Tata's Nano: A Small Car with Large Consumer Surplus?

Ref. No.: ME0012

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Tatas Nano:
A Small Car with Large Consumer Surplus?
Since, promise is a promise the standard dealer version will cost Rs 1 lakh,1

Ratan Tata, Chairman, Tata Sons

We designed the Nano to offer a new form of transport to the people of India and maybe later, to the
rest of the world.2
Ratan Tata, Chairman, Tata Sons

if economists are to play their part in shaping the canons of economic policy fit for a new age, they
will have to build on the foundations of consumers surplus. 3

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J.R. Hicks, Nobel Laureate British Economist

Tata Motors, set up in 1945 to manufacture locomotives, is Indias largest automobile company.
With over 4 million of its vehicles plying in India, it not only stands out as the market leader in each
segment of commercial vehicles but also takes rank among the top three passenger vehicle producers
of the country. Indias first fully indigenous passenger car Indica came from its stable in 1998.
Though derided as the truck mans idea of what is a car, Indica came up as the largest selling car in
India in segment B compact cars within 2 years of the launch. Tata Motors also earned kudos for
developing Indias first indigenous mini-truck Ace in 2005. It spread its operations in the UK, South
Korea, Thailand and Spain through subsidiaries and associate companies. Its classic steadfast alliance
with Italys Fiat and heroic acquisition of two iconic British brands Jaguar and Land Rover have
served as templates for emulation. It is the fourth largest truck manufacturer and the second largest
bus manufacturer in the world.4 Tata trucks, buses and cars find good foreign markets in countries
Tata unveils Rs-1 lakh Peoples Car Nano, http://ibnlive.in.com/news/tata-unveils-rs1-lakh-peoples-car-nano/56046-7.html, January
10th 2008

Njoroge John,The Nano the Worlds Cheapest Car,http://www.independent.co.ug/index.php/news/todays-news/90-todays-news/

905-the-nano-the-worlds-cheapest-car, May 7th 2009

Currie John Martin, et al., The Concept of Economic Surplus and Its Use in Economic Analysis, http://www.jstor.org/pss/2230317

Tata Motors: Profile, http://www.tatamotors.com/our_world/profile.php

Do

This case study was written by Akshaya Kumar Jena IBSCDC. It is intended to be used as the basis for class discussion rather than to
illustrate either effective or ineffective handling of a management situation. The case was compiled from published sources.
2009, IBSCDC.
No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever
without the permission of the copyright owner.

Background Reading: Chapter 5, Demand and Consumer Behaviour,

Economics (Paul A. Samuelson and William D. Nordhaus)

Tata's Nano: A Small Car with Large Consumer Surplus?

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across Europe, Africa, Middle East, South Asia, South East Asia and South America as well. However,
what has become the buzz and nudged the global auto industry to take a big look of Tata Motors is its
small car Nano, lovingly nicknamed The Peoples Car, thanks to its endearingly accessible price of
INR 100,000. People who were previously been unable to afford a car have now the exciting prospect
of driving one. First unveiled at the ninth Auto Expo in New Delhi on January 10th 2008, Tatas Nano
is perhaps the worlds most awaited car since the Model-T of Ford.

Nano Mania

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As Tatas Nano was launched in Mumbai on March 23rd 2009 marking a finale to an endeavour
that started 6 years ago, Tata Nano website received around 30 million hits during the period ending
April 25th 2009 (the date of the closure of the booking), implying almost 1 million hits a day. The day
of its commercial launch has generated among thousands of families a new hope of ushering in a
four-wheeled transportation in their driveways. Nano has come to represent a pleasant break from
the past. It has allowed people, who could hitherto afford up to a motorcycle, to dare to dream of
buying a car.
In India, millions often convey on motorbikes and scooters their entire families, perched precariously,
often with luggage. This common observation inducing heartfelt sensibility and pragmatic business
sense that there is a crying need for a peoples car prompted Ratan Tata to take initiative in
manufacturing one. When others had nodded No to signal its impossibility, Ratan Tata came to
conjure up Nano to make the mass-aspired small car a smashing hit. Tata was proved right when
people went crazy in their quest for the conquest of Nano to satisfy their want for a convenient, safe
and all-weather affordable personal family transport. So much was the mania for Nano that for the
first time in its history, Tata Motors had to gladly charge an application fee (INR 300). The number
of bookings registered during the prescribed period of 17 days from April 9th 2009 to April 25th 2009
more than doubled the initial production capacity. 2.03 lakh bookings for Nano, which fetched Tata
Motors nearly INR 25,000 million5 , have necessitated the selection of the first 1 lakh owners through
a lottery. Among the three variants of the car (Annexure I), the base version accounted for 20% of
the bookings, the mid-level CX variant 30% and the top-end LX variant the remaining 50%. The
delivery of Nano is expected to commence in July 2009.

