The CEO of Tata Group, Mr. Ratan Tata was able to keep his promise and deliver a car for Rs 1,00,000 ($2500), the Nano, with help from some 100 component manufacturers.
The cheapest car in the world was put together in India through collaborative engineering happened in total secrecy for over three years. The coverage of the CEO unveiling the pretty car was overwhelming in the Indian press and on television.
For more than 900 million Indians, who live ordinary lives, this is a rare moment when they feel like they are being taken care of by the rich and the mighty class. The company may be making a humble profit of only Rs 4,000 per Tata Nano, but life in globalization is about ideas plus profit.
Tata Nano is a symbolic gesture to bring the common Indian in national focus. The car has passed the full-frontal crash and the side impact crash. The CEO also side stepped emission concerns and said the car will meet Euro IV norms.
The car has no passenger-side mirror, central locking, or power steering. It has only one windshield wiper. Air Conditioning is available only in deluxe versions. The price target was achieved by sheer design improvisation and not cutting corners on essentials. Their motto was simple : make things smaller and lighter, do away with superficial parts and change the material wherever possible.
Price negotiations from Tata Motors’ side apparently started from 50 per cent of what component suppliers offered. But the Nano is expected to sell in large volumes and that would make up for the crunch in margins. When you are talking about 350,000 to half a million units, you start pricing the parts on variable cost. Typically at 250,000 units if the part reaches break-even point then the scope for reducing price changes dramatically.
What about the transport infrastructure to avoid congestion? Take for example, the most popular city, Bangalore. The City now has about 5 lakh cars. Even if 50 per cent of two-wheeler owners in Bangalore graduate to Nano, it would mean at least 10 lakh more cars-a 200 per cent increase. As per traffic department estimates, Bangalore has about 21 lakh two-wheelers.
Even if half of them fall for the low cost lure of Tata Motors, there would be chaos on the roads. The cost may also set the trend of middle-class motorists going in for two or more cars. The City is planning noninvasive technology to create basements underneath parks and playgrounds, without digging the land. Parking spaces would be created underneath public parks. Bus terminals are planned on the outskirts on all major routes. The government may have to adopt a multipronged approach to tackle the impending chaos.