Tata Motors Limited is a leading automobile company in India, with consolidated revenues of USD 32.5 billion in 2011-12. Tata Motors is a leader in manufacturing of commercial, passenger, military and electric vehicles. It is also the world’s 4th largest truck and 2nd largest bus manufacturer by volume. In January 2008, Tata Motors introduced Tata Nano, dubbed as the “People’s Car” and also known as the world’s cheapest car. The car was launched in March 2009 which created a significant impact in the Indian automobile market.

Home

The main target group of customers for Tata Nano are the lower and middle income families in India, many of whom resisted purchasing four-wheelers mainly due to the price affordability and maintenance cost. Launching Tata Nano gave an opportunity for these groups to purchase a car within their means.

The main competitors of Tata Nano are Suzuki Maruti-800, Suzuki Maruti Alto, Suzuki Maruti A-Star, Chevrolet Spark and Hyundai Santro. Their factories are located in various part of India.

Before Tata Nano came into the market, the leading low-cost car in Indian market was the Maruti-800, priced at around ₹ 188,988 – ₹ 223,498. The car was made to cater to the higher middle class or middle class people segment (Annual income above ₹ 300,000). The used car market in India is also huge, forecasted to be growing at a compound annual growth rate of around 22% from 2011 to 2014. Introduction of Tata Nano impacted the used car market in India significantly. Used car sales dropped by 30% immediately before the Nano’s introduction into the market. As for the new-car market, car sales of the Maruti-800 dropped by 20%.

The popularity of the small car segment in India is exemplified by market leader Maruti Suzuki, which is projected sell about million small hatchbacks this year, attaining about 50% of the car market share. Tata Motors market share is currently around 14%.

During the initial launch, Tata Nano was priced at about ₹ 100,000. In December 2008, the cost of the car increased significantly due to higher raw material costs. Currently, the fixed prices of the Tata Nano in India are as follows

Model

Base Model

Tata Nano CX

Tata Nano LX

Price

₹ 141898

₹ 171489

₹ 198605

* Delhi city ex-showroom price of the Nano

MICRO-ECONOMIC FACTORS

Demand for Tata Nano:

Consider a buyer who has two options:

A) Buy a car at ₹ 200,000

B) Buy a car at ₹ 140,000

Considering the demand, we may expect that the buyer choosing option B as the price is lower and leaves the buyer with a surplus known as “consumer surplus”. The buyer can then use this surplus for other purposes.

Then when the price is P1 [price of the other cars] the quantity demanded is Q1 [quantity with respect to the price of the other cars]. When the price of the car is P2 [price of the car “Nano”] quantity demanded increases to Q2 [quantity with respect to the price of ‘Nano’].

Generally while defining the negative relationship between the price of “Nano” and the quantity demanded of it, we take the ceteris peribus assumption, where all the other variables say, taste of the consumer, time period, prices of substitutes and complimentary goods are generally kept constant.