References
Abuelsamid, Sam. "The Real Cost of Unionized Auto Workers." Autoblog. 23 Nov. 2008. Web. 06 Apr. 2011. http://www.autoblog.com/2008/11/23/opinion-the-real-cost-of-unionized-auto-workers-70-hour-try/.
Alison. "Tata Nano Electric for Europe?" Eurocarblog. 14 June 2010. Web. 6 Apr. 2011. http://www.eurocarblog.com/post/3173/tata-nano-electric-for-europe.
Bajaj, Vikas. "Tata’s Nano, the Car That Few Want to Buy." The New York Times Global Business. 9 Dec. 2010. Web. 6 Apr. 2011.
http://www.nytimes.com/2010/12/10/business/global/10tata.html?pagewanted=1&_r=2.
"Daimler's Smart Car Sales Drag in US." Covering Environmental Issues and Green News. The Earth Times, 15 Feb. 2011. Web. 06 Apr. 2011.
http://www.earthtimes.org/articles/news/367392,car-sales-drag-us.html.
"Dealerships for Sale." Gordon Page. Gordon Page & Associates, Inc., 1 Apr. 2011. Web. 6 Apr. 2011. http://gordonpage.net/Dealerships%20For%20Sale.htm.
"Factories Go South. So Does Pay." Bloomberg Businessweek. 9 Apr. 2007. Web. 06 Apr. 2011. http://www.businessweek.com/magazine/content/07_15/b4029081.htm.
"Form 20-F for Tata Motors Limited." EDGAR Online Pro. 30 Sept. 2008. Web. 06 Apr. 2011. http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=6172382-775-717030.
"Harmonized Tariff Schedule of the United States (2011)." US International Trade Commission. Web. 6 Apr. 2011. http://www.usitc.gov/publications/docs/tata/hts/bychapter/1100c87.pdf.
"Honda to Build New Automobile Manufacturing Plant in Indiana." New Car Buying Guide. Web. 06 Apr. 2011. http://newcarbuyingguide.com/index.php/news/main/5315/event=view.
"India's Manufacturing Labor Costs Top China in 2010." SDCExec.com. Web. 06 Apr. 2011. http://www.sdcexec.com/web/online/Global-Focus-News/Indias-Manufacturing-Labor-Costs-Top-China-in-2010/50$12946.
"Kentucky Lands Electric Car Plant and 4,000 New Jobs." MFRTech. 25 Aug. 2008. Web. 06 Apr. 2011. http://www.mfrtech.com/articles/1195.html.
Lavrinc, Damon. "Volkswagen Announces Plans for Factory in Chattanooga, Tenn." Autoblog. 15 July 2008. Web. 06 Apr. 2011. http://www.autoblog.com/2008/07/15/volkswagen-announces-plans-for-factory-in-chattanooga-tenn/.
"Mahindra & Mahindra and Renault to Setup a Manufacturing Plant in India." Technology News. 10 Nov. 2006. Web. 06 Apr. 2011. http://news.techwhack.com/4678-mahindra-mahindra-and-renault.
Schultz, Jonathan. "Tata Chairman Says U.S. Car Will Cost '$7,000 or $8,000'" Automobiles - Wheels. The New York Times, 15 Mar. 2011. Web. 06 Apr. 2011. http://wheels.blogs.nytimes.com/2011/03/15/tata-chairman-says-u-s-car-will-cost-7000-or-8000/.
Teresko, John. "Toyota's Real Secret: Hint, It's Not TPS." IndustryWeek. 1 Feb. 2007. Web. 06 Apr. 2011. http://www.industryweek.com/articles/toyotas_real_secret_hint_its_not_tps_13432.aspx.
Other posts on Tata Motors related to US expansion:
Executive Summary: Tata Motors' Expansion into the US and other Foreign Markets
Tata Motors Recent Financial Performance and Customers
Method and Rationale for Tata Motors' Expansion into the US
Demand Forecast for the Tata Nano in the US
Tata Motors Expansion into the US: Retail Pricing Forecast
Tata Motors Expansion into the US, Build Dealerships vs. Dealer Network
Tata Motors Expansion into the US, Import vs. Auto Mfg Plant
Works Cited for Tata Motors Expansion into US
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Showing posts with label us expansion. Show all posts
Showing posts with label us expansion. Show all posts
Sunday, April 17, 2011
Tata Motors Expansion into the US, Import vs. Auto Mfg Plant
Decision-Making Framework for Tata in the US
1) Build out a network of dealerships versus utilize existing distribution networks (Mercedes, Volvo, Land Rover, Jaguar, etc.).
