Tuesday, February 19, 2008


TATA's small car is spawning so many business oppurtunities that you can even assemble and sell it.

Preeti Burde, who owns a chain of driver training schools in Maharashtra’s Thane city, plans to buy Tata’s Nano the moment it is launched later this year. She is not exactly from the price-sensitive middle class family that the world’s cheapest car is targeted at. She is a businesswoman trying to profit from it. Ms Burde believes a large part of her future customers will be Nano buyers and she may have to migrate at least part of her fleet to the new car to help them learn on the car they’ll drive. “We definitely see a growth in the business as more and more people would come in wanting to learn how to drive in a Nano, which means we too would have to buy more of the Nano model,” she says.

As Ratan Tata pushed gears to ceremonially drive the Rs 1 lakh car at its unveiling in New Delhi, he was not just challenging the automobile industry with its radical economics, but also firing up new business dreams of scores of entrepreneurs across the country who expect the high volume sales of Nano to spawn opportunities to make money. While people like Ms Burde will leverage the high volume sales of Nano to power their businesses, Tatas themselves will be doing their bit for entrepreneurship. If Tatas’ plans succeed, Nano will not just be a car but a new business model and the central piece of ecosystem of entrepreneurship. The way Nano will be built and sold is going to be very different from the way others cars are brought to the showroom. Call it McDonaldisation of the car industry, but Tata wants the small guy to help him assemble and sell the car. This way, he hopes to create new business opportunities for young engineers across the nation, even while finding a cost-effective way to push Nano to the remotest corners of the market. “We would create entrepreneurs across the country over time that would produce the same car,”

Tata group chairman told ET in an exclusive interview. “We would produce all the mass items and ship it to them as kits so it is similar to an SKD or CKD operation,” he said. He explained that the company will bring together business aspirants from around the nation to set up satellite assembling and dealership operations. These entrepreneurs need not have experience in the automobile industry. “My aim was that, I would produce a certain volume of cars and then I would create a very low-cost, low-break-even plant that a young entrepreneur could buy and that bunch of young entrepreneurs could establish an assembly operation,” Mr Tata said. Tata Motors would retain the responsibility for quality assurance and train people who will oversee the operations of these entrepreneurs. The whole ecosystem will look up to the manufacturing strengths of Tata Motors, but will do final assembly at the local units. “It will be very satisfying if the small car created 10 or 15 satellite groups of young engineers who thought they could get together and do a business and never be able to get, normally, in the assembly of cars,” Mr Tata said.


While much more details would be needed to fix the risk and reward ratio for the entrepreneurs, a quick chat with industry veterans suggested each small set up would have to invest about Rs 15-20 lakh. Nano, being a Rs 1 lakh car, will have to work with wafer-thin margins and make up with very large volumes. Dealers in India’s car market typically make a profit of 2.5% or less of a unit’s sale price. Even assuming such a margin will be available on the small car’s sales, it will be a small amount in rupee terms. “Although we know that margins are minuscule in car business, we are hoping we can concentrate on other areas too like finance, insurance,” said one of the entrepreneurs already shortlisted by Tata Motors. To understand what Tata is talking about, it may help to go to a McDonald’s outlet and watch the process there. The core food is prepared at a central kitchen, frozen and sent across to the chain of outlets, where the food is reheated, “assembled”, and served. The Speedee Service System, as it is called, makes the service faster, reduces cost, standardises the product and is easy to manage from the quality control angle. Now, if the central kitchen were Tatas factory and the franchise be the entrepreneur’s operation, the hamburger would be the people’s car. It is new and radical and the industry is still trying to understand it. The jury will not return until the car is launched and the new model tried. But dealers are already speculating whether the after-sales service would also be decentralised. After all, this is the area where the current players make maximum money. With Tatas’ plans to sell 2.5 lakh cars in the first year and reach the one million mark in four years, there will be enough room for the business model to evolve and entrepreneurs to jump into.


The roadscape of Mumbai has been dominated for long by the rickety black Premier Padmini taxis, only to be changed a little recently with the government-sponsored modern taxi service. But cab operators are already imaging the sleek Nano in their place. With its low price, high mileage and small size, it is compelling city taxi material and can be a stylish alternative to the current fleets. Middle class families, the target market, can easily be trapped. “From the first look of the car, it’s definitely a sound buy for the taxi services,” says Arun Sabnis, managing trustee of Fulora Foundation, which runs the Mumbai Gold Cab Services. On an average, a cabbie gets to ferry two people per fare, which the new car can easily take. At a total cost of less than Rs 2 lakh, including taxes and permits, Nano is exactly what the cash-strapped taxi operator will go in for. For an officially-backed fleet service like Mumbai Gold, however, the government stipulates a minimum engine capacity of 1000 cc, which Nano lacks. If black taxis go away, can autorickshaws be behind. Bringing an autorickshaw on to the road, complete with the paperwork, can cost anywhere between Rs 2 lakh and Rs 4 lakh, they say. So, switching to Nano can be a profitable and low-cost alternative for the owner-driver too, Mr Sabnis says.


The Nano has also enthused lenders and at least some investors. Car loan operators believe the demand will rocket. Ratan Tata’s dream to nurture an ecosystem of entrepreneurs has also made project lenders sit up and take notice. Most venture capital investors think this satellite manufacturing may not be the field for them, but at least one of them says otherwise. Avnish Bajaj, co-founder and managing director of Matrix Partners India, says he would look to invest in “someone whose core competence and demonstrated expertise is in low cost, high volume and high quality manufacturing with applicability to all lowcost cars and not just Nano.”

Economic Times
(With inputs from Ritwik Donde, Lijee
Philip and Jacob Cherian)

No comments: