Live Issue... Tata Nano heralds new era for Asian car brands

The potential for Asia’s masses is huge.

The Tata Nano - the Indian conglomerate’s soon-to-launch car for the masses - has been labelled the Model T for the 21st century. Available at just $2,500, it is billed as the world’s cheapest car. The potential is for a totally new market segment - first in India, then in Asia’s other emerging markets. The question is, how viable is the proposition? And what are rival car brands going to do about it?

While a legal battle has delayed production beyond the October 2008 target date, the Nano is expected to roll off production lines soon to an eager public. “There are currently around 60 million scooters in India, and a lot of those people dream of owning a car,” says Shiv Sethuraman, CEO of TBWA India. “The Suzuki Maruti 800 was the first step of democratising car ownership in India - and the Tata Nano will be next.”

Launched in 1984, the Maruti 800 retails at about $4,500. Furthermore, the Nano prototypes are around 20 per cent more spacious inside, offering an extra selling point beyond price for families.

There is potential beyond India. Developed markets such as Hong Kong or Japan are unlikely to take to the Nano, and China’s car market is crowded enough already. But Thailand - an emerging economy without its own car maker - is the sort of market in which the brand could work. “Tata has submitted paper to Thailand’s eco-car project, so that appears to be in the works already,” says Sethuraman.

Other Southeast Asian nations may be next in line, says Matthew Godfrey, CEO of Publicis Asia-Pacific. “Markets like Indonesia and Vietnam don’t necessarily have huge manufacturing capabilities - and as you see the emergence of a middle class fed up with motorbikes, I think there’s real potential for a car like the Nano,” he says.

The Nano, then, could transform car marketing in the region. Rival car makers are working on their responses. Renault-Nissan is teaming up with Indian motorcycle producer Bajaj to enter the local market with an ultra-cheap car of its own. “We’re working with Bajaj to make use of their frugal engineering skills and technology, while we’re supplying some financial backing, a strong distribution system and potential expansion to other markets,” says Simon Sproule, corporate vice-president of global communications at Nissan. This model is expected to launch before the end of 2012.

“All manufacturers are looking at low-cost entry cars,” adds an industry source, noting that Hyundai is believed to be working on a model, and several domestic Chinese manufacturers are also exploring ultra-cheap options.

However, all will not be smooth sailing for these new brands. One challenge will be marketing the cheapest car available as an aspirational status symbol, as well as providing attractive financing packages. A further challenge is the weakness of existing infrastructure in developing markets.

Another potential problem for the pioneering ultra-cheap cars is durability - especially in light of the fact that the cars are primarily aimed at first time buyers. According to Sethuraman, the Tata Nano has built-in brand equity, thanks to the high esteem in which the Tata family’s businesses are held. However, the proof of the Nano will be whether it survives India’s roads.

This is obviously a concern close to the hearts of many car manufacturers. “While Volkswagen has an ever more diverse portfolio, it won’t do anything to endanger its central brand equity - which lies in high-quality German engineering,” says Kate McArthur, senior strategic planner at DDB Hong Kong, which works with the car maker. Nevertheless, if the Nano succeeds it could open up an entirely new market of drivers in Asia. And that is something no car brand will want to ignore.