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Tata Motors Launches its Ultra Cheap "Nano"

Tata Motors Launches its Ultra Cheap "Nano"

BOK Deuk-Kyu

Apr. 23, 2008

Transcript

Welcome to our video program. I'm Deuk-Kyu Bok from the Technology and Industry department.

Recently, a number of ultra low-cost products have appeared on the markets, including hundred dollar PCs, and 30-dollar mobile phones. Indeed, “ultra low cost” has been a keyword for global business since the 1990s.

At the Delhi Auto Expo held in Delhi, India in January 2008, another ultra low-cost product was unveiled. Indian Automaker Tata Motors introduced its extremely low- priced “Nano,” on sale from September 2008. “Nano” took the world by surprise with its amazingly low price. Tata set the price for Nano at 100 thousand rupees, equivalent to 2.4 million won.

A Japanese engineer who saw the model in person was skeptical, saying “I can't understand how they made it so cheap. Even after looking at it myself, I'm still skeptical.” Some say “its price will be raised when it actually enters the market because of a rise in raw material prices,” or “questions about its safety.” However, auto firms around the world are still paying close attention to the Nano as its affordability is truly remarkable.

Then, how was Tata Motors able to make the Nano so cheap? Simply, they were willing to depart from convention and cut down on everything possible. First, they lowered the engine price to below $700 by reducing engine displacement and generation power. Its 600cc engine has only 30~35 horse power, equivalent to a lawn-mower.

Nano has no radio, no a/c system, and no power steering. It has no side mirror on the passenger side. Car windows are manually operated and the vehicle has only one wiper. Many of its parts are plastic and attached with adhesive rather than welding.

In addition, an innovative cost-saving method was employed in less visible parts of the production process. Tata Motors wanted to build a “new factory” free from some of the burdens of the conventional manufacturing system. By improving the forging process to heighten metal strength, the company dramatically reduced twisting in the Nano's chassis after forging, greatly reducing material costs. Tata Motors also reduced the number of parts, saving on costs and ensuring lightness. Japan's line-stop system was adopted, and costs were reduced by cutting down on welding.

However, the major key to the ultra low-cost “Nano” was the concept of “an ultra cheap car” as proposed by the Chairman of Tata Motors. Tata did not target existing car owners but sought out those who would have either chosen a high-end motorcycle or a compact car. This was because India's automobile market was 1.38 million units in 2007, while the motorcycle market was 7.85 million units, more than five times the car market. Tata Motors believed that if a car model priced between motorcycles (around 50 thousand rupees) and the cheapest car (200 thousand rupees) came out to the market, a large number of units would be sold.

Marginal profit for the Renault Logan, one of the forerunners of the current ultra low priced trend, is about $400 per unit, just 10% of that for high-end models. However, many global automakers are still rushing to launch ultra cheap models because this market is growing by 10% annually worldwide.

Against this backdrop, Tata Motors created the “Nano,” combining the innovative concept of an ultra cheap car and new technologies to actually realize it.

Ultra low cost products are increasingly coming onto markets worldwide, and more are coming. Benefiting from this phenomenon will require bold ideas that go beyond convention. Tata Motors' Nano illustrates some of the ways in which companies can survive and thrive even when providing the lowest cost products available.

Thank you for watching. I'm Deuk-Kyu Bok.

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