To: Ravi Kant (Managing Director, TML)
From:
Subject: Nano Tata-logy: The People’s Car
Date: 17 the September, 2011
Situation Overview
TML is currently posed with a tricky question of how to go about the Tata-Nano (the much-hyped “People’s Car”) business strategy, given its commitment to release it on time with the promised cost and the spectrum of issues and recent developments that pose potential hurdles.
Issues
Operations 1. Political problems at Singur Plant which will certainly delay the Nano launch hinder meeting the demand and might increase production costs. 2. Would the strategy of becoming a “Systems Integrator” for Nano production be profitable and sustainable? 3. Affordability to produce Nano given such
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TML’s strategy of using independent assemblers to cater to the market demand seems wise at this point as Nano is not expected to meet the market demand all by itself. Independent assemblers will ensure that Tata spare parts market reaches out to remote areas out of TML dealership purview. It seems a profitable venture to sell modular production capacities, spare parts and be free of warranty liabilities. This is also aligned with TML’s commitment to the upliftment of quality of life.
As for the issue of congesting Indian roads with cheap automobiles, statistics suggest that it is way behind developed countries (Like US) when it comes to number of automobiles. Traffic congestion can be fought better in developing economies by increasing /improving roads than by limiting the number of vehicles. Nano being a low emission vehicle addresses the environmental concerns.
Recommendations
1. Immediate relocation of Nano plant and production commencement. 2. Using Independent assemblers to expand market for spare parts. 3. Concerted efforts on cost cutting to increase margin. 4. Lobbying with SAE to cut Government taxes and pass on the benefit to people. 5. Introduce attractive Finance options to improve accessibility of Nano to people with annual income $2500 and above. 6. Promote the base model and delux models of Nano to different niches. 7. Go global with Nano in markets where TML is already established, and sell at
Tata motors approaching the market according to the nature of the market. Medium cost cars have more demand in Indian market than luxury cars. Tata motors identify the market demand and customer preference in advance. Nano car is the cheapest car in the world. It is an example of the company’s smart approach.
Tata Nano wanted to bring in a cheap car into the market which would be affordable for the middle income level consumers, due to which it started cutting cost of manufacturing the car.
With the launch of Nano, the dynamics of India’s auto industry are likely to undergo major changes as wide spectrum of auto manufacturers ranging from two-wheelers to cars will come under intense pressure to minimize prices as much as possible. Success of Nano is expected to make every automobile company change the way it works and looks at the volume market. The creation of an ultra low cost segment has already created a shudder in the automobile industry. Many automobile companies have announced their entry into this segment while others have hinted price cuts to sustain demand. Industry experts believe that introduction of Nano will lead to a sharp drop in prices of used car and in turn will stretch the budget of a new car buyer looking for exchanging old car. This aspect will affect sales of all small cars like Wagon R, Zen Estillo, Santro, Indica, Hyundai ‘i10’ and Spark.
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Opportunities: The external environment plays directly to Tata Motors advantage. In India the average household earned roughly 4,000 U.S. dollars, and only 38 out of every 1,000 people owned a car. With the poor economic state of India, Tata Motors was able to produce and sell the Nano car for 2,500, giving India an affordable alternative to motorcycles and scooters. Being able to produce a low-priced car is huge for Tata Motors considering the majority of India and China’s adult population do not own a car. Producing the lowest priced car on the market is putting Tata Motors in a position to corner the market in India and China. Also a huge opportunity for Tata Motors is that there are
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The People’s Car will also provide reliable, cost-efficient transportation to consumers. Tata is planning to produce 250,000 People's Cars within the first year (Giridharadas). Considering that India's middle class is almost 300 million, the potential for sales is enormous. Profits will be made, leading to benefits for both India and Tata Motors. Even if the profit margins are small, the numbers of products being sold will generate a sufficient amount to make it worthwhile for Tata Motors.
automakers are investing here in this segment. There is Tata Nano ready to be launched and
The company should have done whatever they could to modify current facilities that could produce the Nano. Although this would lead to less production, it would make sense. They should produce less of the Nano in order to test its performance in the market. After a successful entry, plans should be made for large-scale production (a new plant).
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