The Datsun Go starts at US$5,340. Only in India is such low pricing possible at the moment.
Staying in India for a couple of days has enabled me to get a much better understanding of the Indian new car market and its dynamics which have very unique characteristics. In fact, not only is India very different from any other new car market in the world, but its logic pre-empts that of many future developing markets, at the centre of which most of Africa. With the main notion to remember being ‘bottom-up innovation’ to achieve even lower selling prices, understanding India is essential in today’s worldwide automotive scene.
1. Why India matters
Ever wondered why so many India-exclusive new cars were unveiled at the Delhi Auto Show in February compared to the relative small size of its new car market (2.5 million units in 2013 vs. 20.9 million for China)? That’s because on top of the enormous growth potential, making and selling cars in India requires a very different set of skills as it does elsewhere. And the manufacturers that are getting good at it are taking a decisive advantage into succeeding in tomorrow’s developing markets, because they will know how to make cars so cheap they can sell at a profit even in Africa – which is, believe it or not, the new China (a much more detailed analysis of this last point will be published soon).
To be successful in India, cars need a price tag that is so much lower than in most other markets, that new thinking was needed. An Indian trademarked way of innovating that is adapted to local conditions, constraints and revenue levels. The ‘old ‘way of creating low-cost cars was to engineer down from more sophisticated products by cutting cost through tried-and-tested platforms and economies of scale. The new way is to engineer up from scratch a product that is game-changingly cheaper with a mix of bare bones elements and latest tech features. Example: the $100 laptop. This process has been dubbed ‘frugal engineering‘ (achieving more with fewer resources) by Carlos Ghosn, or ‘bottom-up innovation’.
No radio and CD player in the Datsun Go
2. Bottom-up innovation at play
Indian manufacturer Tata was the first to bring bottom-up innovation to the car industry with the Nano, ‘the cheapest car in the world’ at just US$1,670 when unveiled in 2009. The Nano turned a lot of carmaking conventions on their heads. It uses a modular design that theoretically enables a knowledgeable mechanic to assemble the car in a suitable workshop. It also includes numerous lighter components, from simple door handles and bulbs to the transmission and engine parts, enabling a more energy efficient engine. The Nano is one of the shortest four-passenger cars on the market—yet it allows for ample interior space. The fact that the Nano didn’t succeed doesn’t question this trend, as we’ll see below.
These ‘ultra-low cost’ cars can end up being more user-friendly, if sophisticated. One case in point that stroke me: the new Datsun Go does not have a radio or CD player (even optional), only an aux-in port and USB charging point, which means you can only listen to music stored on a portable device. On one hand I can hear you say “no radio? blasphemy!” After all, even Tata kept it optional on the Nano. On the other hand, most cars manufactured over 5 years ago don’t have these functionalities (even premium ones!), making listening to your favourite music without burning it on a CD impossible. See what I mean? All in all, for the target market, the driving experience in the Go as far as music is concerned is potentially more user-friendly for a fraction of the cost.
But just how low are car prices in India?
What Car India says the Renault Duster ‘doesn’t feel premium enough’ for the price. Wait what?
2. Low cost is premium is low cost
Car prices are on a drastically different scale in India: meaning they are not just a little less expensive, but in a different ball game altogether. That’s because salary levels cannot compare with Western countries. A young taxi driver earns around $150 per month which is considered a relatively good revenue. A Taj Mahal entry ticket is INR750 ($12) for tourists but INR20 ($0.35) for locals. And all prices are in line with this, including cars.
This way, models considered low cost in Europe are borderline premium in India. And this is where Renault’s strategy of selling Dacia models under the Renault brand in emerging markets takes its full meaning. Starting at US$15,200, the Renault Duster is not, and by far, the cheapest SUV/MPV on sale in India, and local magazine What Car? says ‘it doesn’t feel premium enough’ for the price… The Duster failing in the value-for-money equation is something I never thought I would see printed anywhere. But in India it makes sense.
The Maruti Alto 800 starts at US$4,740 in India.
Prices ex-dealer in Delhi include the Tata Nano starting at US$2,890, the Maruti Alto 800 at $4,740, Hyundai Eon at $5,400, Maruti Celerio at $6,280, Honda Amaze at $8,330 and Honda City at $12,000, keeping in mind Honda is seen as the more expensive Japanese option… So a large proportion of the market is happening well below $10,000. As far as models sold across different continents, they typically sell for half the price in India than they do, say, in France: the Maruti Swift starts at $8,500 in India vs. $16,100 in France, the Nissan Micra at $8,800 vs. $16,000, VW Polo at $9,500 vs. $17,700 and Ford Ecosport at $12,200 vs. $28,800!
In other words, it is impossible to truly compete in the Indian market without manufacturing locally. Now if like Nissan with the Datsun Go you want to undercut local behemoth Maruti by selling ‘more car for the money’, you have to come up with completely new ways of thinking a car. This price structure becomes relevant on the world scale when you take into account that most African countries have even lower average monthly revenues. Manufacturers that will manage to build and sell an attractive car for this type of money will have all chances to succeed in Africa when it booms, and it will.
