What’s Next for the World’s Cheapest Car?

16 Oct

Tata Motors Limited is the largest auto company in India with annual sales of $35 billion (U.S.). It has more than 60,000 employees. The firm is listed on the New York Stock Exchange. As the company notes: “Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand, Spain, South Africa, and Indonesia. Among them is Jaguar Land Rover, acquired in 2008. In 2004, it acquired the Daewoo Commercial Vehicles Company,  South Korea’s second largest truck maker. The rechristened Tata Daewoo Commercial Vehicles Company has launched several new products in the Korean market, while also exporting these products to several international markets.”

During its nearly 70 year history, Tata has been known for its inexpensive vehicles — to appeal to the Indian market — and cost efficiencies. Clearly, the acquisition of the Jaguar and Land Rover brands marks a new attempt at the upscale market as well.

One of Tata’s interesting recent efforts has been the Tata Nano, marketed as the world’s cheapest car — about $1,640 (U.S.) for the base model introduced in 2009 and $2,460 for the current version. Despite, Tata’s best efforts, the Nano has not lived up to expectations.

As Sean McLain reports for the Wall Street Journal: “When the Tata Nano, a stripped-down minicar priced at around $2,000, was introduced in 2009, it was marketed as a car that would transform the way aspiring consumers in India and other developing countries got around. But the low-cost automotive revolution fizzled. Selling poorly at home and with exports drying up, the Nano has become a cautionary tale of misplaced ambitions and a drag on sales and profit. It turns out that those climbing into India’s middle class want cheap cars, but they don’t want cars that seem cheap — and are willing to pay more than Tata reckoned for a vehicle that has a more upmarket image.”

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11 Responses to “What’s Next for the World’s Cheapest Car?”

  1. Brooke Sameyah October 16, 2013 at 4:11 pm #

    At first, I was surprised that the Tata Nano didn’t do well in India. It’s such a cheap car! However, India is split between the super rich and super poor. Tata Motors probably expected a high demand from the poor but now the poor are moving towards the middle class. When people expect more income, demand for cheaper products are a lot more elastic and they go for the more expensive car.

  2. xianglonglee October 16, 2013 at 9:22 pm #

    I am amazed by the fact that Tata acquired Jaguar and Land rover?? Despite the cheap price fact, is it really safe to drive? Especially on high way? I mean cheap price means low cost, low cost probably means low quality materials used to build cars. In China, a company like Tata also produces cheap cars, called QQ, it used to be very very cheap yet very very fragile. People could get seriously injured or even get killed even if the car meets a small accident. So if i were consumers, I wouldnt buy this car, not because it looks like a cheap car, but because I doubt its safety.

  3. Ashlyn Grisetti October 16, 2013 at 11:16 pm #

    Even though the Tata Nano is a cheap car, I am not surprised that it didn’t sell well. People in India that are moving up the social ladder do not want to buy products that make them seem cheap, and they will be willing to spend more on certain items. Luxuries like automobiles serve two purposes-taking us to destinations, and also serving as a status symbol. Think about it-people aren’t just buying Mercedes because they like the color or design of the car. The car says something about the person; people with Mercedes enjoy the finer things in life. Even though no one in India is buying a Mercedes, the same principle applies. If you are moving up in social status, you do not want to buy an item that seems cheap, and in India’s case, the Tata Nano.

  4. Anukul Thakur October 17, 2013 at 3:45 am #

    Thanks professor @Evans for this great find. Article makes sense. Others have mentioned how social status @Ashlyn and safety affects @Lee buying decisions to which I agree.
    @Brooke People in India are super rich or super poor is an assumption. We have people with all kinds of income here. Even the middle class is broken down into 3 segments.

    @Lee safety in terms of Nano in India, the car can take a crash. Are you assuming that low priced products have low quality materials? Probably yes. I will tell you how it works with Tata at least. Tata Steel is one of the biggest exporters of steel to automobile co across the world and while at it Tata keeps it share for its company and exports rest of the steel which other automobile companies operating in India have to import( and bare additional costs). Hope this helps. Not too sure how QQ is but Nano drives smooth, the speed is set on a limit.

