Na, No to the Nano ?

by rohit on January 14, 2008

Everything that could have been written about the $2500 Tata Nano has, within days, nay hours of the launch, probably already been written. Juicy nuggets on how the Tatas did it, what the common man and what Detroit think, what this means for all concerned et al are all out. A lot of the discussion is around : overall, is it a good thing or bad ?

NY Times says it looks like a mango while the Wired says “It’s almost smiling”.Someone called it the ultimate reverse status symbol. A record 130,000 people (200,000 by another report) visited the Auto Fair in Delhi on Sunday, 12th January, drawn primarily by the Nano.

Everyone agrees however that the Nano is an innovation of consequence, not unlike the Model T of 1908 which led to mass penetration of automobiles in the U.S. and the Volkswagen in Germany’s 1930s which led to the autobahns.Increased auto sales will result.

It’s time therefore to do a sum up and, as a true blooded marketer, give one’s own take. Are the benefits to consumers and society greater than the negative consequences ? Here is a six part answer to this question.

1. What are the facts regarding the Nano’s entry ?
2. What are the positives ?

3. What are other, indirect benefits of the Nano’s entry?
4. What are the negatives ?
5. What can be done to overcome the negatives?

6. To sum up, under what circumstances can one say the Tata Nano’s introduction is a good thing ?

1. First, the facts :

  • The Nano was conceived 10 years ago by Ratan Tata and been 5 years or so in design / production.
  • A team of 500 Tata engineers worked on this.
  • The production will commence in October 2008 in Singur in West Bengal and the cost thereof will be Rs. 17 billion (1700 crores). Over a 100 plus vendors will be used to manufacture components needed.
  • The capacity of the plant will be 250,000-300,000 cars p.a. going up in 3 years to 1 million cars p.a.
  • The engine is a 2 cylinder 624 cc as against 796 cc of the Maruti. It is rear mounted with the boot in front. Unconventional design is seen elsewhere too e.g. the battery is placed under the driver’s seat.Among other things this design helps reduce the car’s dimensions, thereby cuts material consumption and costs.
  • The body is all steel, rather than alloy or high tensile steel like all other cars. (No doubt owning Corus & Tata Steel will be of help here).
  • Lest anyone copy the design, there are 34 patents already filed for the car itself, as well as 200 patents on related items.
  • The basic or standard version comes at Rs. 100,000 + VAT tax + transportation without an A.C. ,radio or automatic windows. There will be two deluxe versions. As against this, most American cars cost above $10K.The Maruti costs over Rs. 200,000 and the next cheapest car in the world, the Chinese QQ by Cherry Motors that costs $3000.
  • No one has yet sat in it and the company has yet to provide details.

2. Here are the direct positive benefits of the Nano :

  • In India, entire families travel on 2-wheelers. This is very unsafe. This in fact was the primary motivation in creating the Nano. (Ratan Tata)
  • It has 20% more inside space than the Maruti 800 despite being smaller than it. It is 10 feet 2 inches long which is 9 inches smaller than the Maruti and 4 feet and 11 inches wide which is 3 inches wider than the Maruti.
  • It will give 20 km / litre as against 16-18 km/litre got in city traffic for Maruti. Other existing cars give less than the Maruti. In contrast,small mobikes give 50-75 km/litre.
  • All steel monovolume body will keep out wind & rain too. (Not clear what this is, seems to be that the shape of the Nano keeps the inclement elements out).
  • The Nano is safe, it has passed all the crash tests required in India. These happen to be the full front crash tests. As and when it is launched abroad, it will be ready to meet the offset and side crash test required there.
  • On emission norms, it is Bharat III & Euro IV compliant, with CO2 levels levels lower than even current 2-wheelers.

3. The indirect benefits accruing from the Nano’s introduction:

  • Big benefit in semi-urban and rural areas. (This also seems to be Ratan Tata’s chosen target market).
    In India,the average distance between a district court, nursing home, child welfare centre, adult literacy centre, college, railway station etc. from a village is 15 km. And the average distance of a bus stop from a village is 4 km. This is where the Nano will add real value.
  • Our avg. road density is 3.5 4-wheelers per km of roads, which is lower than in countries such as Brazil, Malaysia, Mexico, Thailand and Indonesia. What this means is that congestion will be restricted to the urban cities.
  • 8 million in the number of 2-wheelers sold annually; these owners can potentially upgrade to a 4-wheeler now.
  • Big boost to the automobile industry, the world’s biggest industry, a leading contributor to GDP and an employment multiplier. (This and some of the stats above by Dilip Cherian, Director General, Society of Indian Automobile Manufacturers).
  • Big boost for brand India. Evidence that Indians have design and manufacturing capabilities, are innovative.
  • Emerging consumer base worldwide will be a major engine of growth. Will lead to debate on many things viz. manufacturing methods, materials, energy efficiency and transportation. Will lead to innovation in other things. The Nano’s innovation is itself within the “Sandbox” of affordable price, scalability in volumes, high aspirations & efficient utilization of resources. (This gyaan by management guru C.K. Prahalad, for whom it is a Nano leap into the future. Vijay Govindarajan, the strategy guy too thinks it is a great example of innovation).
  • Thus, while many argue (see below) that the Nano will choke infrastructure, other like the professors above believe that citizens and interest groups now have a reason to lobby the government to increase infrastructure dramatically.
  • This launch shows that in India, contrary to any contrary perceptions, one can be both successful and honest. (Vir Sanghavi – writing in The Hindustan Times – on the Tatas).

