Team-BHP - Did Tata kill Nano when they announced a "1 Lakh" car?

Its interesting to see different views come up on why the car has not taken off as expected. Well i'll add mine as well.

There was so much hype around the Nano before launch that Tata did not need to do any marketing. The car was being self marketed. This also raised everyone's expectations to unrealistic levels.
Even if the Nano does fail, this whole Nano project has given Tata Motors so much publicity in the international auto space, that suddenly people all around the world now know an Indian auto market by the name of Tata Motors
Coming to the car, i'm very surprised they are selling the car at the price they are selling it at. Since i work in the auto component industry i'm aware of how prices of everything have increased and we keep running back to our customers for price increases. Tata Motors have kept costs low because of their range of vehicles. The losses on the Nano are recovered on their other products. This same strategy is played with the suppliers as well. Its like - You give me 'xx' price on a Nano part and i'll give u a higher price on a part for one of their other vehicles.
The Nano is a beautiful city car, actually the best city car today (considering its price) and i feel it will pick up once more cars get on the roads and people shed their apprehensions about the product. The diesel version will definitely help, but it again depends on how much higher it is priced.
The other reason that comes to my mind, other than the 'Image' part which is also very valid, is the easy availability of finance today. People are ready to take that extra lakh of the loan and get the real car they see in a Alto, etc.

Quote:

Originally Posted by rajess_in (Post 2457739)

4. He assumes parking will be just as easy as his bike (remember most tow their wheelies till their door steps, some even inside!). There is a severe dearth of parking spaces in most households. You can squeeze your bike at some place close by, but a car! Where can I park it?
5. Some have practical issues with status, a car sure lifts your status among the society people. If you are a tenant, it definitely rockets your rent (Nayi Gadi ko toh paise kahan se aaye!). So he deters from upgrading to the car till he buys his own roof over his head.

This is the basic reason why the average two wheeler buyer has shied away from the nano. In case of others who can afford a car, the rationale behind buying decisions is mostly on the word of peers.

Rajess_in has hit the nail on the head.

The basic premise of Tata Motors's marketing positioning was that the vehicle was meant for Bus Drivers, peons etc. Now for these people the capital cost of a parking space would be exorbitant. Secondly the daily running costs would bleed them white. I did this calculation based on my driver's current costs- he used to spend 250Rs./month as petrol cost to commute from his residence. He has moved to a new place 25kms away & still manages @ 1500Rs. He says he saves a lot on rent & his wife has got some job.

And for the middle class buying a Nano is like declaring you do not have money to afford a proper car - nosecut job.

A clear case of a good car butchered by bad positioning & marketing.

Quote:

Originally Posted by Hayek (Post 2458409)

The one lakh car concept was brilliant in getting Tata Motors publicity in the global media. It created an image of frugal engineering capability which certainly has helped the company raise it's international profile, and may even help in designing future cars that make money. This would have never ever happened if Tata Motors tried to make a better Alto.

But the Nano was never going to be a material contributor to Tata Motors bottom-line. Even if they sold a million cars a year, and made a 10% EBITDA margin (both of which are best case assumptions), the Nano would have contributed only Rs. 1000 cr. to Tata Motors EBITDA. Seems like a lot of money, but Tata Motors consolidated EBITDA was Rs. 17,800 cr with JLR contributing Rs 11,000 cr. One GBP 70k Range Rover contributes more than 100 Nanos.

The reason no-one has bothered to build Rs 1 lakh cars is because it's not worth the trouble from an economic standpoint. And at today's petrol prices, it does not make sense for just about anyone to buy a Nano or even an Alto. Run the numbers - for someone who does 10,000 km per year, total ownership cost of different cars would be as under:

Nano (OTR price Rs. 2 l)

Depreciation : Rs 20,000 (assuming 50% depreciation in 5 years)
Fuel : 600 litres - Rs. 40,000
Maintenance - Rs. 5,000
Total cost - Rs. 65,000

Alto (OTR price Rs. 3 l)

Depreciation : Rs 30,000 (assuming 50% depreciation in 5 years)
Fuel : 650 litres - Rs. 44,000
Maintenance - Rs. 5,000
Total cost - Rs. 79,000

Indica (OTR price Rs 3.5 l)

Depreciation : Rs 40,000 (assuming 50% depreciation in 5 years)
Fuel : 650 litres - Rs. 44,000
Maintenance - Rs. 6,000
Total cost - Rs. 90,000

Bikes (OTR price Rs 50k)

Depreciation : Rs 5,000 (assuming 50% depreciation in 5 years)
Fuel : 200 litres - Rs. 13,500
Maintenance - Rs. 2,500
Total cost - Rs. 21,000

The Wagon R cost of ownership may be 40% more than the Nano but the Nano is 3x the cost of ownership of a bike. And as GTO says, for someone on a budget, a second hand Swift probably makes a lot more sense than a Nano.

Hayek

Good to see a running cost analysis. But I would like to make certain corrections.

At a city mileage of about 18km/l the actual fuel usage of the Nano would be closer to 550L and not 600, thus fuel costs are around 35,000rs. Another oversight on your part is the fuel cost per litre of the Indica. The total fuel cost of the Indica will be more like 30,000rs.

Similarly, maintainance costs of all the vehicles you have taken, I feel is on the much higher side. I would imagine actual costs to be half that.

