Why a low price doesn’t always equate to good value for money
Oscar Wilde wrote that a cynic “knows the price of everything and the value of nothing”. So, was Tata being cynical when it launched its Nano in 2008 with the expectation that thousands would flock to the car based on a barrel-scrapingly low cost?
No, the Indian firm was not basing this move in cynicism, but there was perhaps naivety in its bold move to launch a car with a list price of just £1,700. As with so many business decisions, timing was all important and this is where Tata started to fall down.
This has resulted in the Nano being canned after sales dwindled to nothing by May this year, even if Tata had stated in 2017 the car would continue. Simply put, there comes a point where it’s just kinder to put an end to a project that has gone into a financial coma.
The idea of an incredibly affordable car for the vast Indian market was based on sound thinking when the Nano was conceived. However, by 2008 when the car was unveiled, the burgeoning middle class of India wanted something much more perceived and real value for money rather than just a car where its only real selling point was it cost not much more than a scooter or motorcycle.
Tata had placed its bet on people wanting to step up to four wheels from two, but when that came with a certain stigma attached that marked you out as someone who couldn’t afford a better car, buyers stayed away. The original sales forecast was for 250,000 Nanos a year to find homes, but in its final full 12 months of production fewer than 8,000 left the showroom. That’s a disaster in any car makers’ book.
Yet the Nano had shown promise. Early in its design life there was talk of a version powered by compressed air, which would offer zero emissions driving. In a country such as India where urban pollution is a huge issue, this was an innovative and intriguing solution that could have had big implications for the rest of the world too. So far, it’s come to very little and that’s a shame.
However, what really sank the Nano was its abysmal safety standards. By constructing the car so cheaply, Tata had naturally to adhere to the minimum possible standards to keep costs down. The impact of this, both financially and when it met the concrete blocks of safety tests, were disastrous.
In 2014, the Nano was tested by Global NCAP for a head-on frontal impact at 40mph. The results were terrifying and showed the entire front end of the Nano collapsed. Global NCAP stated it “increased the risk of life-threatening injuries and its structure was unstable and made it unsuitable for the fitment of airbags”.
Not only that, this result for the Nano prompted the Indian government to firm up its own Bharat New Vehicle Safety Assessment Program.
This is all damning stuff, but we shouldn’t be too quick to condemn Tata when it was bold enough to design and built a car for a market that, at the time, looked like it needed just such a car. The fact the market shifted so quickly during the Nano’s development only shows how abruptly auto makers’ fortunes can change.
It’s a lesson that has been learned by many, notably Chinese car companies such as Lynk&Co are rapidly getting on terms with their European counterparts in terms of design, build, quality, safety and emissions. Be in no doubt, we’ll soon see Chinese-made cars on sale in Europe at keen prices but with a great deal of value included in terms of desirability, equipment and driving dynamics.
Does that sound fanciful? It shouldn’t, as we’ve seen this pattern before when Japan started to make inroads to Europe in the 1970s, followed by the Koreans in the 1990s. More recently, Dacia has proved you can go from nowhere to be an established and respected player in a very short space of time.
Let’s take the Dacia Duster as an example of this. When it was launched in the UK in 2012, few knew who this Romanian company were other than it had some association with Renault. That link helped with credibility, but it was never going to be enough to convince people to part with their hard-earned cash on its own, especially at the cost-conscious budget end of the market.
Of course, Dacia made a big play of its low prices, but it was couched in terms of value for money rather than just being cheap. It also helped the Duster was, and is, very good to drive even in it most basic form. Further assisting its case was a need in the market for an affordable SUV and the emergence of this type of car’s popularity. In other words, Dacia got its timing right where Tata’s was all wrong.
The fundamental point here, though, is the question of value for money. It’s an area where Dacia has persistently made gains and why it has become an accepted player in the European car market where other big names have stumbled. Remember Chevrolet? It tried to crack Europe with affordable cars but they were dull to drive, looked awkward and offered little in the way of value.
It’s an important lesson for any car maker to learn, understand and incorporate into its strategy, yet it’s amazing that some still don’t always adhere to it. This applies to models at all price points in the market, so whether it’s Tata or Maybach, you need to make sure buyers want what you’re selling and it comes with the sort of value they appreciate.
Get those elements right and you’ll have a ready pool of customers who not only get it about price and value, but also the worth of the car and brand.