Thursday, January 10, 2008

The Tata Nano: Some Subtle Implications

The Tata Nano heralds the start of a new economic race to exploit the emerging markets in Asia and Africa. Thanks to western advertising and propaganda, the car is seen a status symbol all over the world. A vast majority of the lower middle classes in India, China, South East Asia and Africa are keen to purchase this status symbol.

As usual, the western observers are dismissive of the Tata effort - they see it as nothing great - technologically speaking and they fail to see why anyone in the world would want a car without power windows. They are incorrectly comparing it to Western cars - when they should be comparing it to alternative transport options in Asia and Africa i.e. the moped, the public transport bus etc... This kind of attitude on their part showcases the key problem that Western industrial groups and MNCs face - locked up by layers of bureaucracy in high towers they are out of touch with the nature of the world market. They now find themselves losing out to more flexible, informed and adaptive Asian competitors.

The electronically loaded and fuel inefficient cars of the West are out of place in the Asian and African markets, the poor people in Asia and Africa cannot afford them. Also the poorer regions of the world are characterised by overpopulated urban spaces where the high performance engines of Western cars are utterly useless as the driver never gets above 30 miles an hour in city traffic.

Tata has hit the right nerve, and for better or for worse, Bajaj, and Maruti will follow. Where these three go - others cannot afford not to follow. The emphasis on small, energy efficient cars without luxury fittings, and low maintenance costs is the core of Tata's approach. Tata's approach will bring mobility to the masses in a far more economically and fuel efficient way.

If Western car manufacturers want stay economically relevant in the long term, not only will they have to focus on building cars that sell in the Americas and Europe - they will have to gain a market share in Asia and Africa. The Tata Nano and the philosophy it represents simply cuts Western car manufacturers out of those markets.

To a great extent the Western philosophy of car design which centers around fuel inefficiency and luxury - is held aloft by governments that keep the price of oil artificially low in the West. As Asia and Africa start to consume more oil, the ability of the Western governments to artificially support low oil prices will decline precipitously. The very same oil companies that have been bribing Western governments to kill energy efficient cars will now turn their backs on those governments and jack up the prices at the pump without care for the socio-economic consequences.

The end result is that the Western philosophy of car making will die and with it a way of life will go as well. Given how infectious Tata's idea is, it is very plausible that the Americans will have to go to India to buy cars then sell the Tata Nano - in the US with a GM, Chrysler or Chevy label.
While the senior management in these places which is tired of running the red might welcome that change - it is unlikely that ordinary Americans and Europeans will welcome this.

The Tata Nano effectively puts the entire Western auto world on notice. It tells them their way of doing things is completely out of sync with global economic realities. I can't imagine how they would feel about that sort of thing - at the very least it going to add to that long list of complaints they have over their loss of status.

What Shakti-1998 did to the global nuclear order - the Tata Nano does to the global automotive order.

20 Comments:

At 10:30 AM, Anonymous Anonymous said...

"Given how infectious Tata's idea is, it is very plausible that the Americans will have to go to India to buy cars then sell the Tata Nano - in the US with a GM, Chrysler or Chevy label."

This is already happening.

http://sify.com/finance/fullstory.php?id=14555314

 
At 11:21 AM, Blogger maverick said...

Hi Anonymous,

The Tata Nano has revolutionary implications for emissions in India, especially in urban India.

With its price, Indians will be able to shift from used cars with poor efficiency, high maintenance costs and poor emissions to a new car with better performance. This puts pressure on Maruti, Bajaj, Hyundai etc... to innovate big time.

This car will offer moped and scooter users a far far higher safety level.

I look forward to replacing all the old 800s and Padminis with this.

I think people are correct when they point out that the car is likely to create congestion problems in urban *India*. Urban India suffers from a dramatic lack of viable planning ideas and road usage is highly undisciplined. I am not really an optimist about this part of it, but an optimistic point of view is that this car would force India to reconsider its "chalta hain" attitude with regards to urban planning - sparking an economic boom in the satellite towns that cluster around our mega cities.