    @Ashlyn I agree with you. However I personally believe that we should make things better. Since we have identified a problem, let’s think how we can get a solution for the same.

    If I were to work on Nano, I would sell the base model for say $800 and let users add & customize more tools. (Tata also has one of the biggest research wings in India) So when a customer gets a base model, he could add say a GPS navigator, decals, seat covers, spoilers, hoods etc.

    What do you think? I’d like to hear from you guys.

    Warm greetings
    Indian

  5. Nikita Sigelakis October 19, 2013 at 2:57 pm #

    I am not surprised by the lack of sales for this cheap automobile. In my opinion, purchasing a car has a lot more to do then simply acquiring a mode of transportation. The car you drive serves as a status symbol. Being that a car is a luxury, people will tend to stay away from their cheapest option. Purchasing a car is a long term investment, so spending more then the bare minimum is the norm. You also need to consider the practicality of this automobile. People look for things like safety, comfort, and quality. With such a cheap selling point, this means that the actual parts were probably very cheap as well. How well made is the vehicle then? In summary, the cheapest option is not necessarily the most practical.

  6. Amanda Filchock October 19, 2013 at 4:43 pm #

    I can’t help but think of Italy’s Fiat when I see the Nano. Both are small and have the hope of being the more affordable car that everyone can own. This idea certainly worked for Fiat, for the brand is extremely well-known and has an international presence. For Tata, it is just like what everyone has been commenting. Car buyers in India-whether they be poor or rich- are looking for a car that will increase the appearance of their status. Since the Nano is being marketed as the world’s cheapest car, anyone who buys it will be considered cheap! Therefore Indians who are ready to purchase a car are willing to pay whatever they possibly can for the best value they can get out of a car. This value includes how well the car is made, but also how well it will make them look.

  7. emilesomekh October 20, 2013 at 7:50 pm #

    I think the reason this car didn’t work out exactly how they thought it would, was because if you have a cheap car the features of the car are also cheap. A car is needed to go from point A to point B, but you must get there safely and comfortably. Anywhere you go the car you drive represents you in some way. No one wants to be seen in the cheapest car in the world even in india. That’s the reason I believe the car didn’t work out as the company thought it would.

  8. Alex Seminara October 21, 2013 at 11:49 am #

    That car is too cheap, even for the poorest in the world. When people see a car of that price, they think that they are buying a death box. Even for the poor, they care about a car only to get them safely from point A to point B without any cautions or concerns. There is clearly not much value being placed into a car that is priced for $2000. It is concerning to not just the people who can comfortably afford a Mercedes or BMW, but it also troubles the poor people who would be willing to use just about anything as a means to get around.

  9. Chelsey Fuller October 22, 2013 at 11:55 am #

    It is surprising that the Nano sold so poorly. Everyone loves cheap things, and a cheap car is just the icing on the cake! However, I could see why people wouldn’t want to buy it. It was mentioned that people don’t want to buy a cheap car that looks cheap. This statement stuck out to me because that is exactly what I think. I want a really cheap car, but I don’t want it to look like that way. It all comes down to the presentation. Like these people in India, I would pay more for a better looking model because I don’t want people to think I’m cheap.

  10. Desmond Fitzgerald October 26, 2013 at 6:22 pm #

    As I look into these more inexpensive options for technology and cars I find that the social risk factor seems to be a big point of contention when it comes to these products. Status seems to be the name of the game so when we look at how the iPhone 5c is not really performing well, even causing Apple to cut back production, it seems the cheapness keeps some people away. Even though in India a lot of low income people should theoretically be interested in this, it seems to come with a stigma that causes people to avoid it. If cars, especially these cheaper, smaller cars, were more ubiquitous in India people would be more comfortable purchasing this car.

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    […] Tata Motors Limited is the largest auto company in India with annual sales of $35 billion (U.S.). It has more than 60,000 employees. The firm is listed on the New York Stock Exchange. As the compan…  […]

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