Fame or money for Tata Nano?
The Tata Nano is making world headlines, and at the same time in India there are heated discussions on why it is not good for the nation because of our poor road infrastructure. It is estimated (according to the rating agency CRISIL) that the Indian car market will expand by 65 percent. Well, I do think the argument as to whether the Nano is good or bad is irrelevant as those criticizing the Nano for this reason need to think of all cars not just the Nano.
But what what I really wanted to write about is that like all Indians, I feel proud that an Indian company has achieved this milestone of making the world’s cheapest car and that too with an excellent design. It is a big feather in the cap of our engineers, designers and in fact the complete Tata team. As it says here:
Good design was the critical element behind making effective savings in material usage, reducing mass and weight, getting the weight distribution spot-on for both ride and handling plus also stability and safety. Good design also made the engineers opt for the rear engine placement, in the process gaining both large occupant space and also major cost savings…
The Economist says:
Competitors will, for example, notice how Tata shrank the car into what its chairman calls a “concise package”, with the powertrain at the back and the wheels at the “extremities”. The result is 21% bigger inside than the Maruti 800 but is only 80% as long…
The Times article goes on to say:
The complete project cost for the Nano, from design, development and production engineering a facility to make 250,000 units per annum are pegged at Rs 1700 crores – exactly the same amount the company spent a decade ago to kick start the Indica project…
Fame, but at what cost?
Well, if the Tatas spent Rs 1700 crores I suspect that this is a fraction of the cost of what an international automobile company would have spent on a similar project. But despite this, the question remains: Will the Tatas make money on the Nano? Not many think so. Yesterday on television I heard Rahul Bajaj, a big industrialist in the two-wheeler industry say that while he admires the Tata achievement he would not have gone in for such a venture as the margins are too low. He was in this business to make money he said.
Well, I do believe that Ratan Tata is in this business to make money as well…but I also believe that he is thinking long term. I think Ratan Tata has a vision just as Jamshedji Tata had a vision when he built the first Taj Mahal hotel in India. This is a quote from my write-up on the Taj Hotel:
The Taj was built at a time when Indians were not allowed entry into most of the prestigious hotels and clubs in British ruled India. Legend has it that this was one of the reasons why Jamshetji Nusserwanji Tata, the first Indian industrialist built India’s first luxury hotel. He went ahead with the project although he was busy with plans to industrialise India. The first Taj Hotel, the flagship of the Group was born in 1903 and stood alone for almost half a century. Initially it was smooth sailing, even though the original hotel was conceived and built when the hotel business was not even considered an industry.
An astounding success such as the Nano (I hope I am not speaking too soon) has certainly boosted the image of the Tata group. And from the reaction all over the world it is clear that Tata is on the automobile map of the world (as are Indian engineers!).
The question is not how many rupees Ratan Tata is going to earn, but how much this venture has enhanced the reputation of the Tatas. The kind of splash made with the Nano will benefit the Tatas in every sphere, in take-overs, in deals, in recruitment, in share value. And well, the Tatas are likely to make some money from the Nano too. But whether or not Ratan Tata plans to raise the price of the Nano a few years down the line or whether or not the Nano sells like hot cakes, one thing is for sure – Tatas will profit from this. The Tata is where it is today even after a hundred years because it’s a profitable brand. And Ratan Tata for all his emotional rhetoric about keeping a ‘promise’ is a hard-nosed businessman.