In January 2008, Tata Motors India made breaking news when they presented the model of Nano as the world’s cheapest car at INR 100,000 only ($ 2500 at that time). For various reasons, the car is yet to be launched in the market. Without getting into the political issues associated, the Tata Nano car, in my opinion, is an unviable business model and therefore will continue to run into bad weather, unless fundamental changes are made therein.
My opinion is based on just three issues – (a) cost-price structure of Tata Motors Nano car is unbalanced and hence unsustainable, (b) Tata Nano car is against the grain of environmental climate issues of the day and (c) Tata Motors have taken a laid back management style in resolving critical social issues like displacement of farmland.
Cost Price Structure
We gather from press reports that Tata Motors have been driving hard bargains with the state governments to try and obtain as much subsidies as possible for the small car project. The subsidies they had obtained from West Bengal Government, as enumerated by the Economic Times of 25th September 2008, in an article “El Nano: A Perfect Storm” by Arvind Panagariya, are as follows –
a) land lease at throw-away prices (Rs 1,260/- only per acre per month)
b) a soft loan of Rs 2 billion for 20 years at interest rate of 1% per annum
c) concessional tariff of electricity at Rs 3 per kwh
d) VAT waiver for some Rs 10 billion or so
e) subsidised rates of water, stamp duties and other infrastructural facilities at nil or very low costs.
A recent press report says that it has been claimed that the amount of subsidy works out to Rs 60,000 per car, which is as high as 60% of its retail selling price.
In fact the cost equation is so thinly balanced, even after grant of the above subsidies, that Tata Motors management rejected a proposal to shift the vendor site location from the plant site to just across the road on the ground that the additional costs will make the project unviable.
It has never been wise to depend for business viability solely on government grants and subsidies and short term tax incentives. Nano however is trying to go against this basic business philosophy.
We need to change our lifestyles and social-styles to deal with climate crisis and global warming on a long term basis. One of the things we must do in the automobile industry is to focus on improving mass transport systems rather than expand the market for small cars by producing low priced cars for almost every individual.
Even if the Nano car adheres to latest norms of pollution control and also develops a battery operated electric model, the “car for the masses” project still goes against the grain of current needs of the earth’s climate. In this context please refer to the treehugger site here.
Laid-back Management style
The laid-back management style adopted by Tata Motors for its Nano car is something which I find quite strange, to say the least. Tata Motors management avoided any participation in crisis management when social issues of displacement of farmland and farmers cropped up and which then turned into a social unrest. They solely depended on the West Bengal government for resolving the problem and therefore concurred silently to their act of removing farmers through police atrocities and armed hooligans of the ruling party, as witnessed on television by the whole world. Proactive management could have easily diffused the issue at an early stage and not made Nano a politically controversial project.
You can judge for yourself whether a business proposition which is based on 60% of its selling price being funded from taxpayers contribution, which does negatively contribute to global climate crisis and is backed by a laid-back management style relying on political hooliganism, can be a viable business model ever.Email This Post 0