World's Cheapest Car to Test India's Consumer Appetite

March 17, 2009
Nano's sales will be production-led and not demand-led

The world's cheapest car, the Tata Nano, will be launched next week with backers hoping its troubled birth and the global economic crisis will not put off buyers from India's emerging middle-classes. The sporty, jellybean-shaped car has attracted world headlines thanks to its price tag of just 100,000 rupees (US$2,000) for the basic model, which is cheaper than some laptop computers.

But although marketed as the affordable car for millions of Indians, analysts said the Nano and its manufacturer Tata Motors could be in for a bumpy ride because of production problems, a dip in demand and global economic woes. Only 30,000 to 50,000 Nanos are likely to be sold in the first year because of limited production capacity, auto sector experts said.

"Nano's sales will be production-led, and not demand-led," Mahantesh Sabarad, an analyst with Centrum Broking in Mumbai, said ahead of its unveiling on March 16 and its appearance in car showrooms in April.

The Nano is being rolled out from two manufacturing plants in what Tata group chief Ratan Tata has described as a "makeshift kind of operation."

"This is a hurried launch. The main manufacturing plant in Gujarat is not even ready," Sabarad said.

In October last year, Tata Motors pulled the Nano car project out of West Bengal state in east India, even though the plant near the state capital Kolkota was 90% completed. The retreat followed a month of violent demonstrations by activists and farmers evicted from their land that raised wider fears about India's attractiveness for foreign investors.

Tata Motors' new plant in Gujarat state, western India, is not expected to be ready until the end of 2009.

Another problem facing Tata Motors is demand. Potential car buyers in India have been unwilling to spend in an economy which is now growing at its slowest pace in six years, analysts said. They said the market could see artificial demand being built up, with banks offering cheap loans to people who appear to be hesitant to buy. "We see real concerns linked to demand," said Sabarad. "Salaries have contracted in recent months and there are major job fears" led by the global economic slowdown.

Although the market is in "cautionary mode," Tata Motors would not be concerned by low initial sales, said D.K. Jain, head of Mumbai-based car seller Lumax Auto Technologies. "The company will look at the long-term," Jain, whose company deals with Tata Motors, said. "People's aspirations will go up further, and the market will improve."

In the second year, Nano's sales could jump by over 200 percent to 150,000 cars, said Vaishali Jajoo, an analyst with Angel Broking, as production ramps up at the Gujarat plant.

Tata Motors was feted last year as an Indian corporate success story with its $2.3 billion purchase of British luxury car marques Jaguar and Land Rover. But with the global economic downturn, the purchase has become a financial millstone as sales of prestige cars have tumbled. Earlier this year, Tata Motors reported its first quarterly loss in seven years.

Once the car is seen performing on the choked streets of India's cities, analysts and vendors will assess if it can make a dent in Maruti Suzuki's dominance in the Indian passenger car market. "We have so far seen the poster boy Nano. I want to see the commercial face of Nano," said Sabarad.

Copyright Agence France-Presse, 2009

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