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The Economic Slowdown and Tata Nano
These are perhaps the two most uttered words in the world today. The economic slowdown that we are witnessing today is being labelled as “Second Great Depression”. In all probabilities, we are yet to grasp the entirety of the phenomenon we are currently reeling under.
None of the nations or industries is away from the brutal touch of recession. Automobile sector is worst hit from recession and is estimated by the International Labour Organisation that the downturn in this industry will leave around 200 million people unemployed for the first time in history.
Talking about the second buzzword doing the rounds today is the Tata Nano. No news rocked the world of automobile as much as the debut of the Tata Nano in early 2008. The only news that eclipsed it is perhaps the effect of slowdown having its aftermath on the Detroit Big Three (General Motors, Ford, and Chrysler), which are teetering on the brink of collapse.
The launch of the much-awaited and publicised Tata Nano, gave Indian industry a lot to cheer. Tata has put India in the global automotive map with the development of the world's cheapest car. When the curtains were off for Nano in January 2008, the world greeted it with awe, anguish, and envy. Will this small car take on the well-entrenched giants? Will it do to India what Ford did to the American market a century ago? Will the Nano signals a paradigm shift in the Indian and global car industry?
There are few reasons to doubt the ability of this new wonder, had someone posed these questions a year back. Now, in the midst of this grave economic disorder, is it prudent to be optimistic that the Nano will deliver? Will it be one of India's solutions to the world's automobile industry? Will it pile on the travails of the reeling Big Three? The answer is yes and no, depending on which side of the argument you are taking.
None of the nations or industries is away from the brutal touch of recession. Automobile sector is worst hit from recession and is estimated by the International Labour Organisation that the downturn in this industry will leave around 200 million people unemployed for the first time in history.
Talking about the second buzzword doing the rounds today is the Tata Nano. No news rocked the world of automobile as much as the debut of the Tata Nano in early 2008. The only news that eclipsed it is perhaps the effect of slowdown having its aftermath on the Detroit Big Three (General Motors, Ford, and Chrysler), which are teetering on the brink of collapse.
The launch of the much-awaited and publicised Tata Nano, gave Indian industry a lot to cheer. Tata has put India in the global automotive map with the development of the world's cheapest car. When the curtains were off for Nano in January 2008, the world greeted it with awe, anguish, and envy. Will this small car take on the well-entrenched giants? Will it do to India what Ford did to the American market a century ago? Will the Nano signals a paradigm shift in the Indian and global car industry?
There are few reasons to doubt the ability of this new wonder, had someone posed these questions a year back. Now, in the midst of this grave economic disorder, is it prudent to be optimistic that the Nano will deliver? Will it be one of India's solutions to the world's automobile industry? Will it pile on the travails of the reeling Big Three? The answer is yes and no, depending on which side of the argument you are taking.
Plan on Schedule
Despite the grimness of the current economic climate, going by what Tata says, all is not lost. In fact, the company believes the global economic downturn is a great opportunity for it to leverage its space in the market, because there is no better time for buying cars like the Nano. With this in mind, it has not even slightly slackened the pace of its efforts in setting up the Nano plant. In late December 2008, it appointed the well-known building firm, Shapoorji Pallonji & Co. for kicking off its new plant in the erstwhile princely state of Sanand, Gujarat.
The global economic downturn has in no way impacted the Tata’s plans for this project. According to the company, there is no reason to delay the launch of the vehicle, stated for the last quarter of 2008 financial year, which means it should be out by March 31, 2009. At best, if the bleak economic condition persists, the only compromise the company might make is to alter the original plan of rolling out 10,000 Nanos a month.
The global economic downturn has in no way impacted the Tata’s plans for this project. According to the company, there is no reason to delay the launch of the vehicle, stated for the last quarter of 2008 financial year, which means it should be out by March 31, 2009. At best, if the bleak economic condition persists, the only compromise the company might make is to alter the original plan of rolling out 10,000 Nanos a month.
