — like the original Volkswagen Beetle, the Nano’s engine sits in the back — was befuddling to many potential buyers. Rising material costs and stricter emission standards edged the car’s price tag last year about 10 percent above the promised 100,000 rupees, bringing it in line with a used Maruti 800. And finally, at least half a dozen highly publicized fires traced to the car’s electrical or exhaust systems have raised safety concerns.
But the biggest blunder made by a company with as much experience with Indian consumers as any may well have been the most elementary, and confounding: the hype about the Nano’s low cost ended up making it less attractive to its target audience — people seeking to climb a rung up the social ladder from two wheels to four. "In communications, it’s gone out as the world’s cheapest car," says Hormazd Sorabjee, the Mumbai-based editor of Autocar India. "There’s a kind of stigma attached to it, as though you can’t afford anything else."
For all its problems, it may be too early to write off the Nano. Debasis Ray, a spokesman for Tata Motors, says over 90 percent of the car’s buyers say they’re either satisfied or highly satisfied. The company is in the process of extending its distribution network into small towns across India and has begun exporting the Nano to Sri Lanka and Nepal. Tata Motors has made it easier for consumers without sophisticated credit histories — such as small shopkeepers and traders — to receive a car loan for the Nano. And a new advertising campaign that focuses on a personal relationship with the car has commenced on national television. As for the fires, Ray says they weren’t the Nano’s fault to begin with — media reports have blamed ad hoc rewiring by customers to fit in stereos and air-conditioning (neither of which are included in the base model) — but Tata engineers have revisited the car, anyway, and certified it safe.
For now, though, the car that was meant to be India’s answer to the Volkswagen Beetle looks a lot more like Ford’s unfortunate Edsel. Unless the Nano can engineer a turnaround, it may well go down in history as Ratan Tata’s folly.