Posted by: Ian Rowley on August 27, 2008
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.