Used-car prices down ahead of Nano entry

Call it the "Nano effect" but less than a month after Tata Motors displayed its competitively-priced small car at the Delhi auto show, prices in the 1.3-million used-car market crashed 15 to 30 per cent, if not more.

The Nano, due to be launched this October, will carry an on-road price of about Rs 1.3 lakh (for the base model), which is lower than the price of many used cars in the A segment (which includes the Maruti 800 and Alto, for instance).

"The price of a second-hand Maruti 800 has dropped over 30 per cent since the Nano was unveiled. To give an indication, the price of a 2002 model has dropped from Rs 1.1 lakh in December to Rs 75,000 today," said Arif Fazulbhoy, director, Fazulbhoy Motors, one of Mumbai's largest car dealers.

A 2003 Hyundai Santro that was available for Rs 2 lakh before the Nano display, is now on offer with an 18 per cent discount at Rs 1.65 lakh.

A 2003 WagonR model from Maruti Suzuki is currently sold at Rs 1.8 lakh, a discount of Rs 33,000 on its used-car price of December.

Despite this steep price drop, Fazulbhoy said it is hard to find buyers because many are postponing their purchase decisions till the Nano launch.

"With Nano's entry the three-year-old Alto has now become affordable to the buyer who was earlier looking only for a Maruti 800 used car," added Sunil Mittal, vice-president -- network and business development -- of one of Delhi's largest used-car dealers, First Choice Wheels (earlier known as Automart India).

Mittal said the price of a three-year-old Alto has dropped from Rs 1.35 lakh to Rs 1.10 lakh since the Nano went on display.

The small used-car market accounts for over 70 per cent of all used-car sales within the country. Eighty-five to 90 per cent of all car sales from the Maruti True Value outlets are small cars.

However, despite car manufacturers getting into used cars the unorganised market dominates the country's used car market.

Analysts and dealers predicted that used-car prices will only head further south once the Nano is on the roads. "The Nano will cannibalise used-car sales by exerting more downward price pressure," said Vaishali Jajoo, auto analyst in Angel Broking, who sees prices falling 10 to 20 per cent more.

Accordingly, used-car dealers are bracing themselves for a squeeze on margins.

Admits Ankit Sharma, manager -- sales -- in Delhi-based Patliputra Automart India: "With the small car contributing 70 per cent of our sales, used-car dealers might have to refocus their business on high-end cars."

Also, as a Mumbai-based dealer pointed out, "When a Nano buyer is getting a better finance deal with a monthly instalment of Rs 1,100, at a much cheaper interest rate (11 per cent), why would he go for a second-hand car, which carries an interest rate of 17 to 18 per cent?"

Source: Business Standard

What gave Nano a headstart

It is pretty difficult to term Tata’s Nano anything but success, going by the reception it received. This perhaps indicates that the real game is one of strategy.

The Nano could potentially challenge the conventional wisdom within the auto industry that wholly new concepts do not live long enough. New launches basically add a whistle here and a bell there to the plethora of existing models. Indeed, in more than 70 car launches worldwide, there have been not more than a handful of seminal shifts within this industry.

But the Tata offering has come to topple all those casts by reordering the status-quo. The whole story seems to strike two notes at once. The first one is true to the old adage among businesses that the wise profit from giving that which profits their customers; the second dares to contrarily create and nurture a space that others overlooked or even rejected.

Some known facts
Not too long ago, many pundits within the industry had held that small cars such as the Maruti 800 have outlived their use and must, therefore, pack up. Yet, just into 2008, a glowing Mr Ratan Tata drove on to the stage in his Nano, that sports a far lower powered engine and which may soon storm the Indian roads.

Surprisingly, many of the same pundits who had bemoaned the twilight of Maruti 800 have now begun to celebrate the business sense that the Nano exudes. It looks like, in any case, the Tata Nano project has defied textbook constructs of successful venturing.

In fact, we knew for good reasons that there is much less money to be made in small cars. We also knew that products conceived for specific markets have less possibility of success than those visualised on a global basis.

And, admittedly, auto majors with a wider, deeper portfolio of cars are rightly believed to be able to gain more profitably from a radical but relevant offering.

Such manufacturers, it is often acknowledged, are able to reap from the economies of scale that can be got from sharing the costs of design, manufacture and retail, among their entire product line-up.

Small-car concept
The Tata project bore none of the above usual stamps of success. Yet it is pretty hard to term Nano anything but a success going by the reception it received. This perhaps indicates that the real game is one of strategy.

Indeed, it is not so much about cars or of experience as about getting clear the underlying concepts and attitudes. Ironically, Tata’s capture of the “small car concept” is in itself hardly path-breaking.

One recollects that when the Maruti 800 was introduced around the mid-1980s, it was, even after adjusting for the then stronger rupee, an immensely affordable car (well below a lakh of rupees). It was, in fact, India’s first small, sweet car.

But, over time, the sweetness of Maruti 800 — rather than the real demand for small cars — had diminished. That was primarily because of its price, which kept on surging.

What is certainly path-breaking is the the price tag of the Nano. Even if we went all the way back before all those price rises and income growth spread over the past two consecutive decades, Nano’s price would have still generated a landslide sales record in the mid-1980s.

The price element

And, what is important is, where a pre-liberalised mid-1980s represented stunted buying power, “today’s India” that is to receive the Nano, represents greatly enlarged buying power.

This, in effect, gives the Nano an exceptional welcome thrust. Besides the element of price-point — where Tata Motors led the pack on a wide margin — almost every other major car company in the world seems to have otherwise just as seriously investigated small cars.

If anything, notwithstanding the environment dimension, the persistently high oil prices of the present decade have, in fact, made all makers gravitate toward more fuel-efficient, smaller cars.

The key question, then, is: With so many auto firms zeroing in on small cars, how did Tata Motors achieve such astounding price levels? Indeed, when global industry majors were talking about a small car with trendy, tiny engines, they were all, in effect, attempting to scale down on what they were traditionally good at: Medium and big cars.

Two perspectives
Unlike Tata Motors, almost none of the global majors had paid due attention to the thought of an all-new small car. There is, for sure, a big difference between scaling down a big-sized car to a viable small size and creating one ab initio.

The gamut of idea generation, concept, design, making, retailing, and so on, differs a great deal between the two perspectives. The first perspective tweaks to fit what is already on hand, whereas the second creates afresh to fulfil what is widely sought.

Consequently, the processes that colour the making of an inexpensive and cheerful car are not at all ‘cheap’.

Understandably, those processes have to be richer in innovation, bolder in imagination, nimbler in evaluating and, of course, shrewder in putting together the pieces (ideas, hardware, and costs) appealingly.

Taking the lead
The stalwarts of the car industry never quite saw ‘small cars’ as ‘small cars’. Here is where Tata Motors strode ahead, giving Mr Tata and his team a head-start. The Nano, then, brings home the truth that lacking certain advantages can actually prove more rewarding.

The car industry, unlike the insurance industry, which enjoys safety cover from reinsurance, has never been able to obtain a guaranteed cover for assured success.

One could say that the future Nanos would certainly get their shots of incremental improvement. So, too, would be the approaches of many other aspiring small-car makers, after taking note of this primordial shift.

Well-known thinker, George Santayana, once famously quipped that those who do not remember the past are condemned to repeat it.

So, Mr Tata, one hopes, will remember what made the Nano a product of luminous leadership. Success is indeed its tailwind although it is a little too early to be looking for it in the rear view mirror!

Source: Hindu Business Line