However, outside India - where there is already congestions and pollution due to large cars operating inefficiently at the low extreme of the performance - it at low speeds, low gears, with frequent stops, the Nano could actually substabtially reduce congestion and emissions because unlike the fancy western cars, the Nano would be in the dead centre of its efficient performance range.

Everyone says the evironmental angle is bad for this, I disagree.
I mean imagine what would happen if a megapolis like Rio de Janerio, Sao Paulo, Johannesburg, Bombay or Mexico City put up a pollution control rule that said that only cars in the "super mini" class like the Nano were allowed into the city on certain days? - that could dramatically reduce pollution in these places.

If all these "maximum" cities did this, would a tiny metropolis like New York be far behind? What would the reaction of the average Manhattan-vasi be to the possibility of having an alternative to the gas guzzling Chevy as a taxicab?

Another implication is for women's mobility. As you know in India, mopeds are the means for women to get around. They are safer and more flexible than public transport and every woman I know wants one. Even our visiting Pakistani neighbours wish their women could ride a moped to work like the counterparts in India do. What holds true in India, holds true in Vietnam, Cambodia, Malaysia, Laos, Indonesia and Singapore! The Nano is an even higher level of safety and versatility than the moped. Given that it can be used in places like Pakistan or Bangladesh!

This is atleast as significant a development as the Shakti test of 1998. A full ten years later the critics of India can no longer say - look at India it can make nukes but it cannot design a car for its masses.

As the Nano proves, we can very much do that and do it well too.

 
At 3:03 PM, Anonymous Anonymous said...

If the Indica marked the arrival of private Indian industry that had the necessary base to develop a car, the Nano marks the arrival of private Indian industry that can innovate.

 
At 7:29 PM, Blogger maverick said...

Hi Anonymous,

Not just that...

A point that even I missed is the difference between the Habib Sitara and the Tata Nano.

Though both are motivated by the same kinds of calculations, but the technology difference between them is about 25 years - that Nano is atleast 25 years ahead of the Sitara.

I am thinking of the days of old when everyone in the world was convinced that a small and disciplined Pakistan would be able to surge past India developmentally in a matter of decades. The difference between the Sitara and the Nano shows that exactly the opposite has happened - it is India that has surged ahead and Pakistan is falling farther and farther behind!

With each passing day, I am convinced we have just witnessed an event of truly staggering significance.

By the way, so far the imposition of higher pollution norms has been held up because neither Bajaj (the major scooter/moped producer) nor maruti (the biggest small car producer) could meet the higher norms. The norms and efficiency standards in India are higher than what the US has. Now that the Nano is out in the open, I want to see how the stance on the norms shifts.

I was staring at pictures of concept vehicles from recent autoshows abroad. Suzuki has a few concepts about personal mobility vehicles but nothing quite like the Nano on their drawing board.

If that is the terrible state of affairs in Japan - that great Asian innovator - the Nano is going to make the Japanese feel very insecure as well.

Bajaj with it good offices in Italy is likely to be able to produce something close very quickly, but man... they have lost ground by simply sitting around waiting for Ratan Tata to fail. I note an Italian design firm has shifted offices to India for designing smaller vehicles - this is a positive move - what the Italians learn in India they can sell in Europe.

Another thought that has recently occured to me is that the Americans *WISH* they had such a car - something like a Nano - instead of a gas guzzling piece of shit that is breaking their bank account. That is going to be a powerful motivator for the Americans to come to India now.

 
At 9:11 PM, Anonymous Anonymous said...

Hi M,
Mera Bharat Mahan! Read the khujli in the western commentators a***
Wait another 10 years Nick Burns will have more khujli in his g***.
(sorry for the language)
regards,
mukunda

 
At 9:43 PM, Blogger Ghost Writer said...

