Bloomberg News

Tata to Undo ‘Stigma’ on Nano With Upgrades to Boost Sales

January 08, 2012

(Updates with closing share price in sixth paragraph. See SHOW <GO> for more news from the New Delhi auto show.)

Jan. 6 (Bloomberg) -- Ratan Tata, the chairman of Tata Motors Ltd. who conceived the Nano as the world’s cheapest car, said the automaker is working on the vehicle’s upgrades to undo the “stigma” attached to the hatchback that pushed down sales.

“We will see a resurrection of this product as we move forward,” Tata told journalists in New Delhi yesterday. “We will resolve the problems. The vehicle will be more robust.”

Tata said the company wasn’t “adequately ready” with advertising campaigns and a dealer network when it started sales of the car in 2009. The Nano, developed as an upgrade option for millions of Indian motorcycle owners, has lagged behind pricier rivals because of safety concerns caused by some cars catching fire and as rising interest rates damped overall auto demand.

“Everybody thought the Nano would be a great success, but it acquired somewhat of a bad reputation because of the incidents of fire,” said Juergen Maier, a Vienna-based fund manager at Raiffeisen Capital Management that oversees about $1.1 billion of emerging-market assets. “There is still a chance if Tata can improve the quality.”

Starter Motor

Last month, Tata Motors, which also owns Jaguar Land Rover, said it would change the starter motor in about 115,000 Nanos as part of efforts to improve the vehicle’s performance. It also introduced a new version of the compact with a more powerful engine in November.

Tata Motors rose 0.7 percent to 203.6 rupees at close of Mumbai trading. The stock fell 32 percent last year, compared with 25 percent drop for the benchmark Sensitive Index.

Sales of the Nano fell three percent to 39,646 units in the period from April to November, according to the latest data from the Society of Indian Automobile Manufacturers. Industrywide car sales declined 3.5 percent to 1.22 million.

Hyundai Motor Co.’s sales of Santro and Eon small cars rose 27 percent in the period. The Eon, the South Korean company’s cheapest offering in India, costs almost double that of Nano, which sells at about 140,880 rupees ($2,659) in New Delhi.

Demand for Nano plunged to a record low of 509 units in November 2010 after at least three cars caught fire and customers faced difficulties obtaining loans to fund purchases. Tata Motors then said it would retrofit the cars with additional protection in exhaust and electrical systems.

Investigations concluded the reasons for the fires were “specific” to the cars involved, the company has said. In December 2010, Tata lengthened warranties to four years or 60,000 kilometers (37,290 miles) and started offering as much as 90 percent financing through unit Tata Motors Finance Ltd.

Diesel Version

Tata displayed a concept version of Nano that runs on compressed natural gas at the New Delhi auto show. The company is also developing a diesel variant that will debut at least after a year, according to Ravi Kant, vice chairman of the company who was present with Tata at the briefing.

The automaker, based in Mumbai, chose the first 100,000 customers for the Nano through a lottery from the 206,703 orders it got in the initial sales period in April 2009. The car was first displayed at the New Delhi auto show in 2008.

“I consider that we wasted an early opportunity,” said Tata, who decided to develop the car after seeing a family riding on a scooter. “We never really got our act together when the 100,000 were depleted.”

Tata faced hurdles even before the sales of the car began. In October 2008, the company had to abandon a near-complete factory in West Bengal state because of violent protests by farmers demanding the return of land acquired for the site. It later set up a 250,000-capacity plant for the Nano in the western state of Gujarat.

“There have been many efforts made to discredit the vehicle,” said 74-year-old Tata, who will retire in December after running the Tata Group for two decades. “We’ve never pushed it as poor man’s car, we have pushed it as an affordable all-weather car. Whatever stigma has been attached to it, we will undo.”

--Editors: Vipin V. Nair, Arijit Ghosh

To contact the reporters on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net; David Merritt in London at dmerritt1@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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