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Tata Nano gives a warranty of 18 months or 24,000 km whichever is earlier. It provides the usual
three rounds of free service based upon distance and time whichever is earlier. The first round of
free service is for 1,000 km or 1 month, the second for 5,000 km or 6 months and the third for 10,000
km or 1 year. Subsequent rounds of service are paid ones and are recommended to be done on every
10,000 km covered.
The three variants of Nano come with various colour options. While the low-end Nano base is
available in three colours such as Bright red, Ivory white, Summer blue, the high-end Nano LX is
also available in three colours but different from the above such as Champagne gold, Lunar silver,
Sunshine yellow. The medium version Nano CX is available in five colours, which include all the

Nano Gets over 2 Lakh Bookings,http://www.thehindubusinessline.com/2009/05/05/stories/2009050551820100.htm

Tata's Nano: A Small Car with Large Consumer Surplus?

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above mentioned colours except Sunshine yellow. Nano is the cheapest car, only in terms of cost and
price but not in terms of quality and consumer satisfaction. Its technical specifications (Annexure II)
are no way inferior. Its emission norms are Euro-IV, Bharat Stage-III compliant and its safety norms
have tested frontal crash. With a turning radius of only 4 metres, Nano can cutely execute a 360degree turn even in its own tiny shadow.
Nano has a luggage space of 80 l provided behind the rear seat. The rear seat of Nano being a
100% bench seat, it lends itself to folding to create an additional luggage space of 420 l.6 With its
body made of sheet metal and engine innovatively mounted in the rear, Nano offers not only fuel
economy but also proportionately more interior space (Exhibit I).

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Exhibit I
Nano A Small Yet Spacious Car

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Source:http://tatanano.inservices.tatamotors.com/tatamotors/index.php?option=com_content&task=gallery&id=
174&Itemid=301

As compared to Maruti 800, it is 8% smaller on outside but 21% larger inside. Even though it is
the most affordable car of the world (Exhibit II), Nano has presented features some of which are not
available in Suzukis Maruti 800 and Alto or even Hyundais Santro (Exhibit III).

Nano Gives You a Top-Gear Package, http://economictimes.indiatimes.com/articleshow/4307684.cms, March 24th 2009

Tata's Nano: A Small Car with Large Consumer Surplus?

Exhibit II
Price Comparison of Nano with Its Nearest Rivals
Starting ex-Show Room Price ( ex-Mumbai) (in INR)

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Standard Version of The Car

Tata Nano

1,34,000

Maruti 800

1,99,000

Maruti Alto

2,40,000

Hyundai Santro

2,67,508

Compiled by the author

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Exhibit III
Comparison of Nano against Maruti 800, Alto and Santro
Maruti 800

Alto

Santro

Base Model

Nano

M800 Std

Alto

Santro Non-AC

Plus Air Conditioner

Nano CX/LX

M800 AC

Alto LX/LXi

Santro GL/GLS

Plus Heater

Nano CX/LX

Feature Not Available

Alto LX/LXi

Santro GL/GLS

Plus Tinted Glasses

Nano CX/LX

M800 AC

Alto LX/LXi

Santro GL/GLS

Fully Loaded

Nano LX

M800 AC

Alto LXi

Santro GLS

Plus Front Power

Windows

Nano LX

Feature Not
Available

Feature Not
Available

Santro GLS

Plus Body Coloured

Bumper, Door Handle
& ORVM

Nano LX

Feature Not Available

Feature Not
Available

Santro
GLS (Only Body
Coloured Bumper)

Plus Central Locking

Nano LX

Feature Not Available

Feature Not
Available

Santro GLS

Plus Front & Rear

Fog Lamp

Nano LX

Feature Not Available

Feature Not
Available

Feature
Not Available

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Nano

Source: Indian Automobiles, http://www.surfindia.com/automobile/tata-nano.html

Tata's Nano: A Small Car with Large Consumer Surplus?

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Tata Motors is poised to revolutionise the face of automotive industry. Not only would many twowheeler users switch to four wheels, but also the companies that are planning to launch a budget
family car have to relook and recast their cost-pricing structure. Consumer surplus is a deciding
factor in purchasing a product. What the consumers would be willing to pay over and above what
they are actually asked to pay marks this surplus. The masses have been mesmerised by the low
offer price of Nano, which has incredibly not gone low on style quotient thanks to Tatas highly
innovative cost-cutting approach. One windshield wiper, a single piece shiny hard plastic dashboard
and 12-inch steel rims for tyres are some of these quickly noticeable cost-cutting measures. Nano
is frugally equipped but brilliantly engineered.7 This is reflected in Tata Motors filing of several
patents relating to the design of Nano. Its power train design alone has 34 patents.8 Incidentally,
Nano also received a long drawn free publicity because of the political controversies surrounding the
land acquisition methods at West Bengals Singur from which the project was finally shifted to
Gujarats Sanand.

