As head of Tata Group, he envisioned distributing flat packs of parts to rural mechanics who would become successful entrepreneurs assembling the kits into complete cars in the heartlands where 750m poor Indians live. Manufacturing reality squashed the flat packs and the Nano, as the world’s cheapest car came to be called, is now made in a giant factory in Sanand, Gujarat. It could turn out 250,000 Nanos a year, but it is barely ticking over.
Since its launch with great fanfare in 2009, the Nano has swerved from one crisis to another. There was opposition to Tata’s original plans to site the factory in West Bengal, forcing a last-minute scramble to switch the site to Sanand. It opened last summer, but not enough cars came off the production line to meet a huge surge of early orders. The orders then petered out. To make matters worse, a few cars burst into flames, raising fears about the Nano’s safety. Sales, which had been predicted to be 20,000 a month, fell as low as 509 in November last year. Sales recovered to 10,000 a month in the spring, but have fallen back again this summer: 3,260 in July, amid a slump in the Indian car market caused by rising interest rates and fuel prices.
“The Nano is a brilliant concept”, says Hormazd Sorabjee, editor of Autocar India. He has driven 10,000 miles (16,000km) in his, and praises the car’s roominess, fuel economy and general nimbleness around town. “It does the job, it feels good with its high seating position, but it is a monumental marketing blunder.”
Carl-Peter Forster, a former boss of General Motors Europe who took over as head of Tata Motors in February 2010, admitted earlier this year that he was having to reinvent the Nano business model. There was no real national distribution scheme, very little marketing and advertising, and no effective system of consumer finance. The irony was that many rural Indians never got to hear about or have the opportunity to see the car that was supposed to help transform their lives.
The Nano’s marketing problems began with its product positioning. The price crept up by around 15%, putting it out of the reach of first-time buyers with no regular employment or payslips to back an application for credit. And by emphasising its cheapness rather than its basic but appealing qualities, it deterred slightly better-off consumers who could afford one but aspired to more sophisticated vehicles, such as those from Tata’s biggest rival, Maruti, the leader in India’s small-car market.
The term “frugal engineering” was first used by Carlos Ghosn, the boss of Renault-Nissan—and an admirer of what Tata Motors has achieved with the Nano—to describe making basic, low-cost products.
No just marketing but the entire culture unfit to Nano. Lacking basic skills to assemble the auto by themselves is a big one. Human capital is scarce in India, the business model should have thought about that. One good example where idea is great but implementation is doomed.