RATAN TATA had 500 engineers work for four years designing the world’s cheapest car, convinced cost-conscious Indian drivers could live without air-conditioning and cup holders.
But he was wrong – only 20 per cent of Tata’s initial 203,000 Nano orders were for the no-frills $2,600 model.
Instead, half of all customers booked the “top-end” model, which costs 40 per cent more.
“My children need to travel comfortably,” said Neelakandan Raveendran (51), who ordered the most expensive version of the Nano as his first car.
The bank clerk earns 24,000 rupees (about €360) a month and he intends to split the cost of the car with his daughter.
Sales of more expensive versions – with extras such as air conditioning – mean bigger margins for Tata and less chance of a profit-sapping price war with rival manufacturers such as Maruti Suzuki India Ltd, analysts said.
“There is no demand for a bare-bones car,” said Mahantesh Sabarad, a Mumbai-based analyst. “Based on this experience, it does give other automakers room for pricing their products higher. They don’t have to be drawn down to a pricing war.”
Toyota and Renault, also planning to sell low-cost cars, may be able to charge more for their models based on demand from customers in India, where incomes have doubled in the past eight years.
Higher prices may enable automakers to boost profits in India, unlike in China, where discounts have hurt earnings amid a boom in sales.
Profits at Maruti Suzuki, maker of half the cars sold in the country, and Tata Motors, the number three carmaker after Hyundai, more than doubled in the five years ended March 31st, 2008, on the back of new jobs in the world’s second-fastest growing major economy.
The cheapest Nano retails for 123,360 rupees (around €1,850), while the top- end variant goes for 172,360 rupees (around €2,580) in New Delhi.
“Higher versions of all cars have better margins,” said Debasis Ray, a spokesman for Tata Motors.
– Bloomberg