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India’s Nano hits bumps on the road (Eranga Jayawardena/AP)
India’s Nano hits bumps on the road (Eranga Jayawardena/AP)

Emerging Markets

India's Nano hits bumps on the road Add to ...

When Indian industrial giant Tata launched the Nano, the hype was huge. Sleek and cute in buttercup yellow, its sticker price was $2,000, making it the “world’s cheapest car.”

It promised to revolutionize both its market – putting low-income consumers behind the wheel – and car-making, through a process called “frugal engineering.” The Indian public clamoured with excitement; people lined up for hours at events to sit in a prototype. Auto companies outside India watched with great anticipation, too: was this the future for emerging markets in developing countries?

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Two years later, the Nano is a cute, yellow disaster – not because there’s anything wrong with the car, which remains something of an engineering triumph, but because of a series of surprising blunders on the part of Tata.

Nano sales were predicted to be 25,000 cars a month by this point. Instead, the company sold just 2,936 in September, half as many as a year before. August was even worse, with just 1,202 Nanos sold countrywide.

So what went wrong? Missteps in everything from distribution, advertising, marketing and financing plans hobbled the car from the start.

The Nano, so the story goes, was the brainchild of Ratan Tata, the venerable head of the Tata Group. He had a vision for what the Nano would do, and it wasn’t as simple as selling millions: He said he wanted to get low-income Indian families who typically travel by scooter (families of four, five, even six, piled on a single cycle, helmet-less) off their two-wheeler, as they are called here, and into something safer. As a side benefit, he hoped the car could be produced in an IKEA-esque flat pack and shipped to remote corners of the country, creating a business opportunity for mechanics to assemble them.

Some who have watched sales of the teeny car sputter speculate that Mr. Tata’s altruistic intentions may have blinded him to some harsh marketing realities.

In essence, the Nano was marketed as the car for people who could barely afford a car. But in a market where car purchases are hugely aspirational, nobody wants that car, said Vinay Sharma, a professor of marketing and strategic management at the Indian Institute of Technology at Roorkee, whose classes study the fate of the Nano. People save for years for their first vehicle; if they drive a Nano home, the reaction from the kids is, “ ‘What have you brought, a compromise, a car that is almost a motorcycle?’ This was not the car people were dreaming of,” he said.

Most of those who have driven the Nano come away full of praise: It’s remarkably roomy, a pleasure to steer and is economical with fuel. It doesn’t feel like the world’s cheapest car.

But that hasn’t translated into people buying them.

The Nano faced two big problems early on. Its original production facility, in West Bengal, got tangled up in messy politics with the state’s Marxist then-government, and at the 11th hour the plant was shifted to Gujarat – so the company wasn’t able to meet an early rush of orders.

Once cars were on the road, there were safety fears. A few early Nanos burst into flames while being driven, and Tata didn’t mount the public relations offensive it should have over those incidents, said Ray Titus, professor of marketing and consumer behaviour at Alliance University in Bangalore.

But the company had larger woes. There was barely any print or television advertising to give the Nano a brand identity beyond cheap, and the company made equally severe missteps in distribution. Tata marketed the Nano through showrooms in big cities, which meant that much of its target market in small cities and towns never saw one.

In addition, although the car was cheap (about $2,500 once it finally went on sale), the company failed to make it easy for the lowest earners to obtain financing – the Nano needed below-market interest rates and fast onsite loans, Prof. Titus said. Instead, as would-be buyers struggled through the process of getting a bank loan based on their low-wage jobs, they realized they could get a slightly larger loan, and perhaps buy a Maruti Swift, the lowest-price vehicle from Tata’s main competitor, which has none of the stigma of being a poor person’s car.

Tata is scrambling to address some of these problems: today a buyer can put down 15,000 rupees, or $300, and drive off with the car; there are finance plans with local banks. The base price has been pushed down again. Debases Ray, spokesman for Tata Motors, said the company is currently setting up a network of Nano dealerships in towns with populations of less than 500,000 people; it hopes to have 300 by March, 2012.

Mr. Ray also noted that a big hike in fuel prices and interest rates last summer squashed all of India’s car market, not just the Nano, and that the Nano’s target customers are the most vulnerable to those kinds of expense increases. While there is gaping overcapacity at the Gujarat plant, which can produce 250,000 units a year, the company has begun exports to Sri Lanka and Nepal.

The Nano story has been followed closely by the automotive world outside India – as the first experiment with low-income consumers in developing countries that represent a massive vein of new sales potential for car markers the world over. The “frugal engineering” idea, of making a low-cost product as simply as possible (which originated with the French car maker Renault, but has been embraced by a number of firms in India) involves stripping the manufacturing process down to its component parts, and doing each as cheaply and simply as possible.

It worked for the product, said Ferdinand Dudenhoeffer, who teaches in the centre for automotive research at the University of Duisburg-Essen in Germany; the Nano is a good one. But the collapse of sales have prompted other companies that had plans for a Nano-esque product of their own, for India or elsewhere, to shelve those plans for now. Still, if they learn from Tata’s errors with the Nano, the basic idea is still solid, he said. “They just have to refine it – the production system and design system are good,” he said. “It will just need a different approach.”

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