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While many go gaga over Nano, eulogising its potentiality to generate a lot of consumer surplus
and well-being for Indians, there is no dearth of cynics who conjure up a scary scene of traffic
congestion and environmental hazards that the little Nano is greatly capable of perpetrating by
promoting mass private transport. Apologists for Nano, however, point to greater per capita harm
coming from two wheelers and auto rickshaws that Nano is all set to supplant. Moreover, the bare
bone features of Nano may drive away the potential consumers into the market for better featured
second-hand cars. Whether Nano will be a means for pollution or solution only the future will tell.
And there hangs the poser whether Indias societal consumer surplus will be raised or reduced.

Darukhanawala Adil Jal, Nano Against Established Indian Brat Pack, http://www.zigwheels.com/SpecialFeatures/Nano-againstestablished-Indian-brat-pack/Nano11_20090323-2-3

Nano Technical Specifications, http://www.mytatanano.co.in/nano-technical-specifications.html

Tata's Nano: A Small Car with Large Consumer Surplus?

Annexure I
Variants and Features of Tata Nano
Nano Base

Nano CX

Nano LX

AC with Heater

Yes

Yes

Front Power Windows

Cup Holders in Front

Console

IRVM

Plain

Plain

Gear Shift Console

Basic

Basic

Magazine and coin

Holder on all doors

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Map pocket Integral

with Driver &
Co-driver Seat

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Features/Variants

Yes

Antiglare

High End Console with

Provision for Mobile
Charger/ Cigarette lighter

Moulded Door Trim

Fabric pocket

Fabric pocket

Separate plastic trim

Integrated

Integrated

Integrated

Integrated
(With Nap Rests)

Integrated
(With Nap Rests)

Yes

Yes

Yes

Yes

Yes (With Recliner)

Yes (With Recliner)

Yes (With Recliner)

Yes (With Recliner)

Yes

Yes

Yes

Yes

Yes

Yes

Integral feature
through innovative
suspension design

Integral feature
through innovative
suspension design

Integral feature through

innovative suspension
design

Low Fuel Warning Lamp

Yes

Yes

Yes

Rear Seat Folding

Yes

Yes

Yes

Intrusion beam

Integral feature
through innovative
door system design

Integral feature
through innovative
door system design

Integral feature through

innovative door system
design

Radial Tubeless tyres

Yes

Yes

Yes

Front Seat Headrests

Rear Seat Headrests
Sunvisor on Driver &
Passenger side
Driver Seat with Slider
Passenger side Seat
with Slider
Front assist grips
Rear assist grips

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Head lamp levelling

Source: Indian Automobiles, http://www.surfindia.com/automobile/tata-nano.html

Yes

Tata's Nano: A Small Car with Large Consumer Surplus?

Annexure II
Technical Specifications of Tata Nano Car
3,099 m

Width

1,495 mm

Height

1,652 mm

Engine

2 cylinder

Capacity

624 cc

Power

35 PS

Fuel Injection

Multi Point Fuel Injection (MPFI)

Fuel Type

Petrol, diesel versions

Body Type

Sheet Metal

Mileage
Top Speed
Emission Norms
Safety Norms
Versions
Compression ratio
Power to weight ratio
Acceleration
Transmission
Gearbox

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Seating Capacity

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Length

4 (Four)

2022 Kmpl (City drive) 26 Kmpl (Highways)

105 Km

Euro-IV, Bharat Stage-III compliant

Frontal Crash Tested

One Standard and Two Deluxe

9.7:1
0.58

060 kmph: 8 secs

Synchromesh on all forward gears, sliding mesh on reverse

gear with overdrive on 4th gear

4 forward speeds, 1 reverse, all forward gears synchronised

Independent mcpherson strut, shock absorber

Suspension Rear

Semi trailing arm, coil spring with gas filled shock absorber

Brake Type

Dual Circuit, Vertical Split operated by tandem master cylinder

Front Brake

180 mm drum

Rear Brake

180 mm drum

Tyre Type

Radial & Tubeless

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Suspension Front

Contd...
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Tata's Nano: A Small Car with Large Consumer Surplus?

135/70 R12

Rear Tyre size

155/65 R12

Min. Turning circle radius

4m

Ground Clearance

180 mm

Fuel Tank Capacity

15 L

Battery Position

Semi sealed under the drivers seat

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Front Tyre Size

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Source: Indian Automobiles, http://www.surfindia.com/automobile/tata-nano.html