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Indian compact car market seems to be getting hotter, with not only
better car models, but also the intensity of the competition in the segment.
The market which is growing at 20-25% annually is attracting
international player like Volkswagen, Toyota, Nissan and Ford, all of
whom are expected to come up with a number of new launches in this
segment of the Indian car market. The new players plan to differentiate
their products through competitive pricing and additional features like
added space, fuel efficiency and better performance. It seems like
competition is set to go to a whole new level for existing players in the
market.
The small car market in India is very competitive with players like
Maruti Suzuki, Tata Motors, Huyndai etc. which was pretty much
dominated by Maruti. But with launch of Nano the 1 lakh car the whole
momentum of the market has shifted.
The Nano is alleged to have severely affected the used car market
in India, as many Indians opt to wait for the Nano's release rather than
buying used cars, such as the Maruti 800, which is considered as the
Nano's nearest competitor. Sales of new Maruti 800s have dropped by
20%, and used ones by 30% following the unveiling of the Nano. As one
automotive journalist summarises; “People are asking themselves—and
us—why they should pay, say, 250,000 Rupees for a Maruti Alto, when
they can wait and get a brand new Nano for less in a few months’ time, a
car that is actually bigger
3. Threat of substitutes:
The threat of substitute for Nano car is that of electric car, the new
entrant in the small car sector is the Morbi-based world famous clock-
maker Ajanta group. The company is planning to manufacture an electric
car at its unit at Kutch district and market it at a price lower than Rs 1-
lakh Nano. The company is already manufacturing electric scooters and
bikes under ‘Oreva' brand. Production of electric car is not difficult for
them as the technology is almost similar and 70 per cent of its parts can
be produced in-house, giving them an edge over the vehicle's pricing. The
Ajanta group is serious in its attempt to keep the basic price of the
proposed car as low as Rs 85,000.
Tata Motors has to work out their strategies to meet the challenges
of sales and after-sales. The first is to meet the high demand that is likely
to get created. As there would be many first-time customers, the sales
force will have to advise them on issues like running and maintenance of
the car. Further, the Indian consumer is very discerning and the product
and after-sales service quality will need to live up to the consumers'
expectations for the Nano to be successful.
As the Nano car is made for lower income group people we can say
there is no power in the hands of buyer at present as only Nano is
available in Indian market but soon there will be cheaper car in the Indian
market and buyers will have power to switch to other cars.
These methods will lead to even more new manufacturing innovations to offer
affordable cars to consumers. Tata Motors is expecting to build around 250,000
units annually, excluding the markets of Africa, Southeast Asia, Latin America
and Europe. In the next couple of years, more than a million of Nano’s are
expected to be on the road. In addition, Nissan and Renault are planning to form
alliance with Bajaj Auto to develop a car with a price tag of around US$3000 by
2011. Volkswagen is also considering in developing a low cost car, under a
separate brand name and China's Guangzhou Motors had announced its
collaboration with an Indian-based company, Global Automobiles, to roll out a
low cost car. As this continues, the growing small segment car industry is set to
expand exponentially.
According to United Nations, at the start of 2008 about 12 in 1,000 Indians have
a car. Due to the low-cost innovations like Nano, the ratio is expected to
increase rapidly in the coming years. If the same trend happens in China and its
neighboring countries, the situation might become worse. Today, light duty
vehicles account for more than 10 percent of global carbon emissions. As Asia,
where Tata Motors are aggressively promoting its Nano, accounts more than 60
percent of the world's population, the contribution of carbon emissions from
light duty vehicles is set to increase swiftly.
Due to its price advantage Nano can eat away the two-wheeler market. The two-
wheeler takes much lesser space on the road, so an increase in cars creates more
congestion. As congestion increases, so does pollution, possibly up to five
times, in a continent like Asia. Also, a car leaves twice the harmful particulate
matter compared to a two-wheeler and four times more compared to a bus or a
truck.
With the rising population of cars, the demand for gasoline is expected to
increase on a large scale. So, as millions of affordable cars hit Asian roads, the
prices of gasoline will rise to new highs. Ironically, gas prices could increase to
a point where people who are now affordable to buy cars like the Nano might
not be able to afford to fuel it.
With little competition today at the Nano's price point and as yet unmatched
intelligent manufacturing techniques, Tata Motors is in a position to recover its
capital investment, but the implications presented above show a need for
additional development. New entrants in this category need to address various
challenges such as inflation, low-price barriers, substantial changes in raw
material prices, and government regulations, for example vehicles above 650cc
pay excise taxes in India, but with 624cc engine, the Nano is exempt.
Achieving a US$2,500 will be difficult for any carmaker, but going forward
more automakers will develop low cost cars. Eventually the zeal to buy one is
expected to drop as gas prices increase and people will compromise on cost for
greater fuel efficiency. It takes 4 to 5 years and a huge investment for a car
maker to design and build a low cost car, which itself has low margins. Such
time and money would be well spent developing alternatives to small, internal
combustion engines on low cost cars to address the growing issues of emissions
and rising gasoline prices.