4. The negative implications of the Nano launch :

  • Some are skeptical of the Tatas being able to deliver a quality car. They quote the Indica. These critics say that Tatas cars have initial quality problems and “drive like a truck”.
  • Increased congestion is social problem no. 1. Mumbai for example has 700,000 vehicles and 500 are added daily. This growth rate could easily double or more with the introduction of Nano and other, competing low cost cars. Road network is not growing to meet this expansion nor is parking. South Mumbai has been said to have just 9000 parking spaces across 89 parking lots. My building has absolutely no more parking space.
  • Higher pollution. Inspite of a reduced fuel consumption (20 km/litre) and low CO2 emission (Euro IV norms) per car, the higher volume of sales of low-priced Nanos will increase overall air pollution. 2-wheelers and 4-wheelers are today any case the #1 contributors to air pollution. Our public policies have not allowed for enough public transport so cheap automobiles will lead to high congestion.
    Apparently, disposal of used engine oil & tyres is a problem too.
  • To pollution, add high fuel consumption and increased import bills / dependencies thereof for the Indian economy. See this news item.
  • Global warming. Note that currently 57% of CO2 emissions in India are due to the transport sector.
  • Increased propensity for road accidents. In the developed world, road accidents are the leading cause of death among below 30 year olds.

5. What can be done to overcome the negatives like congestion & pollution, especially in the urban areas ? The following have worked well in cities like Singapore & London:

  • Increase the onetime tax on vehicles from current 7% of purchase price to 15% (Singapore is 150%, Shanghai 50%)
  • Congestion tax for vehicles entering city
  • Insist on 3 person occupancy on high density routes
  • Dedicated bus lanes
  • Compulsorily scrap old car when you buy new one
  • Increased parking charges
  • Car-free days in month
  • Even and odd car days
  • Walk-only zones for pedestrians
  • Vastly improved public transport
  • Greater public acceptance of car pooling
  • Improved social consciousness leading to reduced propensity to purchase cars

6. Under what circumstances is the Nano socially justified ?

Social costs like congestion, pollution and CO2 emission are overwhelming for vehicles. The Nano’s entry can be justified if :

  1. It’s entry is restricted to rural and semi-urban areas through various incentives and disincentives of the type mentioned in section 4 above.
  2. The Nano is converted to an electric vehicle. Even if it costs $5000 extra to enable this, the total cost of a Nano EV would still be lower than most cars sold in the developed world today.
  3. The Tatas enter into JVs with automakers the world over to manufacture Nano EVs.And public opinion and public policy in these markets ensures replacement of the hundreds of millions of automobiles currently on the roads with these non-polluting vehicles.

    Else, the Nano’s entry sets a bad precedent : the ensuing flood of low priced cars in the world will lead to grave social costs.

    Note what an Indian auto industry offficial (quoted by Shyamal Menon in The Hindustan Times) said on congestion:

    “You cannot appeal to people’s consciences or, when they are stuck in traffic, point out that they themselves are part of the problem. People want others off the road, not themselves. All you can do is price the problem out of existence through taxation or government intervention. Market forces will not work – just look at how long people are willing to sit in their cars in Mexico City or Bangkok – for the independence a car brings.”

    On CO2 emissions, climate change is accelerating, with just a few (~7-8 years according to one estimate) left to reverse the problem.

    Unless Tatas,the auto industry,policymakers and consumers alike take a broad-based view of the consequences of the Nano, one could be in for some hard times.

    Thus the “poem” by one Ravneeesh Mehra in his posting on a message board in :

    NANO MEANS: New Anti Nature Organisation and as below

    1) Nano space on roads
    2) Nano clean air 2 breathe
    3) Nano space 2 park
    4) Nano space 4 pedestrians
    5) Nano margins 4 dealers
    6) Nano steps 2 combat global warming
    7) Nano tolerance among old drivers with all the new/ unprofessional drivers coming on the roads
    8) Nano enjoymment in driving in future

    In other words, unless the Tatas, the global auto industry and policymakers i.e. governments the world over take the long-term,pragmatic three-point view given above under section 6, we need to say Na (Hindi for No :-)) or No to the NaNo.

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