Is Tata's Nano the new Austin Mini?

Posted by: Ian Rowley on August 27, 2008

Mini.jpg

Earlier this week, I wrote a story for BusinessWeek.com about the protests enveloping the plant which is slated to soon commence production of the $2,500 Tata Nano, the world’s cheapest car. To recap, on Aug. 24, an estimated 30,000 protesters, angry at the way the state government had acquired 400 acres of land surrounding the plant, gathered at the factory and blocked roads leading to it. Some 4,000 riot police with water cannons were on standby in case of violence. Some of the protesters stayed on, setting up a reported 21 camps and promising not to leave until the land, which Tata wants for suppliers, is handed back. Protesters are said to have attacked Tata employees and stolen equipment from the site.

Yet for all that Tata insists that the Nano will go on sale as planned in October. If the problems at Singur aren’t resolved, the company says one possibility is to shift production to another plant. There’s also the option of ditching the Singur site altogether and building a new site somewhere else in India.

One wonders what this is going to do to the Nano’s profitability. Tata says it’s already spent $350 million on the plant in Singur. Even if it can move successfully the whole plant bit by bit to a new site, Ashvin Chotai, an independent auto analyst, reckons it would cost another $50-$100 million. And that doesn’t taken into the account the added costs for suppliers, which would also face the prospect of moving closer, or sending parts further, to a new site. “There is a possibility that Tata may need to shoulder some of these costs,” says Chotai. Then there’s the impact of rising raw materials costs, which consultants Global Insight estimate account for about 23% of the Nano’s pretax price.

So what’s all this got to do with the Mini? Well, like the Nano, the Mini was small, had an innovative design and low price (retailing at under £500). It was hugely successful, too, selling over five million between 1959 and 2000. Most analysts expect the Nano, with its super-cheap price to be at the very least a big seller in India. Still, there’s one aspect of the Mini’s history that Tata would be wise to avoid: the more Minis that were sold, the bigger the losses were for the now long defunct British Motor Corporation. Indeed, Ford estimated it lost £30 on every one sold because the price was too low. Putting that into perspective, that equates to a loss on the Mini of over £7 million, a huge sum at the time, in 1967 alone. That’s caused some auto historians to claim that the legendary Mini was in fact “a major factor in the demise of the British auto industry”. Sometimes a commitment to a low price can be very costly.

Reader Comments

swathi

August 27, 2008 9:13 AM

i will like to suggest that instead of shifting the manufacturing plant from singur to punjab or maharashtra try to acquire those lands which are infertile and barren and try to satisfy the common people or farmers by ensuring that u will provide facilities and better living standards to their family.try to win them emotionally then pacify the politicians which r opposing u. once u have win the trust of common people nobody can uproot u.all the best

Sourav Dasgupta

August 28, 2008 10:11 AM

It would be foolish to assume, that despite what they say, the Tatas don't have a plan B for Nano. Tatas already had plans to have production from four plants in India for the Tata Nano. So if the Tatas are saying that the Nano will come out this year, then it probably will. Despite the threats, the Tatas will not pull out of Singur. At best they will delay the launch of this plant in eastern India till things cool down. The oppostion leader Mamata Bannerjee and social activists opposed to development and capitalism cannot carry out their adamant agitation indefinitely piggybacking on farmers. Most farmers have alternative earnings and a lot of them are saying that the Singur construction work has opened up new business avenues for them. Of course this will not be reported by some jouranilsts sympathetic to glamourous social activists who claim to be in touch with real India. The last time Miss Bannerjee went on a twenty day hunger strike, nothing really happened except traffic disruption. Also she didn't lose even a pound of weight something that didn't go unnoticed even by her supporters.

Don't be surprised if we see the first Tata Nanos rolling out from a plant in North India this year. The Singur plant in eastern India will in the worst case scenario start production later this year or beginning of next year.

This is no farmer led agitation. It is a crooked politician and a bunch of "we are social activists" led agitation.

If this was farmer led, we wouldn't be seeing film stars and musicians hired from Kolkata to provide entertainment to out of town "visitors/agitators".

Samrat

August 28, 2008 11:28 AM

Mamta has gone mad . If the Tatas pull out of singur the people whith whoes support she is stagging dharna will come to kill her . After all its the people of singur and west bengal who stands to lose . I believe this is high time she calls of her stike and come to negotiation table and get a better compensation package for the farmers . This would apeal to the rural constitency and get her some electoral dividends ...but if the factory winds up she will face the wrath of the civil society

Amitabh

September 3, 2008 12:53 AM

There are several points I have
1. Use of Land - the government has forgotten that fertile land must never be used other than fo agriculture. The current levels of food production rely heavily on continued use of fertile land for foodgrain production.
2. Political activists like Miss bannerjee have no interest in seeing West Bengal develop. They are simply trying to ensure that the ruling Left Government is made to look bad. Let us not forget that poverty alleviation can only happen by promotion ofindustrial development in relatively poor areas like Bihar, Orissa and bengal.
3. The TATAS are not just greedy business men who profit at the expense of the underprivileged. The overall owners of the TATA Group are charitable trusts that continue to spend money for the good of India.
4. Jamshedpur is a model example of how business interests have been aligned with overall development of a hitherto undeveloped and really poor part of India.

Gautam

September 13, 2008 3:21 AM

Now with Mr Ratan Tata's decision out in the open - and Ms Mamta still in agitation - one has to ask Who's the loser here?

Definitely not Tata. Maybe a few million but that wont hurt them much.

Ms Mamta - No way! Maybe her (and her cronies) political career. But her finances aren’t going to be hit.

I would say the real losers here are the people of Bengal (Pro-Singur or Anti-Singur).

And that's the damned problem with the country - democracy is flexed to its limits by half-brained folks. And the commoners are the ones who take the hit.

Ref: Article in TOI about Farmer committing suicide after

Ref: Article in TOI about Satyam also pulling out from Calcutta (Capital of Bengal)

Ref: Article in TOI about Infosys and Steel giant Arcellor-Mittal (and maybe others) steering clear of investing into anything Bengal.

Crores in earnings and lakhs of Jobs lost - so that a few farmers (few in comparison) and continue to sell their produce at ridiculously low prices and remain indebt/poor/stricken/uneducated forever.

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