Maverick,

While I agree that the Tata Engineers have scored a world-bending win; even these gains can be wiped out in five years if the oil-price graph keeps up the way it has gone.

what will be truly spectacular would be to build a sub $5000 car that is energy infrastructure independent; bio-fuels or powered by solar cells on the roof your house. That would a true Pokhran III in my opinion

 
At 12:42 AM, Anonymous Anonymous said...

Maverick,

What we have here is a car that will revolutionalize world transport. Why still the habitual urge of comparison with Pakistan? That country is fast going down the toilet. Isn't it time that we stop belittling our achievements by comparing them with Pakistan?

 
At 1:15 AM, Anonymous Ananya said...

Minor nitpick:

Your comments regarding "artificially low" oil prices and fuel inefficient cars is true in an American context. It doesnt apply to Europe for most part though. For example, petrol and diesel is definitely not "cheap" in UK (> £1 per liter = Rs. 80) and neither are the cars fuel inefficient. Most cars are around 1.1 - 1.6cc range, which makes sense since they have a better road infrastructure, but they arent as powerful as the American ones.

There may be hidden subsidies to petrol, I dont know, but so do the Indians.

 
At 6:33 AM, Blogger maverick said...

Mukunda,

It is a day of pride for all Indians.

Very few people know how blurry the line between the word "Tata" and the word "India" is.

Some people recall that the Tatas set up the first steel plant in India and about 50 years later, India was the biggest manufacturer of steel in the British Empire.

Not many people realise that "Nobel Laureate" Pachauri actually heads TERI - that is the *Tata* Environmental Research Institute.

Even fewer probably remember that TIFR where the entire Department of Atomic Energy got its start - stands for *Tata* Institute for Fundamental Research.

A handful perhaps remember that the "famous five" picture taken at the site on the first Buddha Jayanti - Mme. Gandhi, Sri. Kao, Dr. Ramanna, JRD and P.N. Haksar.

It is day of great pride indeed.

 
At 6:37 AM, Blogger maverick said...

Dear Ghost Writer,

The Tatas have proven that it is possible to make a car that meets the needs of India's markets.

This should really encourage people to pursue dreams like the one you have just posed.

Ratanji has done pretty much the same thing that Jamshetji did 150 years ago - he has laid the foundation.

Now if you or anyone else wants to develop a 33 Hp power plant that is far more enviroment friendly - that fits into the Nano frame and costs only about $1000 then I can't imagine anyone on the global market will refuse that product!

The Tatas have drawn the target and showed things like this are possible.

The rest is up to India.

 
At 6:43 AM, Blogger maverick said...

Anonymous,

Why am I comparing to Pakistan?

Well... the answer is obvious - the comparison is something the Pakistanis like to do and this time it clearly shows the difference between India and Pakistan.

Sure the Pakistanis came out "first" with their Habib Sitara.. but compare that with the Nano and see where Pakistan stands and where India stands.

And when you are finished doing that - then lets talk about the difference between India's missiles and Pakistan's missiles!

Just for comparison, the Habibs emigrated from India in 1947 to Pakistan - they were a small time banking clan that made it big in Pakistan by using the "Islam Uber Allez" idea to gain a toehold in the Middle East. This process of "making it big in Pakistan" put them in touch with all sorts of unsavory characters and their name was dragged into that BCCI mess.

I guess you can see the difference between what a former small time banker can do after making a vague effort and what a real Indian industrial house can do.

You know, this is not the only thing that is great about India.

In India, I can say "Allah ho Akbar!" and not have the police come and level my house with artillery.

How many people of Pakistan make that claim?

 
At 6:47 AM, Blogger maverick said...

Hi Ananya,

I think the biggest subsidy is in the North Sea.

I agree fuel prices in Europe are a lot better than the US, but if you compare the fuel prices as a percentage of average income - Europe is not that far off from America.

