Tata Nano: is small beautiful?

Tata Nano: is small beautiful?

Tata Motors’ much awaited launch of its “1-lakh car” at the New Delhi Auto Expo last week has generated huge interest all over the world. Newspapers, television shows and the internet are all full of reviews, comments and blogs especially from abroad from both consumers and car enthusiasts welcoming the “cheapest car in the world” at US$ 2500 with much analysis of the potential impact on the global automobile industry. The car was by far the star attraction at the Expo which itself has been one of the larger international exhibitions in keeping with the size and growth rates of the Indian car market. But Tata’s latest offering has also been greeted by more than the usual share of criticism, mostly from environmentalists worried about an increase in pollution due to large numbers of the cheap cars suddenly flooding the roads, but also on other counts such as the effect on India’s already creaking urban infrastructure, and whether costs have been lowered at the expense of safety and emission standards.

 Ratan Tata, Chairman of Tata Motors, addressed some of these issues during his launch address at the launch and in media interviews. He spoke of having stuck to the Rs.1 lakh dealer price (VAT and freight extra) despite rising input costs because “a promise is a promise”. He also narrated, to much amusement, how company executives had suggested naming the car “Buddha” after the West Bengal Chief Minister or even “Despite Mamata” referring to the anti-project agitation, but how the decision fell in favour of “Nano” conveying both small (a nano-metre being one- millionth of a milli-metre) and high technology. Ratan Tata also said that the Nano was less polluting than a motorcycle and assured Rajendra Pachauri  (Chairperson of the Intergovernmental Panel on Climate Change and head of The Energy & Resources Institute), who had said he had nightmares at the thought of the additional pollution from lakhs of Nanos, that he could sleep well at night! All good fun and with a note of triumphalism after all the scepticism about the 1-lakh car. But all the issues mentioned above, and a few others besides, require more careful and critical discussion.

Tata Nano

The car   The Nano’s design and technical specifications had been among the best kept industrial secrets of recent times.

When the relatively large-framed Ratan Tata himself drove the small car on to the launch podium to collective oohs and aahs, and stepped comfortably out of it, he put at rest two major concerns. Would the “lakhtakia” car be a real car or would it be a modified motorcycle with four wheels? And would the car be ugly, with a cheap appearance and finish?

The word commonly used to describe the car in reviews was “cute”. Most agreed that the design, by the Italian Institute of Development in Automotive Engineering with lots of inputs from Tata Motors, was attractive and enhanced both  compactness and comfort.

The mono-volume Nano body is made of light-weigh sheet metal and, while 8 percent smaller than the Maruti-Suzuki 800 (M-800), has 21 percent more internal space, mostly due to the egg-shaped body with greater height. The wheels are placed at the very corners enabling a shorter length. The engine is under the rear seat and a small boot in front houses the spare tyre, windshield cleaning water and space for one bag. The basic version is really basic with no air-conditioning, power steering, central locking. Some of these, and a diesel version, would be offered in deluxe versions with price-tag up to Rs.1.80 lakhs.

 The Nano has an uncommon 2-cylinder 4-stroke all aluminium engine made by Bosch (which won the contract in preference to Siemens) with just 623 cc capacity but manages to produce a good 33 horse power (comparing well with 37 bhp in the M-800). The rear engine and drive reduce the transmission load and cost.

 The car is said to be capable of a maximum speed of 105 kmph but speeds are best kept less than 60kmph after which the wheel bearings are likely to wear rapidly.

Safety features include crumple zones (where the body itself absorbs the shock of collisions, leaving the passengers relatively safe), intrusion-resistant doors and impact A-beams.

The company claims the Nano would give 22km/litre in the city and 26 km/L on the highway, and fuel-efficiency has been touted as a major plus. Yet, since the car weighs less than 500kg, this is one area where keeping costs low has impacted on performance. While the Nano does have multi-point fuel injection and an electronic engine management system, in the effort to extract more power from such a small engine without more sophisticated and costly control systems, fuel efficiency is lower than what could have been achieved. Exhaust emissions are said to conform to Bharat State III norms and can be improved to Euro IV standards.