A daunting task…
3. A hate of used cars
In this context, with a starting price at launch of US$1,670 in 2010, Tata was hoping to sell millions of Nano in India and even expected it would single-handedly increase the total size of the local new car market by 65%. It didn’t happen. And while this situation has boggled me for a long time, interacting with Indian consumers and exploring local roads and streets with my own eyes has, I believe, started to bring a few explanations to light.
First and foremost, the long-term view about low-cost cars is that they compete with used cars in the mind (and wallet) of consumers. It’s a little less true now in Europe where Dacia has somewhat shaken off ts ‘dirty’ low cost image, but it was the case for the first generation Logan for example. What it meant roughly was design and performance didn’t really matter, as long as one could buy a new car for the price of an equivalent used one. Well in India this is not true at all.
India sees trade-up from motorcycle to new car, bypassing used cars altogether.
A comparo between a brand-new Skoda Superb and a 4-year-old Mercedes E-Class in this month’s issue of What Car? India gave the Superb as winner. Which in itself can be conceived, but it’s the explanation given by the magazine that stroke me: “Car buyers in India usually shy away from used cars. The second-hand car market is still a big fat grey area, and then there is the added scare of buying something that’s been abused. If the Mercedes requires major work, it could become exorbitant. Yes, Skoda has a poor reputation for service and parts are expensive here too. And ‘I drive a Skoda’ doesn’t have the ring of ‘I drive a Mercedes’. Still, our choice here is the Skoda.’ Mainly because it is new, and all checks still cannot be trusted when it comes to buying a used car.
Buying an entry level car in India is more a choice between replacing a motorcycle/scooter or trading up to a new car. The ‘used car’ box is bypassed altogether as there are still too many unknowns associated with it and the used car market is far from regulated. It has become a bit of a vicious circle with cars devaluating extremely fast, and the Nano itself suffered from this phenomenon: a 2011 model can currently be snapped up for a mere INR75,000 (US$1,250)… New motorcycles can typically be bought for INR30,000 to 70,000 (US$500 to 1,170). Pretty close.
So why did India not choose to trade up from motorcycle to brand new Nano?
The Yamuna Expressway opened in 2012, cutting the Delhi-Agra travel time from 5 to 3 hours.
4. Interstate travel in style – What the Indian consumer really wants
About the Datsun Go, What Car? India says “it’s clear that Datsun tried to make it look anything but budget. The Go has a peppy engine, spacious interiors and is easy to drive. It seems like a lot of car for the money.” An observation that goes against most Western observers that qualify the Go as nothing more than a bland and cheap copy of the Nissan Micra. Not in India. There, it is robust, handy and stylish enough to earn the right to be taken on interstate travels with pride.
And that’s the key. What can an Indian family do with a car that it cannot with a motorcycle? Visit relatives interstate. Why is this so important? 3 main factors: the family takes a central role in any Indian person’s life, only 20% of the entire population of India lives in big cities – stressing the need for interstate travels between smaller towns, and the local infrastructure is fast improving – the Delhi-Agra Yamuna Expressway I travelled on was only 2 years old.
Now onto my personal experience. How many Maruti Alto and Honda Amaze I saw whizz past our taxi at 150kph+ the entire way even though the official limit is 100kph is an indication of how hard Indian drivers are pushing even the most frugal cars. And how hard they need a car that can go at these speeds with relative soundness – the ‘relative’ word is key here, as most of these cars do not have ABS nor airbags.
“Can I push my Tata Nano hard?” The answer is no.
Under this angle, it becomes a little more obvious the Nano is, paradoxically, not cut for India. A What Car? reader asks “Is it safe to drive the Nano at 80-100kph?” The magazine responds “the Nano is fundamentally a city car and isn’t designed for high speeds. Driving it close to its maximum speed (105kph) isn’t advisable. For the same money, it’s best to pick up a slightly used car like a Maruti Alto which feels more secure at highway speeds”. Which confirms my sightings on the expressway. Oh and by 80-100kph this reader surely meant 130-150kph…
So the Nano is ‘the cheapest car in the world’, granted, but one cannot get out of the city with it, which limits it to a 2nd or 3rd family car, and Indian families that can afford a 2nd or 3rd car would not be seen dead in a Nano. Not stylish, too frugal, not a ‘real’ car. The loop is looped. The Nano could only attract posh city-dwellers that don’t really need a car and to them it’s not attractive. Now I’m generalising a bit, but you get the idea.
Maruti Celerio & Hyundai Grand i10. Maruti and Hyundai are in Datsun’s line of fire. Tough targets?
5. What next?
My stay in India came at an important time in the local car industry: when Nissan, reviving the Datsun brand to make it its entry offering, launched its first ‘ultra low cost’ model, the Datsun Go – but don’t go calling it ultra low cost in India, as it is certainly not seen as such there – Carlos Ghosn did not mention the word ‘low-cost’ once when he unveiled the car last year. First sales figures will show very quickly whether this adventure has been worth all the ‘bottom-up innovation’ trouble. Datsun has already announced its next two Indian launches: in late 2014 the US$7,500 Go+ MPV will arrive and in 2015 the US$4,990 Redi-Go hatch. If successful, expect Datsun to start launching in Africa very soon, and the start of a fascinating new chapter in the history of world automobile will have been written.