2) Import all completed cars from India versus setting up an auto manufacturing plant in the US or Mexico.
Decision #2) Import Finished Cars from India or Build an Auto Manufacturing Plant
Many large foreign auto companies import thousands, sometimes millions, of cars into the US each year. Toyota, for example, imports so many vehicles that it operates its own logistical branch, Toyota Logistics Services (TLS), which operates container ships and organizes import activities for many of Toyota’s imports. Accordingly, economies of scale benefit these companies and make importing each vehicle relatively inexpensive when compared to the cost of setting up an auto manufacturing plant for those same cars here in the US or in Mexico. Further, the private nature of these types of logistics subsidiaries makes it difficult to determine the exact cost of importing a vehicle. While a breakdown of the complete import supply chain follows in a later section, estimating the cost to push a vehicle through Tata’s supply chain is contained in Exhibit 6. This simple financial analysis compares the roughly $600 estimated cost of importing each Nano to the US to the prospective capital outlay that building a Nano factory would require, around $225 million on the low-end. While these figures are not directly comparable, they do play a role in determining whether importing or building in North America is the better route.
The prospect of spending $225 million to build a North American factory is supported by the very low transportation cost that Tata would pay in delivering completed cars from the factory to its dealerships in the US. This is where the benefits end, however, as lengthy list of cons presents itself. First, spending this much capital is an unlikely option for Tata as intra-Asia and European expansion are the company’s main concerns right now. The establishment of a dealer network involves many millions of dollars, however its operational and long-term strategic benefits are immediately clear. Second, the standardization of parts in Tata vehicles makes the current Nano plant’s location in India ideal, as many of the same parts Tata uses in other vehicles are included in the Nano. Third, the Tata CEO has said that the Nano plant in India has been designed for customizing Nanos for sale in the European and US markets. The current Nano factory is located in Sanand, Gujarat State, India, along the country’s Western coast. It has capacity to produce 250,000 vehicles annually. Demand for the Nano in India is currently far below this figure, and an efficient supply chain delivery Nano parts to the factory is already in place. These facts reveal that building another Nano plant in North America would be largely redundant.
Another issue to consider is Tata’s current supply chain which brings parts from across Asia to the Nano plant in Sanand. Were a new factory in North America to be setup, this supply chain would need to be expanded to bring all the same parts to the new factory, located on the opposite side of the world. With hardly any North American parts suppliers at present, setting up a factory in the US or Mexico would require establishing an expensive new supply chain to ship nearly all the separate Nano parts overseas. When further considering that labor costs in North America are far higher than those in India, it appears that myriad new costs would result from this additional supply chain. Exhibit 7 details the difference in pay rates among skilled auto workers in various countries. The bottom-line impact, should Tata move production to a US location, would be an additional $49 million in labor costs. This is an outrageous figure which would boost the retail price of the Nano more than $500 higher.
The wage rates for auto workers in Mexico and India are actually nearly the same. Mexican production facilities would only incur an additional half-million dollars in labor cost, an amount that would be more than accounted for by savings in finished-car shipping costs and NAFTA tariff reductions. Conversely, the added inefficiencies of establishing a redundant supply chain (one leading to the plant in India and one leading to a plant in Mexico) would result in costs that far outweigh the potential savings from localized finished-car shipping. For this reason, it is clear that importing finished Nano cars from India is the best fiscal choice for Tata. Only later, once the company has an established foothold in the US market and is ready to introduce new products to it, should Tata consider constructing an auto manufacturing plant somewhere in North America. The risk of US consumers rejecting the Nano is relatively low, though its presence makes the notion of building a plant in North America premature at this time.
