Analysts Fear Nano Cancellations Over Production Problems

Tata received over 203,000 paid orders for the Nano weeks after its first appearance

Auto analysts on May 5 suggested that orders for the world's cheapest car, the Tata Nano, could be cancelled because of supply problems. Tata Motors, India's top vehicle maker, said late Monday that it had received over 203,000 fully paid orders for the tiny, jellybean-shaped car, just weeks after it appeared in Indian showrooms.

"Bookings beat expectations but the company may not be able to retain orders going ahead," said Mahantesh Sabarad, an analyst at Centrum Broking in Mumbai.

Tata Motors is likely to produce just 50,000 cars at present from existing plants after being forced out of its planned factory in eastern India over a land dispute. A new plant in western Gujarat state is being built and expected to be operational by the end of the year.

All 203,000 customers who placed orders will go into a lottery with computerized random selection used to choose 100,000 people to be the first to get keys to a Nano. The lottery will be completed by the end of next month.Unsuccessful customers in the ballot can either cancel their order or leave the cash advance they paid with the company to earn 8.5% interest for the first year. But analysts said the rate was not competitive and expected between a third and half of the outstanding orders after the lottery to be cancelled. "This is a common trend... there is not much incentive to hold on to the order," Sabarad said, estimating that some 30,000 people would ask for their money back. Most of India's state-run banks offer higher rates of return on deposits.

The four-door Nano, whose basic model sells for just 100,000 rupees (US$2,000), has been hailed as "The People's Car" and touted as a revolution in transport for millions of Indians who currently travel on two-wheels. It is expected to hit the streets from July.

The launch of the Nano has come as Tata Motors is going through a rough patch as it tries to absorb British luxury marques Jaguar and Land Rover, which it bought in 2008 for $2.4 billion and whose sales have plunged. Analysts say the Nano will not make a big contribution -- at least in the early years -- to the company's bottom line, with profit margins seen as slim.

Tata Motors recently posted a quarterly net loss for the three months to December of 2.63 billion rupees (US$52 million.) The earnings report marked the first time the company had fallen into the red in seven years and did not include the results of Jaguar and Land Rover.

Standard and Poor's downgraded Tata Motors' credit rating just days after the Nano went on display in showrooms, citing such concerns as "a material deterioration" in cash flow and a tough operating environment.

Copyright Agence France-Presse, 2009

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