March 23, 2009

India’s Tata Motors Launches $2,000 Car

Tata Motors officially launched its new Nano automobile on Monday, priced at just $2,000. The world's cheapest car will hit the roads of India in July.

Since demand is expected to far exceed supply, the first 100,000 owners will be randomly selected, with hundreds of thousands expected to compete for initial ownership. Many prospective buyers were previously limited to motorbikes or public transport.

"We are at the gates offering a new form of transportation to the people of India, and later I hope other markets as well," said Chairman Ratan Tata at the launch.

"From the drawing board to its commercial launch, the car has overcome several challenges. I hope it will provide safe, affordable four-wheel transportation to families who till now have not been able to own a car."

However, first year production of the Nanos will be limited, with the company expected to deliver just 100,000 vehicles during that time. Indeed, the launch itself was six months behind schedule.  And since its initial unveiling, the Nano's primary production plant had to be relocated due to land protests.

Meanwhile, the company posted its first loss in seven years, seeing its share price plunge 70 percent as its credit rating was downgraded with the threat of further downgrades remaining.

The first 100,000 Nano owners will be selected at random from bookings made April 9-25.  Prices will be guaranteed, said Tata, who more than a year ago pledged a $1,980 dealer price at the Nano's extravagant unveiling.

The basic version of the Nano, excluding taxes, will sell for 100,000 rupees ($1,980).   However, with taxes and dealers charges, the Nano will sell for 112,735 Indian rupees ($ 2,233) in some parts of India.  High-end models with air conditioning and other features will cost nearly 200,000 rupees ($3,960).

A European version is expected to launch by 2011, and the company is also considering the U.S. market as the economic slowdown has made low-cost vehicles even more attractive, Tata said.

"This was never conceived as the cheapest car, but as providing transport to those people who never owned a car."

"Driven mainly by the change in demand that we see elsewhere in the world, we suddenly felt we had a product that could be of considerable interest as a low-cost product in western Europe, eastern Europe, the UK and even the U.S.," the company said.

More than 30,000 locations in 1,000 cities across India are accepting orders for the Nano, including Tata's department and electronics retail stores. It can also be booked online at the company's Web site.

Bookings require a down payment near the full price of the vehicle, said managing director Ravi Kant.  

"We have had a stupendous response so far, breaking all class and other barriers," he told Reuters.

Tata's Nano bookings could help the company battle declining sales of commercial vehicles, its foundation, and help repay $2 billion in bridge loans due in June that the company took out for its acquisition last year of Land Rover and Jaguar.

Although the cost of raw materials such as steel has changed significantly since the Nano was initially proposed, the company said it decided to keep the current price for the first 100,000 vehicles, and expects it to be profitable.

"It's often asked whether this project is going to be an act of philanthropy, which I assure you it will not," the company said.

However, some analysts predict Tata may soon raise prices, as thin margins, capacity limitations and softened market sentiment place the breakeven point on the project 5-6 years out.

"Scaling-up challenges are expected to be humungous," a Reuters report quoted a CRISIL Research note as saying.

Medium-term volumes of 200,000-500,000 units were needed for the project to be viable, according to the report.

Tata can currently make about 60,000 Nanos per year until a 250,000-unit plant in the state of Gujarat goes online by year's end.

The Nano is not expected to be without rivals for long, as Toyota, Volkswagen, Honda and Fiat consider moving into the segment.  Meanwhile, the venture of Renault/Nissan with Bajaj is on pace to launch a $2,500 car in 2011.

And Maruti Suzuki and Hyundai Motor, India's two largest automakers, are not expected to cede ground to the Nano without a fight.

"I would imagine there'd be some reaction from the market. I expect price correction from small-car makers," Tata said.


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