More Troubles for Tata's Nano

After an estimated 30,000 protesters gather at the automaker's plant, is the October launch of the $2,500 auto in danger?

By Ian Rowley

Activists shout slogans as they march by the Tata small car plant to attend a protest at Singur, some 50 kms north of Kolkata on August 24, 2008. DESHAKALYAN CHOWDHURY/AFP/Getty Images

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In January when Tata Motors (TTM) unveiled the Nano at the Delhi auto show, this would-be king of econo-boxes took the auto industry by storm. The acclaim for Tata's (BusinessWeek.com, 2/14/08) "People's Car" came despite the fact that no one had driven the Nano and it wouldn't be available for almost another year.

Today, with the Nano's launch slated for October, the car—or, more specifically, the plant that will make the Nano in Singur, 20 miles west of Kolkata—is attracting the wrong kind of attention. On Aug. 24, an estimated 30,000 protestors, 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.

The protestors, headed by opposition politician Mamata Banerjee, claim that the land was acquired by the West Bengal state government illegally. Tata and the government deny any wrongdoing. Speaking at a function in Darjeeling last week, West Bengal Chief Minister Buddhadeb Bhattacharjee said: "Not even an inch more of land necessary for the project has been acquired. We are willing to show respect to the opposition and sit for relevant discussions, but not for talks that are irrelevant and illogical."

Having set up 21 camps near the factory, however, protestors say they won't stop until the land is returned. "Our party will fight to the finish to get the land back," Banerjee told the crowd, according to an Associated Press report. "Our agitation will remain peaceful unless we are provoked."

Carmakers Betting on India

For rival automakers, Tata's latest difficulties with the Nano, which come at the same time the company has struggled with rising prices for steel and other raw materials (BusinessWeek.com, 7/28/08), will be of great interest. While still small in comparison with China, India is of growing importance to global automakers and many are rapidly expanding production in the country. One attraction is the fast-growing domestic Indian market. Another is India's potential as an export hub for small cars. Japanese automaker Nissan (NSANY), which is building a 400,000-capacity plant in Chennai with partner Renault, and Japan's India market leader Suzuki, for example, have bold plans for exports to Europe and other markets from India. Nissan and Renault have also hooked up with India's Bajaj Auto to make a cheap car of their own.

Still, even if Tata's West Bengal problems continue, don't expect rivals to be crowing too loudly. In 2006, Toyota (TM) had problems at its plant near Bangalore. After 27 members of the Toyota Kirloskar Motor Employees Union were suspended following a 10-day strike, some employees reportedly went on a hunger strike. The previous year, a strike at a Honda (HMC) motorcycle subsidiary cost an estimated $57 million. Worse, disgruntled workers were involved in running battles with the police in New Delhi.

Tata, which says the land is needed for parts suppliers for the Nano, insists it still plans to launch the revolutionary car in October, with the lowest-priced version at around 100,000 rupees (about $2,500) before taxes.