"The story so far is everyone is absolutely bullish on this car. It's going to transform the auto market," says analyst Yezdi Nagporewalla, executive director with KPMG India. "It was a revolutionary launch."
"It's an engineering achievement," concurs analyst Arun Kumar, who heads the U.S. India Practice of KPMG, an international audit, tax and advisory firm that has done extensive research in the region. "There are a number of innovations," he explains, with the Nano's low cost being foremost among them. "It's priced the same as an expensive watch."
Equipped with a 2-cylinder, 33-horsepower rear-mounted engine capable of zipping along at 60 mph, the ultra-compact Nano averages 50 miles per gallon and can carry up to five people in somewhat Spartan fashion. It has no air conditioning to offset the country's beastly hot weather, no radio and no passenger side mirror.
Nonetheless, the Nano is poised to put an entire new class of India's 1.1 billion-plus population firmly into the driver's seat. Already the car is drawing comparisons to Henry Ford's Model T regarding the impact such shift might bring to Indian society. Currently, entire families can be seen precariously balancing atop scooters and other two-and three-wheeled conveyances.
It's this segment of motorbikes and motortrikes that Tata Chairman Ratan Tata intends to reach with an annual production run numbering 1 million Nanos, Nagporewalla explains.
The target market is people who have jobs, yet their earning power has not yet reached the level where they can afford the more substantial domestically produced vehicles and those being imported at a rapidly increasing pace from the U.S., Europe and elsewhere in Asia.
"I don't believe it will put any pressure on U.S. automakers — they're competing in a different segment," says Nagporewalla. "Going forward, it will create a segment of its own. There's enough demand in the market for other manufacturers; there's room for other players," he notes.
At this point, those in India who can afford a larger vehicle have about 50 brands to choose from, according to Mark Barnes, KPMG's head of emerging markets. Nano's introduction will put far more competitive pressure on motorcycle manufacturers than carmakers.
India's market for domestic auto production and imports is open and eager for new business investments.
"The Indian middle class is growing, resulting in a demand for consumer products — including automotive," Kumar says. "The economy as a whole is growing; there's a large expansion in the domestic market."
India's petroleum-based business is experiencing a 9 percent annual growth rate, making the nation No. 6 in the world for oil consumption at 2.6 million barrels per day.
Although Americans might be most familiar with India's rising tide of customer service representatives (most working the graveyard shift to account for time zone differences) and computer technicians, Kumar contends, "Outsourcing and IT are a pretty small part of India's economy."
India is the world's largest producer of milk and the second-largest grower of fruits and vegetables. It has nuclear weapons, launches satellites and is one of only three countries that build their own supercomputers. More than a hundred of the Fortune 500 companies have research and development centers in place here, and the Bombay Stock Exchange lists 5,000 firms, second only to the New York Stock Exchange.
According to an analysis conducted by Maritz Research prior to the Nano's introduction, less than 1 percent of India's population owns a car. But during the past five years, auto sales have doubled to annually surpass 1 million vehicles. By 2015, it's estimated that yearly purchases will reach 3.1 million with India overtaking France as the world's sixth-largest automotive market and nearly pulling even with Germany and the United Kingdom.
The India-based Tata Group — Tata Motors' parent firm — is a worldwide conglomerate founded in 1868. Its holdings range from hotels to steel mills, and the Ford Motor Co. has identified Tata is the top prospect to purchase the formerly aristocratic British brands of Jaguar and Land Rover.
Ford is investing $500 million to expand its Indian operations, including enlarging its production facility in Chennai and rolling out a new small car within the next two years. A new plant is due to be online by 2010.
In announcing the company's plans, Arvind Mathew, president and managing director of Ford India, says the new vehicle "will be a worthy addition to the already successful and robust product mix that we offer to Indian consumers, and will further strengthen our competitive position in this increasingly dynamic market."
In 2007 Ford India added 20 authorized dealers to its network, bringing the total to 130 locations throughout the country.
In concert with its "American Revolution" marketing campaign in the U.S., a "Chevrolet Indian Revolution" is ongoing in India. The company, which says it is India's fastest-growing automaker, anticipates doubling production by the end of this year.
Among the General Motors models available here is the Aveo U-VA, which shares a common platform with the Chevrolet Aveo sold in Europe, North America and other Asian countries. The specially engineered Indian version features a higher ground clearance, reinforced suspension, improved air conditioning and full chrome headlamps.
The state of India's highways and byways has proven to be a bumpy road. KPMG's Kumar reports that the nation is embarking upon a far-reaching $350 billion to $500 billion plan to improve the nation's dusty infrastructure over the next five years. "The Indian government is quite active in mobilizing investment," he says.
Throughout the past decade, India's aftermarket has seen a considerable upgrade, says Nagporewalla. "It is transforming from mom and pop small repair garages to workshops managed by OEMs and dealerships," he observes. "The majority are with the dealerships."
According to Kumar, "The OEMs are happy with that because it increases their margins."
Larger independent service centers are "not very prevalent, but it's an emerging trend."
American-style parts stores are likely to have a presence here as well, Kumar forecasts. "Eventually as the market matures you will have parts stores" similar to those in the U.S. Nagporewalla agrees, but with a caution. "It's an extremely competitive market; it's a price-sensitive market — people expect a lot for their money." As for U.S.-style chains, "The opportunity certainly is there, but you have to have the right business model."
Kumar points to the Bosch Group as an enterprise in position to excel. "Bosch would like to distribute their accessories through a common chain."
The firm owns a 70 percent stake in Motor Industries Co., Ltd. (Mico), which it calls the flagship of its subsidiaries in India. Founded in 1951, Mico is now the largest auto component manufacturer in the country, hosting a nationwide network spanning across 1,000 towns and cities in India with more 4,000 authorized outlets already in place.
Driven by growing demand, BorgWarner Thermal Systems has broken ground for a 63,000-square-foot facility near Chennai that is to include manufacturing, training, design services and administrative space.
"BorgWarner has experienced significant growth in India, where growing demand for mobility and transportation is driving production volumes, and the adoption of global emissions regulations requires more sophisticated technology to meet the new standards," according to Alfred Weber, president and general manager. "Our new facility will provide ample opportunity to expand existing product lines and introduce new technologies and products to meet growing demand in India."
The company cites a marketing estimate predicting that India will overtake China as the fastest-growing car market by 2013, expanding an average of 18 percent a year compared with just over 9 percent a year for China.