In A Nano Second, Good Buy To All That

• The 4-door Nano will have a 623-cc rear-mounted engine, 4-speed manual transmission with 20 km/litre mileage
  
• Launch: Sep ’08. On-road price (Delhi): Rs 1.30 lakh (for the base model)
  
• 3.1mx1.5mx1.6m—Nano is smaller than the Maruti-800 but offers 21% more space inside
  
• Engineered in steel. Tata Motors says it will meet crash-test requirements
  
• Bharat-3, Euro-4 emission norms met

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• Maruti Suzuki A-Star: Has a 1-litre engine. Production to start in October.
  
• Bajaj concept: Compact, designed inhouse, around 800 cc, expected price tag: Rs. 1.6-1.8 lakh. Launch: end-2009.
  
• Volkswagen Polo: Small car on the Polo platform, production will start in 2010. Likely price tag: Rs 3.5-4 lakh.
  
• Ford: Investing $500 million in a new plant for a small car. Production is expected to start in 2010.
  
• Existing challengers: Maruti 800, Alto, Zen Estillo and Wagon R, Hyundai’s Santro and i10, GM Spark, Tata’s Indica

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Yes, after five years of speculation and scepticism, Tata Motors’ much-awaited Rs 1 lakh car is finally here—and has the look of a serious contender in the Indian automobile space. The Nano is India’s, and the world’s, cheapest car, which meets international requirements of styling, safety and emission at a fraction of the price offered anywhere in the world. Sure, the base version of the petrol-driven Nano will retail for above Rs 1 lakh (around Rs 1.30 lakh on road in Delhi) starting September 2008. But no one is grudging Ratan Tata when he says: "A promise is a promise, and we have delivered."

The general feeling is that Nano will change the market dynamics in the small-car segment, particularly the mini or ‘A’ segment, which has the Maruti 800 as well as the Alto at present. Currently, the iconic Maruti 800 retails for slightly over Rs 2 lakh, and the Nano is significantly cheaper. At the other end of the spectrum are owners of motorcycles—seven million of them were sold last year—whom Tata is targeting. Says Yezdi Nagporewalla, national industry director, kpmg India: "A completely different segment would now be created. Every two-wheeler buyer is an aspirational four-wheeler owner. When you cut the price to this level, you are forcing the change." Also, the Tata car is sure to impact the booming second-hand car market, where prices are expected to crash significantly.

Of course, there are many who say the final impact may not be as dramatic. Says auto enthusiast Murad Ali Baig: "The Nano is three times the price of an average motorcycle—this will not make people drop off their motorcycles overnight to go after this car." Others feel the euphoria over the price tag could be short-lived. Says Mahantesh Sabarad, senior analyst at broking firm Centrum: "At the price, the car is not commercially viable. It would be difficult for the Tatas to sustain the car at this level and feed the losses." While there will be higher-priced variants (including one with air-conditioning and, later, with diesel), the focus will be on the no-frills base version, which Tata assures meets all safety standards.

Tata, expectedly, is confident and is already talking of upping the production capacity from 2,50,000 units to 3,50,000 units in Nano’s Singur facility. And a majority of that demand is expected to come from semi-urban and rural areas. Says Tata: "Today, everybody focuses on the urban areas. We want to provide the masses in the rural part of India with a good means of transport that doesn’t exist there." And that is where some of the features of the Nano could come in handy. Says auto analyst Veeresh Malik, who has driven the car: "It has a nice, high ground clearance and features like power out (where the engine can be used as alternative power source) would appeal to power-hungry rural areas."

The biggest challenge for the Nano lies in its ability to convince motorcycle users (in the Rs 40,000-60,000 price band) to upgrade. However, industry players shrug off such fears as they feel two-wheeler penetration remains low. Says Shinji Aoyama, president and CEO, Honda Motorcycle & Scooter India: "The Nano isn’t cheap for a two-wheeler customer. What about the operating expenses? A 100-cc motorcycle gives 40-50 km per litre for one or two persons." The Nano promises a mileage of 20 km to a litre. Anil Dua, senior VP, Hero Honda, agrees: "The penetration of two-wheelers is less than 22 per cent in urban India and about eight per cent in rural areas. So, there is a lot of ground to be covered by the industry."

But for now, no one seems to be heeding these voices. While Tata says the consumer will decide, other auto manufacturers are getting into the act. As if to pre-empt Tata’s launch, Bajaj Auto showcased its concept small car on January 10 at the Auto Expo in the capital. Though the Bajaj car will not hit the roads before 2009-end, the two-wheeler major will soon ink a tie-up with global giants Nissan and Renault. As if on cue, a number of other automobile giants made strategic announcements. Ford said it intended to bring in a small car into India soon. Even Volkswagen, which has so far offered only luxury cars in India, gave Indians a sneak peek into its own concept (‘Up’). The company is also preparing its own small car, which would be based on its Polo platform and would be manufactured at its Pune plant by 2010.

Then, of course, there’s India’s biggest car company Maruti Suzuki, which showcased its own concept small car, A-Star. Maruti has repeatedly said that a car priced belowRs 2 lakh is unviable—and being the only player in the A segment thus far, it has the most to lose. Despite the enthusiasm around the Nano and its possible impact in the small-car market in India, Maruti Udyog’s new MD Shinzo Nakanishi has stated that the company would not cut prices of the Maruti 800. Indicating that there might be some impact on the company’s sales, he said Maruti Suzuki did not intend making a Rs 1 lakh car. All the challengers are expected to run on Indian roads in the next couple of years. Although most of the contenders would be priced higher than the Nano, their features and higher specifications could make them more attractive.

While Tata clearly has a first-mover advantage, it’s early days yet. For one, the competition will react—Maruti has already redefined the way Indians buy cars many times over. Bajaj also has enough experience in dealing with Indian consumers. Experts say Indians treat the ownership of a car as an asset; if this is devalued, consumers may not like it. Rubbish, says another school of thought, which points to price being the key factor for value-conscious consumers. Nano is slated to run proudly on Indian roads by September this year. By then, most Indians would have dissected the car and formed an opinion. Either way, one thing is certain: with a true-blue low-cost car driving in, the transportation landscape in India is set to change forever.

By Arindam Mukherjee with Nivedita Mukherjee