Ultimately the search for fuel efficient usage scales with the fraction of income spent on fuel. This is where the poorer part of Asia leads the world!

 
At 6:49 AM, Blogger maverick said...

I never thought this day would come... but Maruti, Hyundai and Bajaj are facing competition from the Tatas!!

 
At 4:23 PM, Anonymous Sparsh said...

Somebody should ask Pachauri and the rest of the supposed environmentalists what car(s) they drive. Seriously, someone should try to find out what Pachauri and the rest own and publicise it.

Even if they are driving a two wheeler, which I doubt they do, they are spewing out more air pollutants than somebody in a Nano.

Bloody hypocrites.

I have a suggestion for Pachauri and the rest. Figure out how much CO2 an average human produces in a lifetime and then kill themselves to save mother earth from all the CO2 they are yet to exhale.

 
At 9:32 PM, Blogger maverick said...

Sparsh,

The environmental impact has not been properly analysed in India. Every talking head is more keen on courting the Carbon Emissions Mafia than he or she is on a sensible analysis.

Tata is going in the exact opposite direction as Detriot.
No gadgets, no gizmos, only car - no bullshit to bring the mileage down.

Frugal, functional, and most importantly without a DVD player.

It is like slapping Detriot on the face and telling them no one needs that crap on there - what everyone wants is good fuel efficiency with a decent price tag.

It is like telling Detriot if you just take all that junk you have in there, you could easily produce a car that might even sell in America without special financing "Zero Money Down" and "No interest for 6 years".

I doubt the people at Detriot will learn from this. They are too steeped in their peculiar way of doing things.

America will find it cheaper to pay Environmental groups in India to make trouble for Tata than to change its ways.

 
At 2:00 AM, Blogger Vivek Kumar said...

maverick,

I have been a long time subscriber to your blog's feed, but have never left a comment before.

I was prompted to do so now because of this line in your comment:

"With each passing day, I am convinced we have just witnessed an event of truly staggering significance. "

Just yesterday, I wrote almost exactly the same words in one of my posts. Thankfully, I did not publish it, and hence, avoided charges of plagiarism :)

I agree wholeheartedly with your post and your comments, though I would like to wait and see how the Tatas take this project to its completion. The auto show was the first step in a long journey. Of course, that doesn't make it any less significant.

 
At 5:01 AM, Anonymous Anonymous said...

In response to the comments of Sparsh, Pachauri has TWO cars: A Honda City and a Toyota Corolla. According to my sources in TERI, he uses both! But the source did not say whether he uses both at the same time!

"Bloody hypocrite" is certainly an accurate description, at least of Pachauri!

 
At 8:01 AM, Blogger maverick said...

Dear Vivek,

An anonymous nobody like me can hardly raise credible charges of plagiarism.

I think the Tata Nano has already proved that it can be done - i.e. you can make a car that specifically exploits this market segment and does not compromise on safety or relevant performance.

The key thing is that until now the Indian market was being fed unsuitable products i.e. cars engineered for American/European/Japanese/Korean roads - built for speed and comfort - useless and inefficient in India's road evironment.

Tata has shown that it is possible to design and implement a car that is specifically made for Indian roads and Indian drivers.

This is exactly what DRDO did when it made the LCA.

This is exactly what DAE did when it made the bomb.

The only difference is that the Indian citizens will be far less prone to desires for "Black Label" and "English Speaking Girls" which unlike DRDO - Tata can provide to anyone who asks for it.

Allah Kasam - this has actually levelled the playing field. Maruti and Bajaj are going to have to struggle to run in place - I don't even want to talk about ford, mercedes etc...

I want to see how many people can afford to sit in their mercedes with 1 million Nanos clogging the streets.

I want to see which Pakistani or Bangladesh can resist the lure of the Nano. With each Nano we produce and send across our border, Pakistan becomes that much more tractable an entity. I mean seriously think of the saving in terms of suicide bombing - for just $2500, Uncle Osama's followers can suicide bomb as many Pakistanis.

