The local driver

IIPM, GURGAON

Most experts are sure that the Indian buyer will fall in love with the Nano. A survey by Invest India Market Solutions predicted that as many as 12.8 million households can be the potential buyers of the Nano, or other entry-level cars. Of this, 1.6 million will buy a small car in 2008, and the figure is more than the annual sales of 1.2 million. More than half of the new buyers will be from rural India and small towns, and many will be those who were planning to buy a two-wheeler, but will opt for a car now. Another report by Crisil is less optimistic. According to the rating agency, Nano’s pricing brings down the cost of ownership of an entry-level model by 30%, making the car more affordable for households with annual income of Rs.2 lakh. The new price point translates into a 65% rise in the number of families that can afford a car. “At the significantly redefined threshold for car ownership in India, car sales... have the potential to increase by 20% over the annual sales expected in 2007-08,” it concluded.

McKinsey’s recent study on India’s auto and auto components industry reached similar conclusions. Based on a survey among auto executives, it stated that “the Indian domestic market will continue to be dominated by small cars.” It quoted a senior executive, who said, “I believe India will remain a small car market. The medium-size car market will grow but the small car segment will grow a lot faster.” In fact, by 2009, almost 50% of Indian households may be able to afford an A1 or A2 car, compared with less than 15% who will be in a position to afford a mid-sized model.

There are two factors that will encourage this trend. The first is affordability. Shriram Pistons’ A. K. Taneja told the McKinsey surveyor that affordability will restrict sales growth of larger cars. He added: “It is not only the cost of the vehicle in the showroom, it is also the total cost of ownership.” One has to account for the attitudes of the Indian consumer. “Indians are savers, they are frugal, they are cost conscious,” Taneja is quoted, saying in the McKinsey study. Clearly, Tata is on an autobahn, where millions are waiting in queue to zip, zap, zoom away in their Nanos.

However, there are some who differ with the above logic. Mohit Arora, Director (India), J.D. Power Asia Pacific, feels, “While small cars in India usually mean the cheapest car, it is not necessarily the same internationally. Even in Singapore, the (compact) Jazz (by Honda) is more or less the same price as the (mid-sized) Honda City.” Before the launch of the Nano, Shinzo Nakanishi, MD, Maruti Suzuki, which is Tata Motors’ main competitor, had told reporters that “Tata’s small car won’t impact us much.”

In addition, there is always the ‘snob’ factor that will play on Indian buyers’ minds. They will reject a model only to differentiate themselves from the masses, or to become a part of the so-called ‘happening’ crowd. In the 1980s, Maruti 800 sold not just because of the price, but also because of these two reasons. It definitely gave a ‘smug’ feeling to buyers of owning the latest model. Moreover, the 800 performed better than the existing Fiat and Ambassador and delivered on styling, technology and comfort. Of course, there are the environmental-related critics of the Nano.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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