'People's car' Nano to go on sale in India

The Nano, Tata Motors' tiny, inexpensive "people's car," will hit India's congested streets in July, Tata Motors officials said Monday in Mumbai, a city hit by terrorist attacks in November.

While Mumbai is recovering, the world that Nano arrives in has changed dramatically.

When it was unveiled 14 months ago, gas prices were rising. The world economy showed signs of slowing but seemed stable. Prospects looked brighter for poorer people in India to move up the socioeconomic ladder and afford such an inexpensive car. The goal was a car for 100,000 rupees, or about $2,000.

But as the economy darkens, so do prospects for the Nano, already launching six months late because of a political battle over the land where the car was to be built. An alternative is ready, but production will ramp up slowly.

The delay has given rivals time to work on their own versions of a Nano. Nissan/Renault is partnering with Indian Bajaj Motors on an inexpensive, small competitor.

The Nano will go on sale in India in April, with deliveries in July, but the global economic downturn has emboldened Tata's export ambitions. Tata Motors unveiled the Nano Europa, a slightly more robust version of the Indian model, at the Geneva Motor Show this month, with a planned launch of 2011.

The company is now designing a version of the Nano that meets U.S. safety and emissions standards and should be ready for launch in about three years, Tata said.

The Nano is the brainchild of Ratan Tata, head of Tata Sons, a venerable company held in high regard by many Indians. Tata said he wanted to offer Indian people an alternative to mopeds, often used even by families to get around cities and rural areas. It's not uncommon to see a helmeted dad driving his wife and three children down the highway.

Targeting that market was a bold idea, says Vikas Sehgal, an analyst at Booz & Co.'s global automotive team. That segment of the market could boom in the next decade as more people in Asia join the working class.

"There was a gap existing in the market, and the Nano is being launched into that gap," he says. "But how many ... people will buy is still an open question."

Meanwhile, Tata Sons, parent of Tata Motors, is weighed down by debt from a buying spree this decade, including Tetley Tea for $407 million in 2000, Daewoo Commercial Vehicle for $102 million in 2004, Corus Steel for $12 billion in 2007 and Jaguar/Land Rover for $2.3 billion last year. About $2 billion of that debt is due in June, prompting Standard & Poor's ratings service to say it will monitor Tata Motors' cash position until the company comes up with a plan to stem its losses.

Nano likely won't help much. Its low price comes with low profit margins. Sehgal estimates profit of $100 to $125 per car.

At that rate, Tata must sell about 2 million to 3 million Nanos to break even, he says. Capacity at Tata's current Nano plant is 250,000 a year.

The Nano "is an eye-opening exercise for the global auto companies," Sehgal says. "They have gone and targeted the guy who is sitting at the bottom of the automotive chasm and created a car exactly for him and have given the global automakers a glimpse of what can be done."

But, he adds, "What I don't know is whether it will be good for Tata. That's still to be seen."