Allah be praised dear friend.

Dear Anonymous,

Pachauri is going to be hung by the string on his nobel prize.

 
At 3:14 PM, Anonymous Sparsh said...

Maverick,

On the question of Detroit: Over the years car manufacturers in the US, via their advertisement campaigns, have successfully carried out an image projection exercise wherein owning the sort of cars that they manufacture is a part of the lifestyle statement that the image conscious crowd are concerned with making. A case in point: Take a look at any truck commercial broadcast in the US and the subtle undertones in it. Then compare the number of people who actually need a truck versus the number of trucks sold.

I am fine with this* but the problem arises when this sort of lifestyle image is coupled with the availability of artificially cheap credit. This has led to a very warped market dynamic and a wasteful misallocation of resources. You can see this when you consider how much money the car manufacturers make from the financing schemes that they provide for new car purchases and how much this contributes to their bottom line. They are selling resource hungry cars that most of their buyers can not afford but can nonetheless be bought due to the availability of cheap credit. The very same kind of underlying forces were at work that led to the sub prime mess.

There is some realization dawning in Detroit that this sort of a business model can not be sustained indefinitely and that they need to produce cars that are affordable to buy and run. How deep is this realization and how aggressively are they moving to act upon it? I don't really know but from whatever little I have seen I would not expect much. There seems to be way too much corporate inertia. The Japanese and Korean manufactures will eat their lunch in the years to come.


On the question of environmental NGOs in India: There is one more thing at work in the racket (pun intended) that the more visible leftist environmental NGOs create in addition to being subversive mercenaries for hire. A number of these people are incredibly elitist at their core. They consider themselves to be above the lesser beings and thus uniquely privileged to come up with solutions to the issues that they are faced with. If the lesser beings think they are in a better position to decide these things for themselves then they will break out in a hissy fit. After all, I know better what is good for the unwashed rabble and they should be grateful to me for the same. Poverty is a noble thing indeed and these people ought to be content with whatever lifestyle I deem them to be worthy of.

The really sad thing is the most people never get to hear about the truly dedicated NGOs that are doing genuinely good work. Mostly these have a very local focus and the low overheads in their operations preclude having both the time and the money to go around creating a hungama like the parasitic publicity whores that we get to see on the TV.


* - Actually I am fine with people leading whatever lifestyle they wish to lead as long as they can afford it. Relying on cheap credit and living beyond your means, especially on a national scale, is a recipe for disaster.

 
At 7:57 AM, Blogger maverick said...

Hi Sparsh,

I think the biggest projection is the manner in which the Americans couple the word "Freedom" to a physical exclusion zone around each person. This projection borders on a new age version of "liebensraum".

All these "big" things - houses, cars, candy bars - everything flows from this idea that "bigger" is somehow "more free" and hence "better".

The way that Americans see it is that if its "bigger" then you are "paying less" for the incremental size. This way a "bigger" item is "more economical" than a "smaller item".

I cannot say for certain if this psychological construct was deliberately introduced by the wise men of America, or if it is a parasitic outgrowth of an ill considered psywar campaign in the 50s. The ideas appear to be extensions of the kind of stuff that Normal Peale alluded to his work after the war but which came first - the chicken or the egg.

Sadly my knowledge of American history is inadequate to come to any firm conclusions in this matter.

The way I explain this to my American friends is that the government has always been in the pocket of the super rich - whether in the USSR or USA or anywhere else. The only difference is that in the USSR - the govt. claimed to working in the interests of the people and to some degree personal choice was discouraged because it went against the "greater good".

By contrast in the US, the govt. worked in the interests of "freedom" and individual liberty and choice were permitted to the extent that they were "not economical". It is another matter that the very economy was completely based off ideas of "bigger being better" and anyone who wanted a smaller product actually had to pay more!

The big v/s small argument turns up in the psywar against the Nano.

 

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