The Hindu Business Line : On a confidence drive, with Nano

Faced with a crisis, General Motors will design and build bigger and bigger cars. Mr Tata proceeded in exactly the opposite direction; he built the smallest and the cheapest car possible, says P. V. INDIRESAN.

As the pioneer in the field, the Nano has a definite edge.

It has been said that during a panic, confidence is almost as good as gold. The Tatas must be in panic over the enormous debts they have incurred in buying up Corus as well as Jaguar. Credit rating agencies might have lowered their rating.

Yet, they have launched their prestigious small car, the Nano. At the same time, Saab, the well-known Swedish carmaker, is in serious difficulties; its government has refused to help it out. Saab does not know what to do.

Confidence is the difference in the two cases: the Tatas are confident of the Indian market; the Swedes are sceptical of their own.

Saab is the exclusive automobile royal warrant holder to the King of Sweden. Yet, as a subsidiary of General Motors, US, Saab faces the kind of troubles GM is suffering from. It will become bankrupt if an altruistic lender, usually a government, cannot be found.

Unfortunately, the Swedish government has no such plans; Prime Minister Fredrik Reinfeldt has said that the US company’s demands amounted to a “trap” set to pressure the government into granting aid.

The trade minister, Maud Olofsson, has suggested that the company had a brighter future moving to production of wind power turbines than continuing to produce cars in an already oversupplied market.

Same market, divergent views

Here are two views of the same auto market. The Tatas, very small compared to GM, have launched with great pride at high cost a small car and at a very low price. They see great future in that enterprise; most Indians would agree with them.

GM, the second largest auto manufacturer in the world, is unable to stand on its own and needs props it is unable to get. The Tatas have encountered any number of obstructions on their path and yet, with grit, they have decided to go ahead. Why such a difference?

Sweden has a right wing government which believes in the absolute power of the market. In its view, if a manufacturing company cannot survive on its own, it should either close down or make something else. The government has no responsibility to the company or to its thousands of employees who will lose their jobs, their livelihoods.

The Tatas could not have launched the Nano but for the competitive support extended by several State governments. India’s State governments see it as their responsibility to help companies like the Tatas to establish themselves in their area. They want new jobs; they want development.

There is logic behind this difference between the Swedish government and India’s State governments. The Swedes see GM and its subsidiaries as failed or failing institutions that will merely gobble up tax money and will ask for more and more.

The Indian governments see the Tatas as a vibrant and growing institution that will continually add more and more to the economy. They like to have share in the prosperity that the Tatas will bring. That is why they are willing to offer concessions to attract the Tatas.

Confidence made the difference

Saab and the Tatas are in the same business of automobile manufacture. Saab too could have produced a Nano. It didn’t, did not even try, because it did not think a small and economical car will be viable, let alone profitable. Mr Ratan Tata saw whole families precariously huddled on a two-wheeler; he wanted to offer them a safer option and saw money in doing so.

Faced with a crisis, General Motors will design and build bigger and bigger cars. Mr Tata proceeded exactly in the opposite direction; he built the smallest and the cheapest car possible. Faced with debt, General Motors has asked, and has got large amounts of money as doles. Faced with irrational opposition, Mr Tata merely moved over elsewhere, to a happier climate.

General Motors could have tried to resolve its problem by addressing what a growing market needs, in Asia, in South America and in Africa. It could have expanded in those countries and done what Mr Tata has done. The difference lies in confidence: Mr Tata had the confidence to overrule his own advisers who had been sceptical; GM managers did not have the confidence to expand and give to poor countries what they needed. So, they ask for gold and even more gold.

Companies do need help, financial help, at times. It depends whether the company is growing or dwindling. A growing company operating in a growing market can get into difficulties at times. I know of a company that was growing very fast with large orders from a large international company. It was even described as the fastest growing company in the country.

Unfortunately, the international company sold out to another which had plenty of the chemicals the Indian company was manufacturing. The new owner stopped buying but promised to get back again in a couple of years’ time. The Indian company did not have the staying power to wait for two years; it could not find other customers in a market where mergers were shrinking choices.

The company was dying. The banks would not lend money. As the bank representative put it, at the first sign of trouble, “I will take my money and run away”. Fortunately, the company found another buyer. It has survived.

However, it is not easy to find a private buyer to tide over the crisis. As a lender of last resort, the state is the best lender in such cases.

A dwindling company operating in a shrinking market will, sooner or later, exhaust the reserves it had accumulated in more salubrious climes. It too needs help to survive but that may have to be forever. It will survive only when it changes its policies, moves into a newer growing market.

Gujarat too in picture

A state which invests in a company in financial difficulties does face risks. The Nano may not reach its ambitious targets. It may have problems riding on poorly built Indian roads. Its service system may not be up to the mark. Its competitors may bring in similar and better machines — or level unfair criticism. Either way, Nano may not make all the profits it hopes to make. Then, the loser will be not the Tatas alone; the State of Gujarat will also share the blame.

There are reports that other manufacturers have already started designing similar autos. If they succeed, and even if they do not, the customer will be the beneficiary. For competition is best for both the producer and for the customer. The prognosis is that the country will see several Nanos in the near future. Not all of them are likely to succeed. At the same time, as the pioneer in the field, the Nano has the edge; a definite edge.

However, its future success will depend on the robustness of its technology, on the skill with which the technology is implemented, and also on the skill with which the company handles the little crises that will inevitably come to pass.

Hence, the future of the Nano lies not merely in its design but on its manufacture, on its maintenance standards, on the management of crises, big and small, that will inevitably happen.

(The author is a former Director, IIT Madras. blfeedback@thehindu.co.in)

(This is the 248th in the Vision 2020 series. The last article appeared on March 16.)

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