Other posts on Tata Motors related to US expansion:
Executive Summary: Tata Motors' Expansion into the US and other Foreign Markets
Tata Motors Recent Financial Performance and Customers
Method and Rationale for Tata Motors' Expansion into the US
Demand Forecast for the Tata Nano in the US
Tata Motors Expansion into the US: Retail Pricing Forecast
Tata Motors Expansion into the US, Build Dealerships vs. Dealer Network
Tata Motors Expansion into the US, Import vs. Auto Mfg Plant
Works Cited for Tata Motors Expansion into US
http://articles.timesofindia.indiatimes.com/2010-06-02/india-business/28297591_1_nano-plant-623cc-engine-gujarat-s-sanand
1) Build out a network of dealerships versus utilize existing distribution networks (Mercedes, Volvo, Land Rover, Jaguar, etc.).
2) Import all completed cars from India versus setting up an auto manufacturing plant in the US or Mexico.
Decision #2) Import Finished Cars from India or Build an Auto Manufacturing Plant
Many large foreign auto companies import thousands, sometimes millions, of cars into the US each year. Toyota, for example, imports so many vehicles that it operates its own logistical branch, Toyota Logistics Services (TLS), which operates container ships and organizes import activities for many of Toyota’s imports. Accordingly, economies of scale benefit these companies and make importing each vehicle relatively inexpensive when compared to the cost of setting up an auto manufacturing plant for those same cars here in the US or in Mexico. Further, the private nature of these types of logistics subsidiaries makes it difficult to determine the exact cost of importing a vehicle. While a breakdown of the complete import supply chain follows in a later section, estimating the cost to push a vehicle through Tata’s supply chain is contained in Exhibit 6. This simple financial analysis compares the roughly $600 estimated cost of importing each Nano to the US to the prospective capital outlay that building a Nano factory would require, around $225 million on the low-end. While these figures are not directly comparable, they do play a role in determining whether importing or building in North America is the better route.
The prospect of spending $225 million to build a North American factory is supported by the very low transportation cost that Tata would pay in delivering completed cars from the factory to its dealerships in the US. This is where the benefits end, however, as lengthy list of cons presents itself. First, spending this much capital is an unlikely option for Tata as intra-Asia and European expansion are the company’s main concerns right now. The establishment of a dealer network involves many millions of dollars, however its operational and long-term strategic benefits are immediately clear. Second, the standardization of parts in Tata vehicles makes the current Nano plant’s location in India ideal, as many of the same parts Tata uses in other vehicles are included in the Nano. Third, the Tata CEO has said that the Nano plant in India has been designed for customizing Nanos for sale in the European and US markets. The current Nano factory is located in Sanand, Gujarat State, India, along the country’s Western coast. It has capacity to produce 250,000 vehicles annually. Demand for the Nano in India is currently far below this figure, and an efficient supply chain delivery Nano parts to the factory is already in place. These facts reveal that building another Nano plant in North America would be largely redundant.
Another issue to consider is Tata’s current supply chain which brings parts from across Asia to the Nano plant in Sanand. Were a new factory in North America to be setup, this supply chain would need to be expanded to bring all the same parts to the new factory, located on the opposite side of the world. With hardly any North American parts suppliers at present, setting up a factory in the US or Mexico would require establishing an expensive new supply chain to ship nearly all the separate Nano parts overseas. When further considering that labor costs in North America are far higher than those in India, it appears that myriad new costs would result from this additional supply chain. Exhibit 7 details the difference in pay rates among skilled auto workers in various countries. The bottom-line impact, should Tata move production to a US location, would be an additional $49 million in labor costs. This is an outrageous figure which would boost the retail price of the Nano more than $500 higher.
The wage rates for auto workers in Mexico and India are actually nearly the same. Mexican production facilities would only incur an additional half-million dollars in labor cost, an amount that would be more than accounted for by savings in finished-car shipping costs and NAFTA tariff reductions. Conversely, the added inefficiencies of establishing a redundant supply chain (one leading to the plant in India and one leading to a plant in Mexico) would result in costs that far outweigh the potential savings from localized finished-car shipping. For this reason, it is clear that importing finished Nano cars from India is the best fiscal choice for Tata. Only later, once the company has an established foothold in the US market and is ready to introduce new products to it, should Tata consider constructing an auto manufacturing plant somewhere in North America. The risk of US consumers rejecting the Nano is relatively low, though its presence makes the notion of building a plant in North America premature at this time.
