By Utsav Kundu (21BSP2943)

Tata Group Chairman Ratan Tata launched a compact city car, the
Tata Nano in year 2008 in India.

Q1. Go through the history of TATA NANO City Car and identify Mr. Ratan
Tata’s basic decision method process to launch the final product in market.
 Establish Object-

The entire concept of the Tata Nano was conceived by Ratan Tata. In November 2003 Ratan
Tata saw a family of four on a scooter. It was raining and the family was somehow
managing and adjusting themselves on the two-wheeler.
This incident moved Tata so immensely, that he took it on himself to come up with a safer
alternative for this. He wanted the country to move around in a safer mode of transport.
“Today’s story started some years ago when I observed families riding on two-wheelers.
The father driving a scooter, his young kid standing in front of him, his wife sitting behind
him holding a baby. I asked myself whether one could conceive of a safe, affordable, all-
weather form of transport for such a family”. This is what Tata said while launching the
Tata Nano in New Delhi.
The powertrain of the Nano was a 624CC SOHC petrol, rear engine and rear-wheel car with
a manual gearbox that gave a very commendable 25 kilometres per litre. The in-city mileage
of the car stood at a decent 15-17 kilometres per litre. This 642 cc engine produced 37 bhp
of power churning out 51 Nm of torque.
The Tata Nano stood at 3164 mm long, with a width of 1750 mm at a height of 1652 mm. It
offered a ground clearance of a decent 180 mm.
The Problem-
The first question was everybody thought of that how a car in that so less price:
 The company had to play a strategically to keep the price near about 1lakh. So to make it
a good enough to call a nano a ‘car’ Tata decided to cut out all unnecessary parts from it,
which are-
 Using just one windscreen wiper instead of two
 Removing airbags altogether which however hampered the safety
 Providing a thinner and lighter spare tire.
 Making the fuel inlet only accessible through the front hood
 Adding a single wing mirror instead of two

Now, this might not feel like enough, but it did the job. All these deductions made the
Tata Nano quite similar to the Alto, which was more expensive.
The main target of the Tata was the middle and lower income families in India, who were
unable to buy a four-wheeler for the expenses. Launching tata nano gave a huge
opportunity for these group. The main competitors of Tata Nano are Suzuki Maruti-800,
Suzuki Maruti Alto, Suzuki Maruti A-Star, Chevrolet Spark and Hyundai Santro. Their
factories are located in various part of India. Before Nano the lowest car was Maruti-800.
The used car market in India is also huge, forecasted to be growing at a compound annual
growth rate of around 22% from 2011 to 2014, but after Nano the used car growth rate
also reduce to 30%. Also the sales of the Maruti-800 also dropped by 20%. But slowly
the dream car of Tata also came to end. Then what went wrong for it-

 ‘Cheapest Car’ tag

Tata took the price-sensitive nature of the Indian markets too seriously. The
Nano was manufactured with an intention to cater to the lower-middle class
segment of the country. The people for whom Nano might even be their first car.
However, in all this enthusiasm, Tata didn’t realise the negative publicity it
gathered. The word ‘cheap’ was being related to ‘low quality’. This shooed away
many potential customers from the stigma of buying the ‘cheapest car in the
world’. Marketing the car as ‘India’s national mover’ or ‘The Real People’s Car’
or something on those lines might have worked wonders for the company.

 Production and Delivery

Tata’s planning and strategy turned into shambles. The company was about to start
production in West Bengal’s Singur. Everything was set and ready to go. However, this
didn’t went well because of the well-wisher of the state. The acquisition of land for
the factory sparked widespread protests around the state.
This hampered Tata’s delivery and production schedule. Tata had to ultimately
move their production to Gujarat. Even after travelling across the country, things
didn’t go well. The plant in Sanand, Gujarat was not able to meet the demands
due to the slow production rate. So, Tata deteriorated their own sales over here.

 Poor Build Quality

The overall build quality of the Tata Nano was not at all up to the mark. At 635
kg it lacked bulk to be on roads. The tyres were way too small which wasn’t in
tune with the Indian roads.
Adding to this the mysterious fires added to the woes of Tata Motors. many
customers complained of mysterious fires in their car. The fires occurred due to
the faulty electrical equipment linked to the exhaust, this was clarified in a
statement by Tata.
To top that, the company’s customer service wasn’t up to the mark as well. Many
people complained of a lethargic response by the customer service team of the
company, which detested the people from buying the Tata Nano.

 Not the Cheapest Car

Solution -

Tata attempted to reposition the brand from a cheap microcar to a 'smart city car' with the
launch of Nano Twist.

Best possible Solution-

Ratan Tata should follow the decision of shutting down the production of the Nano for
the big loss. And at finally at 2017 by the Former Tata Sons Chairman Cyrus Mistry.

Implementation-
The car was supposed to bring a revolution. Maybe, somewhat on the lines of the Maruti
800. Ratan Tata had an ambitious dream of providing a safer means of transport to every
Indian.
However, the project never failed, the circumstances did. The lower than ever margins of Tata
portrayed their goodwill. It was never supposed to turn profitable or to bring in big bucks for
Tata Motors. It was just a testament of Tata to truly work for the betterment of the country.

Q2. Do you think any economic theories helped them to implement this vision of
launching lowest cost car? If yes, write few lines on the same.

 In my thought the economic theories helped them to implement the vision of

 Demand theory-
Demand is the quantity of consumers who are willing and able to buy products at
various prices during a given period of time. 
Then when the price is P1 [price of the other cars] the quantity demanded is Q1
[quantity with respect to the price of the other cars]. When the price of the car is P2
[price of the car “Nano”] quantity demanded increases to Q2 [quantity with respect to
the price of ‘Nano’].

Generally while defining the negative relationship between the price of “Nano” and
the quantity demanded of it, we take the ceteris peribus assumption, where all the
other variables say, taste of the consumer, time period, prices of substitutes and
complimentary goods are generally kept constant.
 Consumers would likely shift their demand towards Nano when the price of Nano is
less compared to the price of the other competing cars in the market. Hence, the
demand for “Nano” would rise and demand for the other cars would fall.

 Substitute goods -

Substitute goods are identical, similar, or comparable to another product, in the eyes

The price of Tata Nano deliberately makes it a close substitute to some products in
the two wheeler market. Tata Nano, in a few years’ time, could adversely impact the
second hand car market and reduce the price of second hand cars by around 20 to
30% and their sale by 35% (Reuters 2008). This could make second hand cars much
cheaper, bringing them closer to the price of two-wheelers.