Tata Nano: Cashing in on the World's Cheapest Car

Tata Nano: Cashing in on the World's Cheapest Car

By Nick Kurczewski

MUMBAI -- The Tata Nano, billed as the world's cheapest car, officially went on sale last Thursday and with no shortage of customers. Dealers in India reported flocks of people came in for a look and many plunked down deposits and full payments on cars they may not take possession of for months.

Now comes the tricky part: making money. And that's no easy task. Tata spent millions of dollars to develop the Nano and figure out how to keep its final price low. A forced shift to a different factory due to protests boosted the tab unexpectedly. Plus there's little profit margin to be had in a car with a base price that starts at roughly $2,500 with no fancy add-on features, like airbags, power steering, air-conditioning or a radio, to bump up the price.

So how does Tata Motors plan to make some extra bucks on the Nano? Think pencil cases, mouse pads, T-shirts, hats, key chains and even Tata-branded cell phones.

  Indeed, Tata Motors has dedicated a portion of its Tata Nano Web site to Nano memorabilia and collectibles available online or at Tata dealerships in India. Swag ranges from, as the Web site says, "stylish Nano wear," such as T-shirts and hats, to kids stuff under the NanoTots category, like stuffed bears wearing Nano T-shirts, pencil cases and water bottles. The NanoTech segment features Tata-branded cell phones, mouse pads and flash drives. And then there's the miscellaneous key chains, magnets and coasters.

Tata Needs a Homerun

Tata Motors needs the Nano to be a sales homerun. The Nano generated global headlines during a series of festive grand unveilings in Mumbai in late March and at last year's New Delhi auto show when Tata Motors announced its intent to build the Nano.

But now the party is over. Tata Motors' sales are falling, dropping 13 percent in March. In January, the automaker reported its first quarterly loss in seven years. The company is in talks with its banks to refinance a $2-billion loan it took out to buy Land Rover and Jaguar from Ford last year. And to complicate those negotiations, Tata, less than 48 hours after the Nano's debut, had its credit rating downgraded by Standard & Poor's, pushing its rating below investment grade.

Brisk Showroom Traffic 

Still, early reports are that there's lots of interest for the Nano in showrooms. A Tata spokesman, who refused to release sales figures yet, told the Associated Press last week that 300,000 people had visited Tata's 400 showrooms in India since the car went on display April 1 and that the Tata Nano Web site had 20 million hits in the last couple of weeks.

Dealers report people are putting down deposits and even paying in full for the Nano. The car seems especially popular with women and people who now ride motorcycles, as dealers report customers coming into showrooms carrying their helmets. One dealer, in the car business for 30 years, described to the Associated Press the sales activity in his showroom as "a revolution." 

Indeed, that was the vision of Tata Motors founder Ratan Tata who wanted a car that was affordable enough to lure two-wheel riders into the safety of an enclosed four-wheel vehicle.

Charging To Order 

The company is proving a fast learner when it comes to cashing in on the Nano's fame. For the first time in company history, Tata is charging applicants interested in purchasing one of its cars. Applications to buy a Nano can be submitted from April 9 to 25 at more than 30,000 locations in 1,000 cities across India. Orders also can be submitted online.
 
The fee to apply for Nano ownership is minimal, about 300 Indian rupees, or roughly $6 dollars. Tata says the charge is necessary to efficiently process what is expected to be an enormous amount of applications. Initial demand for the Nano is expected to far outstrip supply until a new factory is opened later this year in the western state of Gujarat. The first 100,000 Nano customers will be chosen randomly via computer. First deliveries are scheduled for July.

Maintaining Minimalist Roots

All that hoopla for a car that does without safety and convenience items, such as airbags, power steering, power brakes, a radio and air conditioning, and one with an engine that is a 35-horsepower 624-cc two-cylinder -- roughly half the size of the smallest economy car engines in the U.S. and Europe -- for a top speed limited to 65 miles per hour.

During the March unveiling of the Nano, Girish Wagh, head of small car projects at Tata Motors, said the company's primary focus is on launching the Nano in India.  After that, Tata will look to "leverage the platform," he said.  "One must be mindful of the fact that [the Nano chassis] is limited," said Wagh, referring to the rear-engine layout of the Nano.  But he did not rule out the possibility that other models -- based on the Nano platform -- could be forthcoming.

A coupe, minivan or even a sport-oriented model are possible, though Tata's Hudson believes the company must not move too far into the realm of chic (and vastly more expensive) small cars like the Mini Cooper and Smart Fortwo. For now, the car is available only as a four-passenger four-door. To save costs, no separate opening for the luggage compartment exists; the rear seat folds down and luggage must be stowed from the cabin.

David Hudson, head of noise-vibration-handling at Tata Motors, said that engineering other variations of the Nano is technically feasible and new features, like an opening rear hatch, are already in the works. An automatic transmission is also on the way, which could prove popular with city dwellers. More luxurious models -- featuring airbags and a larger three-cylinder engine -- are also in the pipeline for a European debut of the Nano, scheduled for 2011. Ratan Tata has said U.S.-spec versions of the Nano under development.

In Mumbai, Ratan Tata said that more luxurious versions slated for Europe or the U.S. must still stick to a cost-cutting design ethos. "Both those markets will be served by a car that is priced lower than those models that have been seen before," said Tata, regarding future European and American versions of the Nano.

It will take not only a success of the Nano at home to shift Tata's fortunes but also successful expansion to other markets. Vaishali Jajoo, auto analyst at Mumbai's Angel Broking, told the Associated Press that even if Tata manages to sell 250,000 Nanos a year, it will only add 3 percent to the company's total revenues.

That means Tata will have to sell a whole lot of T-shirts, caps, pencil cases and mouse pads to boost its bottom line.

Photos

1 - Tata Nano-branded mouse pads are among the list of Nano collectibles available for sale. (Photo by Tata Motors from its Web site)

2 - A stuffed bear wearing a Tata Nano T-shirt is one of the collectibles available for kids. (Photo by Tata Motors from its Web site)

3 - The Tata Nano takes a test-drive on India's streets, where the hope is motorcycle riders will trade their two wheels for four. (Photo by Makarand Baokar of Auto India magazine)

4 - To save costs, Tata made no separate truck space. Cargo access is through the back seats. (Photo by Makarand Baokar of Auto India magazine) 

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.