Monthly running cost of all the cars are more likely to be the following in my view:

Nano-4750
Alto-6500
Indica-6250
Bike-1750

Let me take this one level further. And add EMI to it. Assuming a 12% rate of interest on the loan, a 90%loan amount on the Indica and Alto, and 100% on the bike and Nano, and a 1 year loan period on bike, 3 year loan period on Nano and 5 years on Indica and Alto. Average EMI over 5 years will be:

Bike- 880
Nano- 4000
Alto- 6000
Indica- 7000

Another fact I would like to add, the cars will get sold without much trouble at the end of the 5 year period, worst case the Company itself will take it back. But getting rid of the bike will be tougher in my view.

Quote:

Originally Posted by fiat_tarun (Post 2458497)

Coming to the car, i'm very surprised they are selling the car at the price they are selling it at. Since i work in the auto component industry i'm aware of how prices of everything have increased and we keep running back to our customers for price increases. Tata Motors have kept costs low because of their range of vehicles. The losses on the Nano are recovered on their other products. This same strategy is played with the suppliers as well. Its like - You give me 'xx' price on a Nano part and i'll give u a higher price on a part for one of their other vehicles.

I dont think the design if you consider the design itself, the Nano would loose money. Though I agree, overall they may be losing money on the Nano, but only because they are not able to generate the volumes that they had thought they would. For example if they were selling about even 10,000 vehicles a month consistently, the Nano independently would have made money. Right now, low volumes mean fixed costs have been on the high side, causing a loss in profitability.

And also they have not exactly been shy in increasing prices. On avg prices have gone up about 20-25ks since launch.

Quote:

Originally Posted by Daewood (Post 2458576)

I think he meant the petrol version of Indica. Since the OTR quoted is just 3.5L.

Resale is brand/model specific and not dependent on whether it's a 2 wheeler or 4 wheeler.

Hmm, thanks for the first point.

But on the resale, no matter what its difficult to sell any bike. Even if you do, it will barely give you a fifth of its original value if you get supremely lucky. But with a car, almost all car companies today take back their old cars and offer pretty decent money for them. I am not saying you will get great price for each and every car, but there is almost zero chance that you will get nothing back, which is a possibility with a bike.

I can tell you, my family was looking to get rid of our 8yr old Maruti 800 and we had got quote of 75thousand bucks for it, not even counting any exchange bonuses. I am sure with a little bit of pushing, we could have got close to 90thousand at least.

Many have pointed the probable causes of the dismal performance of the Nano. I feel that the single largest factor that contributes to its low sales is the non-availability of a CNG version coupled with absolute zero provision for a custom install. While designing a city car, this factor shouldn't have taken a back seat.

Secondly, a vast majority wants a stereo to listen to while driving or when stuck in traffic jams. Proclaiming that a stereo install is too much load on the engine (resulting in fire etc.) itself negates the Nano from being a worthy competitor to a Maruti 800.

The Alto & the 800 on CNG are only marginally expensive to run than most mainstream Scooters/Bikes. More people have made the switch from 2 wheels to 4 wheels, on CNG rather than petrol.

Those who find their their old bikes are too costly to run, have converted their bikes to CNG. :D

CNG seems to be the way to go if you want a low upfront cost & and even lower running cost on your city runabout. The people at TATA showroom do not know where to look, when faced with this practical problem.

Though there are a lot of gas vehicles in India, its still not a large number considering the total number. Also, all CNG vehicles would still require a petrol tank. There are only about 500 CNG filling station in the entire country, limited almost completely to the major metros. In comparison there are more than 30000 petrol stations, which should tell you how popular CNG is. I dont think this is that popular an option to really make much of a difference.

As for the Nano, I agree they should have taken car that all kinds of steroes may be added to the car without issue. Its not that a stereo could not be added, its just that modern car stereos take up more current than the electrical insulation in the car could handle. Since day one, Tata provided a simple radio-cd player through their showrooms, which was a more simple system and did not cause any problems. But many people bought stereos from outside, ones which took up far more current.

Though yes, from the design point of view this has been the only major issue. They have solved it now though. It was just one of those small penny pinching measures which sort of back fired. Things like this happen once in a while, and Tata had a massive misfortune that it happened to the Nano.

Quote:

Originally Posted by julupani

Would be amazed if even a Nano gave 18 kph in most cities, especially Bombay. Did you see Sam's thread on the Delhi run?

Quote:

Originally Posted by julupani

Similarly, maintainance costs of all the vehicles you have taken, I feel is on the much higher side. I would imagine actual costs to be half that.

Perhaps, have not run a small car in years, guestimated based on my Getz.

Quote:

Originally Posted by julupani

Let me take this one level further. And add EMI to it. Assuming a 12% rate of interest on the loan, a 90%loan amount on the Indica and Alto, and 100% on the bike and Nano, and a 1 year loan period on bike, 3 year loan period on Nano and 5 years on Indica and Alto. Average EMI over 5 years will be:

Bike- 880
Nano- 4000
Alto- 6000
Indica- 7000

Another fact I would like to add, the cars will get sold without much trouble at the end of the 5 year period, worst case the Company itself will take it back. But getting rid of the bike will be tougher in my view.

Good point, missed that. Though we should probably consider only interest and not full EMI since we have considered depreciation.

Overall, I am pretty sure they are losing money on the Nano at today's volumes - fortunately for TML shareholders, JLR is doing very well and Nano is too small to matter.

Other problem for Nano sales in urban areas is the cost of parking - in Bombay for example, parking slots cost upwards of Rs. 3-4 l even in suburbs.

Sales can really pick up only when rural Indians upgrade to cars, and for that, TML probably needs to better Maruti's service network. Overall, I don't think the failure of the Nano is a marketing or positioning issue - the hype generated millions of dollars worth of free publicity. The issue is with the concept of an ultra cheap car meant to entice bike users. That does not work since capital cost is less than half of the total cost of ownership of a car.