George S. May Business Blog

$2,000 car expected to hit show rooms in July

Six years after it’s conception, Ratan Tata, founder of the the Tata Group,  has announced the completion their $2,000 car – the Nano. Now, because the plants where the five-seater is to be built are still unfinished, the Nano won’t actually be delivered to the public until July.

Tata’s pledge in 2003 to build a $2,000 car set off a major global race among bigger global players to develop a similar vehicle. Now, some six years later, the buzz has led to big expectations for sales, with Indian dealers clearing out their inventory of other models since the beginning of the year to make space in their showrooms for the Nano. However, the minimal price of $2,000, it is expected that Tata Motors won’t see a major profit boost initially. Tata motors plans to begin a lottery to pick 100,000 people who will be eligible to buy the first Nano cars that roll off the production line. “We have made a promise and we have kept that promise,” Tata told journalists in Mumbai.

There’s also competition from Maruti Suzuki, (left), which had sold the least expensive car until the Nano came along. The Maruti 800, which is made by a 50-50 joint venture between Japan’s Suzuki Motor and India’s largest passenger car manufacturer, is about 80% more expensive than the cheapest variant of the Nano. Its sales have soared despite the financial crisis that has hit economies around the world

The one area where Tata has benefited from project delays is in materials costs. Hot rolled coil, a benchmark for steel prices, has fallen nearly 62% since June 2008, to about $450 a metric ton, making the nearly 600kg (1,322-lb.) car cheaper to produce.

Another non-related ‘distraction’ for Tata Motors has been financing their recent purchase of Jaguar and Land Rover. Last year, Tata Motors bought the companies for just over $2.3 billion, but close to $2 billion of its loans are due for refinancing in June. Although reps from Tata Motors have refused to comment on the matter, many economists expect they will look to the Tata Group for assistance. Then again, Tata Group, which has annual revenues of $64 billion, already has nearly $20 billion of debt, according to a report by Indian brokerage house Kotak Mahindra. The Tata Group could sell shares or assets, or look for more expensive refinancing options. Last year, Tata Motors’ shares fell 78%, compared with a 52% drop for the benchmark Sensex index. Since January, the stock has rebounded 1.2%, vs. a 7.7% drop for the Sensex.

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