Other posts on Tata Motors related to US expansion:
Executive Summary: Tata Motors' Expansion into the US and other Foreign Markets
Tata Motors Recent Financial Performance and Customers
Method and Rationale for Tata Motors' Expansion into the US
Demand Forecast for the Tata Nano in the US
Tata Motors Expansion into the US: Retail Pricing Forecast
Tata Motors Expansion into the US, Build Dealerships vs. Dealer Network
Tata Motors Expansion into the US, Import vs. Auto Mfg Plant
Works Cited for Tata Motors Expansion into US
http://articles.timesofindia.indiatimes.com/2010-06-02/india-business/28297591_1_nano-plant-623cc-engine-gujarat-s-sanand
Tata Motors Expansion into the US, Build Dealerships vs. Dealer Network
Decision-Making Framework for Tata in the US
1) Build out a network of dealerships versus utilize existing distribution networks (Mercedes, Volvo, Land Rover, Jaguar, etc.).
2) Import all completed cars from India versus setting up an auto manufacturing plant in the US or Mexico.
Decision #1) Build-out Dealership Network or Use Existing Distribution Channels
The decision about whether Tata should establish a dealership network of its own comes down to a comprehensive financial analysis. Exhibit 3 shows use of Tata’s financial information from Form 20-F to calculate an approximate profit forecast for Nano sales. The issue of how to distribute and sell the vehicles comes down to profit analysis. Exhibit 4 begins the process by approximating the cost of establishing a modest network of Tata auto dealerships. The forecast includes funding for 40 Tata dealerships where the Nano would be sold, with 10 of those dealerships including a body shop for servicing Tata product warranties and repairing vehicles. Gordon Page is a website through which auto dealership owners buy and sell complete car dealerships and auto body shops to others. This site is a valuable resource for estimating the cost of purchasing or building a car dealership. By using an average dealership price from the website, the extrapolation in Exhibit 4 indicates that building out Tata’s modest dealership network would cost the company roughly $67 million. While no small sum, these 40 dealerships would be established in the largest 40 US cities, and therefore go right at the heart of Tata’s target demographic for the Nano car: environmentally-friendly, budget-conscious city-dwellers who seek a small, inexpensive automobile for everyday use.
Spending millions of dollars to develop a dealership network can be an intimidating prospect, however analysis of the alternative reveals the bright side of owning the dealer network. Rather than build dealerships, Tata can distribute cars through an existing dealer network under a different brand name. The cars would still be Tata Nanos, however a company such as Mercedes or Volvo would sell the vehicle through its own dealerships. The issue Tata would face with this route is that of profit sharing. By using another company’s supply chain and distribution network, not to mention the physical dealership space necessary to sell another brand of automobile, Tata would be forced to relinquish a serious portion of the profit it would otherwise capture on sales of the Nano. Industry trends indicate a reasonable and realistic estimate of this profit-sharing percentage to be 50%, which Exhibit 4 reveals would amount to more than $81 million over 3 years for the 92,000 expected Nano sales. Fifty-percent may seem like a high percentage, but given the physical and personnel resources needed to service sales of another line of vehicle, this figure is very close to the level of expense Tata is likely to face by taking this path.
Exhibit 5 reveals the result of plugging the cost figures for building dealerships versus using a selling partner into a pro forma income statement. This set of projected statements combines all the figures from Exhibits 1 through 4 to show a projected net income calculation. The numbers presented capture the fiscal expectations for Tata should it choose to sell the Nano in the US market under alternative distribution and selling methods. The analysis indicates that, while building out a dealership network would require a large initial capital expenditure, even financing the entire cost of the project would result in Tata earning more than $17 million in net income over three years. Alternatively, sharing revenue with a partner by selling cars through an existing dealership network would cost Tata too much money in the near-term, and result in an almost $14 million net loss over three years. Simply put, the demand forecast for the Nano is not generous enough to make profit-sharing with a partner a fiscally worthwhile approach.
