Tata fights cost hikes in attempt to keep Nano's $2500 MSRP

9/8/08

If you've been gathering the change under your couch cushions to get a $2500 Tata Nano when it hits Indian showrooms later this year, you may be in for a disappointment -- originally designed to be the world's cheapest car, recent jumps in raw material costs mean the tiny five-door may no longer make its target price.

Tata has had a good run recently, successfully acquiring Jaguar/Land Rover (and seeing sales improve), and mulling a parts-sharing alliance with Mercedes-Benz. For a time the Indian automaker was even rumored to be a potential suitor for GM's ailing Hummer division, but suddenly Tata's outlook isn't looking so rosy -- the auto industry is being hit hard by rising raw material costs, and just like other companies around the globe Tata is struggling to stay profitable while holding the line on prices. Steel has become 50 percent more expensive (at $675 per ton) since the 33 horsepower, two-cylinder Nano was unveiled in January -- a cold, hard fact that bodes particularly poorly for the small car market, as a majority of production cost lies in steel. Many suppliers have also been hit by a 40 percent increase in the cost of furnace oil, which is needed to forge many components. To keep the Nano's MSRP low, however, the automaker is now asking its suppliers to share its burden and absorb some of these extra costs.

Working with a group of around 50 suppliers, Tata will raise the amount it pays for some parts, but is also implementing a new pricing model that pays less per unit for larger orders -- an unusual agreement in India, where prices are typically kept at a fixed rate for an agreed period of time. Tata isn't commenting on the change, but several suppliers have said the plan is fair, considering that the alternative could be raising the Nano's sticker price significantly. Tata may also benefit from getting steel at a discount, given that its parent company also owns India's largest producer.

Meant to revolutionize personal mobility by offering a practical new car at an affordable price for the developing world, Tata's idea has been so popular that other automakers are quickly trying to copy it. But if the Indian automaker fails to keeps its costs down, the Nano could lose its place as the world leader in low-cost transportation -- at least it comes with some swank options to help justify the price.

Source: Automotive News