As the launch date for the Tata small car, the Rs1-lakh Nano draws closer, Tata Motors is facing vastly changed conditions from the time the car was unveiled. By Mohini Bhatnagar
At the January 2008 Auto Expo while unveiling the Nano prototype Tata Motors chairman Ratan Tata had promised to live up to the promised price tag of Rs1 lakh for the Nan, while commentators had maintanine that the company would live up to its committment, at least till the launch of the car this October.
In the seven months since then, a lot has changed that impacts the factors that impact pricing, notably the material input costs.
Since then consumers have been hit by double-digit inflation, soaring fuel prices, higher interest rates and higher excise duty on cars. And that is just on the demand side. Carmakers including Tata Motors are suffering supply side constraints such as rising prices of steel and other raw materials. On top of this, Tata Motors faces a hostile work environment in West Bengal leading to disruption in operations and work schedules.
Notwithstanding the latter, Tata Motors new plant for Nano in Singur, West Bengal, is expected to go into operation in the final quarter of this calendar year. The facilities are to be expanded to meet increased demand in domestic and international markets in the future. The capacity of the first phase of the Singur plant is set at 2.5 lakh units.
Tata Motor's Annual Report 2007-08 quotes Ratan Tata the chairman of the company as saying, ''Rising fuel prices in India would adversely affect the company's sales this year while there would also be an enormous and unprecedented increase in material costs in steel, tires and the like,'' Tata said. In addition he says there will be also be the impact of tighter money supply with higher interest rates.
In the 12 months ended March 31, 2008 Tata Motors margins were hurt by rising interest rates, lower availability of vehicle financing and rising prices for raw materials, the company said in the report.
Higher excise duties have already hit sales of the company's Indica. Paradoxically sales of cars in the Indigo family have zoomed showing increasing consumer preference for bigger cars.
Overall Tata Motors sold 17,017 passenger vehicles in the domestic market in June a 2 per cent decline from the previous month. Sales of the Indica fell 27 per cent to 8,560 units while cars in the Indigo family sold 4,747 units, a growth of 102 per cent over May. ''Growth could have been higher, but for the adverse impact of the sudden and unexpected increase in excise duties in the latter half of the month," Tata Motors said.
According to Tata, "New variants of the Nano are currently under development to meet the new environmental and fuel price challenges, as also the market requirement of several international markets," he said. He expects that the high volumes of the Nano would dramatically change Tata Motors' market position, reach and visibility. (See: Tata Motors to develop Nano variants)
Other costs on Tata Motor's plate are the acquisition of iconic brands Land Rover and Jaguar from Ford Motor Co. in June for $2.3 billion, to fund which it will raise Rs7,200 crore ($1.7 billion) via three separate rights issues, and an additional $500 million to $600 million through an international offering of securities.
According to a report, Tata Motors plans to introduce several new vehicle models this year in the commercial and passenger-car segments to increase sales and market share amid intensifying competition.
The company is also embarking on a cost cutting move to cope with increasing costs. The Nano is thus likely to be given minimal publicity to keep overheads low and maintain the price line. Like most other carmakers Tata Motors is slashing its promotional budget. This includes reducing the ad budget from 8 to 10 per cent to two per cent of the final cost of the Nano. Hence the Nano launch may just prove to be a low-decibel affair.
Despite the reduced ad budget, the Nano has already received enough publicity to last it several years. Expectations from the small car at present are sky high and Tata's biggest job on hand is to fulfill them.
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