The world may quiver, people may wonder and customers may cheer up with the world’s cheapest car Nano for Rs1 lakh. But the car is making a lot of drain in the exchequer of Tata Motors. Tata projected the Nano for Rs1 lakh based on the then existing prices of materials – the hot-rolled steel was available for $399 per ton- after seven years, now, Tata has made 30000 Nanos and the steel is selling double the cost- nearly $800 per ton. Possibilities are there for further increase in the price. This steel, used for the car’s body panel, constitutes 50% of the car’s weight and the suppliers are seeking revised prices. A component supplier sought for an increase in the range of 5-7% for the body panel components. The supplier seems to have quoted the increased price of steel by 18% from the last September. The increase in the price of steel is to be diverted to the original equipment manufacturers and they have to decide on diverting the net cost.
In any way, Ratan Tata is committed to deliver the first 1lakh Nanos at Rs1 lakh. But the Chairman and MD of Steering Systems mentioned that the price hike in terms of steel or any raw material would be passed over to the car manufacturers. Tata, on the otherhand, said there is no point in frequent price rise and the company is committed to deliver the first 1 lakh Nanos at the pre-revised price of Rs1lakh. The suppliers are fully aware that Tata is gaining a thin margin from Nano. The fluctuation in the price of sale – during the production at Singur plant and Pantnagar- decided the net margin. The present price structure reveals that the cost of production will certainly be on the higher end, than the entry-level dealer price. Tata is quite optimistic with Nano, in creating a competition with Maruti which dominates the country’s car market with nearly 50% share. Maruti has been facing price crisis due to the rise in raw materials. The sale figure and company information released last month indicated the profit for Q4 was reduced by 70basis points. The company has quoted the price rise in steel, copper and nickel. Nano has survived the price hike due to the categorized models- the customers have booked spreading into three categories. There are 50% bookings for the top-end version, 30% for mid-level CX model and 20% for the entry-level model. In keeping all these factors on record , the booking for the next phase of Nano is kept in abeyance. There is high possibility to increase the price, when the raw materials and commodities get price rise.