With the present safety, fuel efficiency and emissions standards, the basic Nano would not be able to enter European or US markets. But, if additional air-bags, side-impact beams, catalytic convertors and better fuel efficiency require another $1000, at $3500 the Nano would still be far cheaper than any compact there.

Technology & Innovations     The big question that everybody is asking is, of course, how the Nano price was kept so low, a task once described by the head of the Suzuki clan as “impossible”, a statement repeatedly flashed behind Ratan Tata during his launch speech! It certainly was not done by going shoddy, cutting down on materials or standards as attested by the curved windshield, more costly than a straight one but valuable to the design.

In fact, Tata Motors deserves credit for substantial technological innovation, done mostly in-house, a fact praised even by Indian industry rivals. There are no dramatic new inventions, but there are numerous small yet significant engineering improvements, in the way things are done, both in design and manufacture.

Reminiscent of one of the great small cars, the British Motors’ Mini of the ‘60s with its engine across rather than along the length and its re-engineered layout, the Nano has taken compactness and cost reduction to another level. Tata Motors itself has filed over 40 patents, 34 of them in the power train alone. A few dozen partners manufacturing different important components, such as the engine block, steering column, drives, electricals etc, have also made substantive innovations in order to meet technical and cost specifications for the Nano. All apparently worked with the same brief of cutting costs not by going cheap but through better design, making things smaller and lighter and, where possible, using different materials.

Tatas’ strategy of involving component manufacturers from the development phase itself has meant that its own developmental costs were kept low while these vendors, also housed in the Singur complex as ancillaries, have not only become stakeholders in the Nano project but have also developed their own capabilities for future ventures. Apart from some incentives and mainly the promise of large volumes, it is likely, as industry rumours have it, that vendors were also pressured into lowering prices, with Tatas initially offering them 50 percent of what they quoted!

 Cost savings and margins are also going to rely substantially on production volumes and manufacturing techniques, a throwback to the early days of the car industry. Henry Ford’s assembly line techniques, introduced to make the famous Model-T more affordable to the lower end of a wider consumer base, enabled Ford to churn out 15 million units or one car every three minutes by 1927 when production of the model finally came to a close.

The Singur plant has capacity of 250,000 units per year and Tata’s expects demand to rise eventually to 1 million units annually. At that time, the company’s idea is not to expand capacity in a central assembly plant but to supply kits to dealers with small assembly units in a “distributed manufacturing” system. This would promote more stakeholders, in the distribution chain this time, further cutting costs in an area that typically accounts for upto 20% of dealer price.

Environmental Issues    The Nano has faced the maximum criticism on environmental grounds by expanding personal car ownership and by burdening infrastructure that would have served public interest better through public transport. Both the arguments are valid, but the picture is not all black and white.

More cars will certainly mean more emissions. But India is predominantly a small-car market, with compacts accounting for over 70 percent of annual demand or about 400,000 units. Growth of this segment at 32 percent is also greater than overall growth in car sales of about 25 percent. India is today the world’s third largest manufacturer of compacts owing to this trend. To keep this in perspective, though, India has 7 cars per 1000 people, compared to 373 in the UK and 477 in the US.

Factors such as rising fuel costs and reduced taxes on compact cars may be operating, but the main driver for the preference for compacts is clearly low price. All other manufacturers too have therefore announced major new small-car initiatives in India. Hyundai, Maruti’s biggest competitor in the ‘A’ segment, is introducing new models and expanding production capacity in compacts. General Motors is expanding its Uva and Spark compact lines, Ford and Volkswagen have announced plans for compacts, Fiat is soon to launch compacts through a tie-up with Tata, and Bajaj Auto, hitherto focusing on two-wheelers, recently rolled out a concept car to be made in collaboration with Renault-Nissan. Indians are and will be buying more small cars, irrespective of the Nano. If and when Tatas reach full capacity of 250,000 by 2010, Nanos will still be only around 2 percent of the more than 12 million passenger cars then on Indian roads!

