x Abu Dhabi, UAEWednesday 26 July 2017

People's car runs into a roadblock

As millions of Indians experience their first taste of consumerism, affordable quality is key.

Despite Tata's high-octane marketing campaign, sales of the Nano have not revived.
Despite Tata's high-octane marketing campaign, sales of the Nano have not revived.

Two years ago, when the car giant Tata Motors unveiled the egg-shaped Nano automobile, it was billed as the "people's car", a vehicle that would herald a motoring revolution in India - prompting millions to upgrade from two wheels to four.

Introduced at a price of 100,000 rupees (Dh7,806) - slightly more than the price of a high-performance motorcycle - the Nano, Tata claimed, would give lower middle-class Indians the chance to own cars, which had long been out of reach.

Those grand ambitions seem to have stalled for the company, which has reported declining sales of the Nano month after month. It sold 10,012 units of the compact car in April, 6,515 in May, 5,452 in June and 3,260 in July. Tata has not disclosed the exact reasons for the plummeting sales, but analysts say that complaints of engineering glitches in the Nano by some buyers have dented sales. Reports of some Nano engines catching fire in recent months - the latest incident was reported from Sri Lanka last week - have prompted concerns about the car's safety.

A high-octane marketing campaign launched by Tata in the past few months - one television commercial showcases a low-paid public transport worker driving to work in a sparkling new Nano, to the envy of his co-workers - has not helped to revive sales.

Overall sales in the Indian car market - which is dominated by small cars - grew at a record 25 per cent to 2.5 million units in the fiscal year that ended on March 31, buoyed by strong economic growth in the world's second-fastest growing car market after China. Sales have slowed since then because of increasing fuel prices, interest rates that have been raised 11 times in the past 18 months to quell persistently high inflation, and looming fears of an economic slowdown.

But Tata reported sluggish sales of the Nano even in the surging market.

In many ways, analysts say, the Nano's poor performance has offered a key insight into India's burgeoning consumer market - quality, and not just affordability, is key to wooing the country's consumers. As India transforms from a low-income to lower middle-income economy, hundreds of millions of Indians, especially in the country's rural heartland, are on the cusp of becoming first-time buyers of consumer goods.

In India's villages and small towns, home to 742 million people, consumption has surged in recent years despite residents' minimal earnings. The rural consumer market - which has doubled since 2004 to US$425 billion (Dh1.56 trillion) last year - is pushing retail demand faster in rural areas than in urban areas.

Legions of small and large Indian enterprises have been focused on creating low-cost products - from the $35 tablet computer to the $25 water purifier - to tap this growing consumer base.

"Indian boardroom discussions have increasingly shifted from 'What is our man-on-the-Moon project?' to 'What is our Nano project?'" says Raghunath Anant Mashelkar, a former director general of the Council of Scientific and Industrial Research, based in New Delhi.

But he warns that the focus of this market shift needs to be on "designing sophisticated, high-performance technologies" that can be afforded by millions of people at the bottom of India's economic pyramid. "In this new paradigm of business, we recognise that the poor will have the same functional and emotional experience as the rich have - but for a fraction of the price," he says.

In recent months, Tata has cited a steep increase in input prices for increasing the price of the Nano by 4 per cent last year. Plans are also afoot for unveiling a bigger, swankier, model of the car - a strategy analysts say is aimed at reversing the sagging sales.

business@thenational.ae