Tata Nano - People's Car

There are more questions raised than answered by the launch of Tatas’s Nano. Ratan Tata has definitely answered the prayers of millions of people desiring to have a comfortable and safe outing with their families. What are unanswered are the raging debates like: Does auto manufacturers have any role in the development of infrastructure for increased use of their products? Is government doing enough to alleviate the pain of daily travelers? Is it thinking about the elevating aspirations of owning cars by the rapidly growing Indian middle class? Are policies in India too liberal for our auto makers? Are big cars better than small cars? Where will cars be parked when there is not enough commercial space to do business? and many more. Even with these kind of questions bothering in the sub-conscious mind, the innovation from the Tatas is an humdinger.

Tatas have pushed the envelope of current customer demographics wider through the launch. This can be compared to what Dell did with their low cost PC – direct selling business model. CRISIL notes that the market for Nano is families with income around Rs 2 lakhs. It estimates the current market size in India is to be around 2 crore families which will triple to over 6 crore families in just four years. The potential is not only in India but in all emerging markets. PwC predicts that BRIC countries will contribute about 50% of global auto sales and most of them will be small cars. The government of two countries approaching Mr Tata is a vindication of the potential. Even in countries in Europe and Latin America, the sales of Volkswagen’s Gol, Renault’s Clio and Nissan’s Tsuru are upbeat.

Though Tatas have sprung a miracle by producing a car that is 50% cheaper than the existing one in QQ3 of Chevy Auto of China which costs $5000, they should watch out for disruptive models from its peers. We could see serious action from Maruti that sells M800 for $5200, Geely Auto of China that sells Merrie Star and S-RV mini SUV for $5500 and $5780 respectively. Also, Bajaj Auto has already jumped on to the band wagon of developing low cost cars to defend its customer base. Will Tatas capitalize on their first move advantage in the Indian markets? Can Tatas continue to show cost and product differentiation to maintain their sustainable competitive advantage? The Indian auto industry is set for interesting times.

Sources:
http://driving.timesonline.co.uk/tol/life_and_style/driving/news/article316
Tata Nano Impact Analysis by CRISIL Research