In other countries, this trend towards compacts is regarded as a good thing. The Nano is the hot topic even in its absence in Detroit, the capital of the US auto industry where the famous car show is currently on, as “representing the anti-thesis” of the US scenario.  In developed economies, the main driver for compacts is concept rather than price, the idea of saving fuel and being “greener”. In the US, Daimler-Chrysler’s forthcoming Smart Fortwo at $11,500 basic, has attracted 30,000 advance bookings and demand is expected to far outstrip supply. In environment-conscious Germany, demand for compacts costing less than $5000 is estimated to reach 17 million units by 2020. One US blogger, responding to the debate over the Nano, wondered about the impact on US emissions levels “if all the gas-guzzlers on US roads were replaced by Tata Nanos.”  And most car makers are also gradually, albeit slowly, modifying their technology and designs to introduce compact models running on natural gas, fuel cells, hybrid energy and so on.

   China had earlier defied most developing country trends in this regard. With a booming economy and the fastest growing car market, China saw phenomenal 80 percent annual growth rates early this decade which has now slowed down to a still racing 30 percent, the highest in the world. But only 10-15 per cent of passenger cars are compacts, among the cheapest being the well-known Chery QQ at $4500! Status associated with larger size and luxury models is a major driver according to official studies. China classes the ‘B’ segment as “entry level” and till recently restricted compacts in large cities probably fearing overcrowding. But now, confronted with galloping use of larger cars, increasing fuel consumption and pollution, widening disparities and growing demand for smaller cars (especially for family use as against cars owned by companies or state organisations), China has hiked excise duties on larger cars and lifted controls on compacts, whose numbers are now growing.

 The problem with personal vehicles is real, and generic. Urban transport and industrial policies in India have strong biases against public transport. All progressive voices want, and will struggle for, better infrastructure, more and better planned mass transport, curbs on luxury consumption, more efficient energy use and better distributive justice: all these have been vigorously argued for in these columns too. But the argument cannot be, as one environmental group put it, that “people are buying cars… so if cars get cheaper, there will be more, and that’s a problem.” Without intending it, such arguments have an unfortunate elitist tone.

Should there be only large cars and should only the rich buy them? Should cities not have low-cost housing so as to check migration from rural areas? Surely these are precisely the kinds of arguments the developed countries have been pushing down the throat of developing countries during climate change treaty negotiations.  How to develop a low-carbon economy is definitely a priority issue, both for the environment and for equity, but answers cannot be found in denying some options to some sections.

Other implications   With large volumes, domestic demand and capacities in the compact car segment, the Indian automobile industry is well placed to become a major international player in the small-car segment if not a global hub as several analysts predict. Car exports from India grew by 13 percent last year to 192,000, a substantial proportion being Hyundai compacts, and Tatas exporting 11 percent of car output. These are very small numbers yet but are poised to grow. The roll-out of the Nano speaks well of the technological and developmental capability of the Indian automobile industry. Carlos Ghosn, the reputed CEO of the Franco-Japanese Renault-Nissan, during a visit to India in 2007 to sign a deal with Mahindra & Mahindra was impressed by industry-wide capabilities in what he described as “frugal engineering”, prompting him to return to India for deals with Ashok Leyland and Bajaj Auto in small trucks and cars. That reputation has now received a big boost.

 Most car manufacturers in India have plans to make their Indian operations important export hubs for compacts. The Singur plant is the only one in eastern India, and a host of ancillaries and service industries can be expected to come up around it. The automobile industry is among a few in Indian manufacturing with potential to emerge as a major global player not just in volumes but also in technologies, generating skilled blue-collar employment in several sectors.

Somebody once said that a car can be used to understand the nature of industry in any economy. That need not be taken literally, especially in a predominantly agricultural nation like India, but the passenger car industry in India certainly illustrates the many contradictions in the current phase of India’s development.

Ratan Tata has called the Nano the “peoples car” and even the official website bears that name! It is far from it. $2500 may appear small by standards of global car prices, but it is still three times the per capita income and half the population still goes to bed hungry. The liberal British newspaper, The Independent, slams Tata for the fact that only the aspirational middle class can afford it, while Tata also gets hammered by environmentalists for making the car cheap so it will be lapped up by the teeming millions. That is our era, and our stage of development: full of contradictions, and not amenable to simple black or white solutions.