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Tata Motors reverses cheap car strategy

Tata Motors launches the Zest compact sedan in Mumbai on Aug. 12.

MUMBAI -- Tata Motors has launched its first new offering in four years, the Zest compact sedan. The Indian automaker is aiming to gain lost ground in the domestic market with the new car.

     The Zest hit the market Tuesday. The car, aimed at middle-income consumers, features a luxurious-looking interior and exterior.

     The new model comes as Tata struggles with a slump in domestic sales following the failure of its ultra-cheap Nano car, which was released in 2009 to much fanfare.

     The launch of the Zest marks a reversal in Tata's strategy of making "national cars" that even low-income consumers can afford. Tata is now aiming at rival automakers in the highly competitive market segment.

Upward shift

Ranjit Yadav, president of Tata's passenger vehicle business unit, said at a press conference in Mumbai on Tuesday that the automaker will launch two new cars every year. 

     The Zest comes with two engine options -- a 1.2-liter gasoline engine and a 1.3-liter diesel engine. The gasoline engine is a new design and allows the driver to choose between three drive modes, including an eco mode for fuel consumption.

     Tata boasts about what it calls the world-class design of the Zest's exterior, which is equipped with, among other things, light-emitting diode lamps. The new model's interior has a black-themed design to make it look luxurious.

     The Zest has a starting price of about 464,000 rupees ($7,575), and specifically is targeted at India's upper middle class.

     The biggest competition for the Zest is Honda Motor's Amaze sedan and Maruti Suzuki India's Dzire sedan. There are no big differences between the Zest and the two competitors in terms of equipment as well as size and engine displacement.

     But the prices for the Amaze and the Dzire start at around 500,000 rupees. The lower price of the Zest is expected to be a major selling point.

Nano no more

Tata's Nano stole the show when it went on sale in 2009, at a starting price of little more than 100,000 rupees. But based on sales figures, the Nano must be declared a failure. Currently, about 1,000 Nanos are sold every month, less than 10% of what Tata had originally projected.

     Consumer confidence in the Nano was severely hurt by several accidents caused by fire and smoke in 2009 and 2010. Before launching the Nano, Tata was also forced to change the construction site for a Nano plant in the face of strong objections from locals.

     The Nano has also had to contend with a slowdown in the Indian economy.

     "The idea of a BOP (bottom of the pyramid) business targeting low-income people was unfit for the auto industry," said an official at one of Tata's rivals.

     Tata made partial modifications to the Nano in January, including new colors, to target young city dwellers. But the new Nano has so far failed to attract many consumers.

Making the market

Meanwhile, Tata's rivals from Japan, the U.S. and Europe have aggressively introduced new cars in India, taking customers away from the troubled Indian automaker.

     In fiscal 2006, which ended in March 2007, Tata had an about 17% share of the Indian car market, making it the second-largest automaker there. For the April-July period this year, it had a market share of 6%, placing it fifth.

     For Tata, the Zest is a strategic car aimed at turning around its fortunes. Tata is also set to launch another car, the Bolt hatchback, by the end of this year.

     Many people in the auto industry have a favorable view of the two new Tata cars. "Their engines are new and their interiors and exteriors are also decent. If they are priced right, they'll be competitive," an industry analyst said.

     But the market segment Tata is now targeting is highly competitive. 

     As for hatchbacks, Nissan Motor launched in India in March its first new car under the revived Datsun brand for emerging markets.

     Tata still faces a bumpy road ahead, as it seeks to recover from the Nano's failure and regain market share lost to rivals.

 

 

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