Wednesday, April 27, 2011

Nano's second coming

Tata Motors is grappling with smoke and fire as it prepares to retail its low-cost car..


To sell Nano we need to think out of the box.

Ratan Tata at the Tata Motors' annual general meeting on September 1, 2010.

O ne-and-a-half-years after its awe-inspiring launch amidst frenzied media attention and sales to select customers thereafter, Tata Motors finds it has to deal with certain marketing challenges as it prepares to finally retail the Nano.

A dozen reported incidents of the Nano catching fire or smoke coming out of its parts has taken some shine off the low-cost engineering wonder that it is. Going forward, the critical question will be whether Tata Motors has completely addressed the concerns related to the product.

Satish Sawant, the 36-year old software professional in Mumbai whose freshly bought Nano went up in flames a few kilometres past the showroom, now demands a Rs 15-lakh compensation for the mental trauma he and his family suffered. Sawant is approaching the court to get his grievance redressed. “After the incident everyone kept quiet. Somebody needs to understand the pain we felt. I want to know if they will accept responsibility for this,” he said.

“Sawant has already received a full refund for his car, along with the accessories and even the interest on the loan he had taken to make the purchase, in settlement of all his claims. As far as Tata Motors is concerned, this is a finality,” said the company spokesperson. The company investigation found remnants of a foreign object on the hot exhaust system in his car “which most probably led to combustion”.

After the first three cases of fire/smoke were reported, the company initiated a ‘pre-emptive check' on all Nanos in October 2009. This was followed up by an internal investigation and by replacing the vendor who supplied the combination switches which sparked the fire.

However, despite repeated assurances from Tata Motors, the problem persisted as evidenced in three similar incidents this year, including Sawant's case. The latest was reported on August 27 in Delhi, four days before the annual meeting of Tata Motors' shareholders in Mumbai.

The Nano catching fire had apparently come up for discussion at the AGM. Ratan Tata, Chairman of Tata Sons, assured investors there was nothing to worry about.

“There are four or five cases of the Nano catching fire. We are going through a detailed investigation of each of them,” Tata said. “As and when we are able to determine the problem, we will make a statement. As far as I am concerned, there are 50,000 Nanos in the market. Four or five cases (of fire) do not indicate there is a problem with the car,” he added. Ironically, on that very day smoke came out of the three-month-old Nano of M. Venkatachalam of Coimbatore, Tamil Nadu. “Even after reading articles and news of Nanos catching fire, I boldly decided to buy a Nano, which is the first car in my life, because it is a car conceived in India by an Indian company. Even now I do not lose heart,” Venkatachalam, a retired bank employee, wrote to this correspondent.

Two days later there came a letter saying his complaint had been redressed. “It was due to a short circuit in the starter motor, which they replaced. I am satisfied,” he said.

Many customers like him who admired the Tatas opted for the Nano. K. P. Janardan from Mumbai wrote to Ratan Tata as he found the company's response on all these incidents unsatisfactory.

He believes Tata Motors should have written to each customer who booked a Nano, explaining the cause of fire, the remedial action taken and reassuring everyone of its safety. Having failed to elicit a satisfactory response from the company, Janardan now demands a refund of his booking amount of Rs 95,000. He refused to take delivery of the car allotted to him.

While the shroud over the issue turned off some of the customers, there are others who still vouch for the Nano. Ashok Vichare, the first customer, maintains the Nano is a good car. Ashish Balakrishnan, the second customer to whom Ratan Tata handed over the Nano key, loves his car although he had encountered a problem — the car was not starting under cold conditions — in November last year (which was addressed).

Both Vichare and Balakrishnan said they drive 22 km on a litre of petrol, which makes Nano the most fuel-efficient gasoline-run car in the country. Many experts, including the ones who participated in the 15,000 km Nano Superdrive, gave positive reviews.

Many believe the quality issues are teething troubles. “For Nano, the key thing is how quickly they are going to address these issues. Tata Motors was making Nano from a temporary facility so far. Now the mother plant in Sanand is up and running. The full supply chain is ready. I don't think such issues will repeat themselves,” says Abdul Majeed, Auto Practice Leader, PricewaterhouseCoopers India.

He believes the Nano still has huge potential as a growing market is ready to absorb large volumes. The low penetration of four-wheelers – just nine for a 1,000 people – and the demographic dividend will work to its advantage. “The annual two-wheeler sales is 13 million. If you capture five per cent of its share, it will be more than 500,000,” he said. According to him, the cost-consciousness of Indian customers and the economies of scale that the Tatas possess are advantages. The top-end version of the Nano at Rs 1.85 lakh will be nearly Rs 50,000 cheaper than Maruti Alto, its nearest rival.

Many think the Nano appeals not just to two-wheeler customers but to other car owners too as many who already own one have booked this small car.

This view is largely shared by other analysts as well. The bad press for the fire incidents doesn't seem to have shaken their confidence in the Nano. A recent JD Power article said, “The Nano is projected to hold the No 2 spot in 2011 after Tata ramps up production.” Maruti Alto, the largest selling car in India, clocked 2.4 lakh units last year.

However, to sustain the business model in the sub-segment in which Nano operates, the manufacturers need to sell at least 2.5 lakh to 3 lakh units a year, according to Majeed.

The two-week initial Nano booking drive in April 2009 touched a little over two lakh, of which a substantial number was cancelled. After the despatch of about 60,000 units to select customers, the early excitement may have subsided. But one should watch out for interesting promotions to reignite passion.

The company had conducted a 26-day Nano Superdrive, touching 36 cities in June, to highlight the car's safety and efficiency. The company offered test drives besides a celebration for Nano owners in every city it passed through. From July, Tata Motors offered test drives to prospective customers at many of its dealerships. The company had tested the waters for open sales by launching bookings in Kerala during Onam which evoked a fairly good response.

For the Tatas, after steadying the Jaguar Land Rover business, infusing new life into the commercial vehicles sector, driving the Fiat joint venture into a profit zone and rejuvenating the rest of the passenger car portfolio, the next big challenge is to ensure that the Nano races past huge volume milestones. And that before others catch up with equally inexpensive models.

Originally published in Business Line on October 7, 2010

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