Sucheta Dalal :Protracted delays high EMI provokes Nano cancellations
Sucheta Dalal

Click here for FREE MEMBERSHIP to Moneylife Foundation which entitles you to:
• Access to information on investment issues

• Invitations to attend free workshops on financial literacy
• Grievance redressal

 

MoneyLife
You are here: Home » What's New » Protracted delays, high EMI provokes Nano cancellations
                       Previous           Next

Protracted delays, high EMI provokes Nano cancellations   

August 21, 2009

 

Tata Motors Ltd’s ambitious Nano finally hit the roads last month. Nearly 100,000 people who were certain to receive the low cost car will now get it by last quarter of 2010. However, there are reports that many among those who had booked the small car are now opting for cancellation. This is largely because the Nano customers seem deterred by the huge gap of the actual car delivery date coupled with higher interest rates charged by the banks.
 
"The key reason for the spate of cancellations across the country is due to extended delivery time,” said M Dohare, chief manager, marketing and new initiatives, Union Bank of India (UBI). UBI, one of the lenders for the Nano has reported about 750 cancellations till date. The bank received 3,270 applications for loans, out of which, it has assured 2,366 allotments. Out of these, some 1,500 customers are scheduled to get their dream car between 2010 and 2011.
 
Tata Nano, better known as ‘people’s car’ or the ‘Lakhtakia’ was a huge hit among the middle class, with almost 203,703 people going for advance booking route. At that time, Tata Motors shortlisted 100,000 owners through a computerised random selection process. The company had claimed that the cars are ‘price-protected and people will get their dream vehicles at ex-showroom price’.
 
However, many among these 100,000 selected owners and 55,021 in the waitlist are now seen pulling out of the deal. The spate of withdrawals have taken everybody by surprise, although Tata Motors had pledged to shell out an interest of 8.5% on the booking amount to the waitlisted customers on the terms that the car would be delivered within two years from the date of allotment (23 June 2009) or will pay 8.75% interest if the car is delivered after two years from the date of allotment.
 
The fact that the customers need to pay an interest first and enjoy the car ride later did not go well with many Nano buyers. Around 70% of the Nano bookings were made through bank loans, with interest rates varying between 10% and 12% on a booking amount of Rs90,000 to Rs140,000.
 
For example, a borrower who had opted for a loan of Rs120,000 for a three years period will be forced to shell out a monthly instalment of Rs4,000, paradoxically when he is getting his dream car only after two years.
 
Though, extended delivery time is the key reason, a few from the 100,000 shortlisted customers have also opted to cancel their bookings. Besides banks, some Tata Motors dealers also have confirmed their cancellations. "There are several cancellations, but they are at Tata's end," said one Mumbai-based dealer. The company officials were tight-lipped on the issue.
 
This saga of cancellation however seems to have become a precursor for other car manufacturers like Maruti Suzuki India Ltd, Hyundai Motor India Ltd (HMI) and Honda Siel Cars India Ltd. While, many car makers in India have restrained themselves from entering into low cost car segment, others who were getting ready for competition are now chewing over their plans. Several automobile players are contemplating to launch small car with better features rather than joining the low–cost bandwagon.
 
Bajaj Auto Ltd is yet another player to join the low cost bandwagon after Tata Motors and is planning to launch its concept small car ‘Lite’ by 2011 with a price tag of about $2,500. Bajaj is all out promoting its offering as a fuel efficient car.
According to Bajaj spokesperson, the company is focussing towards fuel efficiency (mileage of about 25kms per litre) rather than the price tag.
 
Hyundai Motor India—subsidiary of South Korean Hyundai Motor Co which plans to launch its small car by 2012 is now betting on performance and safety of the car. Rajiv Mitra, publicity head, HMI said,” We expect the car to perform well in India because there is an emerging market for it.”
 
HMI is the second largest car maker in India which will not be a low cost vehicle like Nano. It will be priced lower than its Santro range of cars. Santro is priced between Rs342,000 and Rs437,000.
 
India’s largest car maker, Maruti Suzuki and Honda Siel have decided to stay away from the low-budget car segment. Currently, the only small car capable to challenge Nano is Maruti 800—the oldest war horse from the stable of Maruti Suzuki. Many customers feel that Maruti 800, priced slightly higher than Nano, offers more features and capabilities. However, due to non-compliance of the BS-IV emission standards, the production of Maruti 800 would cease starting next year.
 
Almost at a same price with better features compared to the luxury version of Nano, M-800 is seen as a potential threat for Tata’s dream car. - Yogesh Sapkale with inputs from Amritha Pillay [email protected]

 


-- Sucheta Dalal



 



Recent Comments