Former Tata Motors executive director and now executive vice chairman, Hinduja Automotive UK, V Sumantran, says the Tata team has achieved a new benchmark in costing.
Sumantran said that the Nano can tap into a very large market including two-wheelers. He said there are over eight-million two wheelers sold in India which makes it a very large market by any standards. He said some form of the reaction from competitors was inevitable, as the car would push price points down. Competition, he added, will also provide the market with a broader range of products.
CNBC-TV18 shares with domain-b an exclusive interview with V Sumantran
First your sense of what are sustainable prices for the Nano's base version once the initial offer is through. What kind of a sustainable margin profile can that company work with on this product?
It has been over three years since I left Tata Motors, so I would not feel comfortable commenting on their specific financial model, even with the Nano. But I can say that the team has achieved something that a lot in the industry globally thought was almost impossible.
They have truly, with the architecture and the way it has been executed, achieved a new benchmark in product costing. Given the track record of the company, I have no doubt that they will persevere and make this product both a product success and a commercial success.
What kind of an appetite would the Nano have in the Indian market right now, because critics have pointed out that with something priced the way it is, the big question is how much demand it generates?
From the beginning, the segment that the Nano has targeted is truly a new segment and it is in the gulf between the very large demand we see for two-wheelers.
We sell over 8 million two-wheelers in India and that is a very large market by any standards. So, even if one were to nudge into the volume base of two-wheelers, as the Nano will no doubt do, it can tap a very large population that truly can afford a two-wheelers and more today but would be hard pressed to opt for a full-fledged car at over Rs3 lakh.
I think the Nano will address a very large potential market in India.
How do you expect industry leaders Maruti and Hyundai to react? Do you think they will be able to react in some form with their low end models or do you think they would just not compete in that segment of the market?
No, I think based on the various reactions from these players, it is clear that some reaction will be inevitable, whether they will truly target directly a competitor to the Nano remains to be seen. It is perhaps unlikely.
But they will, nevertheless, mount a very tough challenge, and configure a product that they believe works best with their infrastructure and their resources. So, it will, in a sense, provide us within this spectrum of pricing, a broader range of products and without a doubt I think the kind of makers you mentioned will move south in the price point.
As I said, whether they will really attempt to target Nano's price point is open to question. But it will open up for some very interesting dynamics in the industry.
A word on the kind of clientele that has been focused over here and I think people were a bit surprised about Rs75,000 being put right upfront as a booking amount. Would you say that it is a good tactic?
The company, probably, realises the production capacity they will have. They know that they are on a ramp-up phase at this point. They have had, in the past, a very good track record of dealing with deposits and dealing with addressing the huge demand from customers. So, I am quite sure that they have thought through this very carefully.
Past instances of such small car forays from the global majors, like the Daewoo with the Matiz and many others have not worked very well financially for auto companies. Do you think Tata Motors will be an exception, or do you think thin margins, particularly in case of any kind of subsequent commodity flare ups, might put a lot of pressures in the corporation as such?
I think you have made a very interesting point and a very important point. Throughout history there have been a number of attempts to address truly people's car in various societies and various cultures.
A large majority of them have had difficulties but then a few have succeeded and they have gone on to become icons. I talk about Volkswagen's New Beetle, Fiat 500 in the 1950s –– these were all truly people's cars because of hitting the bulls' eyes of what the customers wanted.
They were fun cars; they had characters and they had the right qualities. These went on to become truly legends and it is no irony today or no coincidence today that those very same products are seen as retro models with Fiat's Cinquecento or Volkswagen's New Beetle or even the new Mini.
I think what one can say is it is a very difficult task to make a product into a cult car. But people's cars, when executed correctly, have truly become cult cars. So, what the next 4 – 5 years will tell us is, if Nano climbs on to that stage of truly becoming a cult car that is something only the consumers, the customers will vote in and determine.
You were a part of the Indica, Indigo launches. From your experience, is it possible to bridge the kind of gap that Tata Motors has right now, from the low-margin, high-volume Nano at one end to the Jaguar Land Rover on the other?
There are two points raised in the question: one is the ability of a company to truly address products at very different ends of the consumer spectrum; the other is the issue of managing brands.
If I take the first point, because of the development M&A emanates from two very different societies––the JLR development emanating out of the UK and the Tata Nano development emanating out of India––it is possible to have the development teams acutely tuned to the needs of the respective customer base.
Managing brands across this kind of price and positioning spectrum is a very difficult challenge, and here, while many companies have failed, there are a few that have succeeded quite distinctly.
BMW is a good example they have been extremely great custodians of the Mini as a brand. They have managed to position the Mini, operate the Mini as a distinct brand successful in its own right and yet absorbing the right flavour of the quality and the dynamics of BMW.
So, it is doable, it is not easy and it will be a history that will tell us after a few years as to whether the ability to manage these very different brands is indeed something that is pulled off.