Positive Impact on the Car Industry
This is the right time for the Nano to make an impact on the global auto industry when the entire globe is under the grasp of recession. Experts view that the slowdown in developed countries (including the West and Japan, and to a lesser extent, South Korea) will push up sales for inexpensive car options, like the Tata Nano, in the developing economies.
With the major American car companies unable to sustain their sales in the developing countries during this troubled scenario, the focus of most consumers in the developing nations will be on cheaper and more fuel-efficient, home-grown cars. As the demand for these cars increases in the developing economies, the sales of high-end cars (many are imported as CBU from developed countries) are likely to dip significantly. With pockets that are not too deep, this segment is certain to fulfil the needs and demands of the middle class consumers. Moreover, the Nano is pitched as a car that can fill the need of families that want to graduate from two wheelers.
With the major American car companies unable to sustain their sales in the developing countries during this troubled scenario, the focus of most consumers in the developing nations will be on cheaper and more fuel-efficient, home-grown cars. As the demand for these cars increases in the developing economies, the sales of high-end cars (many are imported as CBU from developed countries) are likely to dip significantly. With pockets that are not too deep, this segment is certain to fulfil the needs and demands of the middle class consumers. Moreover, the Nano is pitched as a car that can fill the need of families that want to graduate from two wheelers.
Applying Jevons Paradox
Experts use the Jevon's Paradox axiom to explain how the more technological improvements could influence car sales figure. To relate the idiom to this context, consider the Nano's low purchase and running cost, the more its demand will be for the markets into which it will be introduced, the more it will be bought. By this paradigm, it is also assumed that with nearly 25 km/l of fuel efficiency, lesser the fuel consumed by the car, more the number of Nanos will be purchased by the people.
Seen from this perspective, the important phenomenon the success of Nano will bring in is that it is most likely to choke the demand for products from the developed countries. The ripple effect this could create is that the developed countries will have to look for markets in their own backyard, since their success will most likely be stunted by the Nano. Once these companies find that their growth in developing economies is restricted, they will go deeper down the path of decline.
Seen from this perspective, the important phenomenon the success of Nano will bring in is that it is most likely to choke the demand for products from the developed countries. The ripple effect this could create is that the developed countries will have to look for markets in their own backyard, since their success will most likely be stunted by the Nano. Once these companies find that their growth in developing economies is restricted, they will go deeper down the path of decline.
Giant of the Third World Roads
All these give the Nano the best chance to become the master of the roads of developing countries. With more people opting for this brand (assuming its technological finesse), the demand for sophisticated, albeit oil-guzzling cars from the developed countries is sure to decline. This will drive the car majors deeper into their woes. Experiencing this, they may take the cue from the Nano and come out with smaller and more fuel-efficient cars that will tailored their conditions. But given the economic condition they are in, this kind of massive restructuring is difficult to contemplate. So, assuming that in the worst scenario, the major car manufacturers will shut out of business, who is likely to take their place? Undoubtedly, the Japanese and Korean cars (we are not talking about German cars here because they are mostly well set in the luxury car market) are miles ahead of the Nano, and have been in American shores for decades. Moreover, there are serious doubts about the suitability of the Nano or any Tata car to these conditions. However, the financial health of these Asian companies is not pink, either.
Given these variables, one possibility that arises is that if these Asian giants too, go the American way, the field will be left open for the Nano in the developed countries. But this is a long way off. One thing is certain for now - the Nano is sure to cut into bigger car companies' sales in India and other developing markets.
When the requiem is sung for these relatively more expensive cars, the coffin bearer will be the Nano. It has ended up justifying its place in Time magazine's list of dozen most important cars from 1908 till date.
Given these variables, one possibility that arises is that if these Asian giants too, go the American way, the field will be left open for the Nano in the developed countries. But this is a long way off. One thing is certain for now - the Nano is sure to cut into bigger car companies' sales in India and other developing markets.
When the requiem is sung for these relatively more expensive cars, the coffin bearer will be the Nano. It has ended up justifying its place in Time magazine's list of dozen most important cars from 1908 till date.