The prospect of profit-sharing loses traction under the realization that until a network of dealerships is built, Tata will forever have to share a large portion of its profits with other car companies. Even distributing Nano cars through Tata’s recently acquired partners, Land Rover and Jaguar, faces rejection. As each Land Rover and Jaguar dealership is franchise owned, each dealership’s owner will require profit-sharing if the Nano is to be sold through them. Once a dealership network has been built, on the other hand, Tata can use those facilities for several decades with very little additional capital investment. The financing costs of building out a network of dealerships, combined with the costs of operating those facilities, only amounts to roughly $64 million over three years. This is less than the $81 million profit-sharing would forfeit. At this rate, Tata’s dealerships would pay for themselves in roughly five years, and the company would have the infrastructure to begin selling other Tata car models at the same locations. Building out a dealership network is the best long-term course of action, as seriously competing in the US market is a long-term strategic goal of the company.
Other posts on Tata Motors related to US expansion:
Executive Summary: Tata Motors' Expansion into the US and other Foreign Markets
Tata Motors Recent Financial Performance and Customers
Method and Rationale for Tata Motors' Expansion into the US
Demand Forecast for the Tata Nano in the US
Tata Motors Expansion into the US: Retail Pricing Forecast
Tata Motors Expansion into the US, Build Dealerships vs. Dealer Network
Tata Motors Expansion into the US, Import vs. Auto Mfg Plant
Works Cited for Tata Motors Expansion into US
"Dealerships for Sale." Gordon Page. Gordon Page & Associates, Inc., 1 Apr. 2011. Web. 6 Apr. 2011..
1) Build out a network of dealerships versus utilize existing distribution networks (Mercedes, Volvo, Land Rover, Jaguar, etc.).
2) Import all completed cars from India versus setting up an auto manufacturing plant in the US or Mexico.
Decision #1) Build-out Dealership Network or Use Existing Distribution Channels
The decision about whether Tata should establish a dealership network of its own comes down to a comprehensive financial analysis. Exhibit 3 shows use of Tata’s financial information from Form 20-F to calculate an approximate profit forecast for Nano sales. The issue of how to distribute and sell the vehicles comes down to profit analysis. Exhibit 4 begins the process by approximating the cost of establishing a modest network of Tata auto dealerships. The forecast includes funding for 40 Tata dealerships where the Nano would be sold, with 10 of those dealerships including a body shop for servicing Tata product warranties and repairing vehicles. Gordon Page is a website through which auto dealership owners buy and sell complete car dealerships and auto body shops to others. This site is a valuable resource for estimating the cost of purchasing or building a car dealership. By using an average dealership price from the website, the extrapolation in Exhibit 4 indicates that building out Tata’s modest dealership network would cost the company roughly $67 million. While no small sum, these 40 dealerships would be established in the largest 40 US cities, and therefore go right at the heart of Tata’s target demographic for the Nano car: environmentally-friendly, budget-conscious city-dwellers who seek a small, inexpensive automobile for everyday use.
Spending millions of dollars to develop a dealership network can be an intimidating prospect, however analysis of the alternative reveals the bright side of owning the dealer network. Rather than build dealerships, Tata can distribute cars through an existing dealer network under a different brand name. The cars would still be Tata Nanos, however a company such as Mercedes or Volvo would sell the vehicle through its own dealerships. The issue Tata would face with this route is that of profit sharing. By using another company’s supply chain and distribution network, not to mention the physical dealership space necessary to sell another brand of automobile, Tata would be forced to relinquish a serious portion of the profit it would otherwise capture on sales of the Nano. Industry trends indicate a reasonable and realistic estimate of this profit-sharing percentage to be 50%, which Exhibit 4 reveals would amount to more than $81 million over 3 years for the 92,000 expected Nano sales. Fifty-percent may seem like a high percentage, but given the physical and personnel resources needed to service sales of another line of vehicle, this figure is very close to the level of expense Tata is likely to face by taking this path.
Exhibit 5 reveals the result of plugging the cost figures for building dealerships versus using a selling partner into a pro forma income statement. This set of projected statements combines all the figures from Exhibits 1 through 4 to show a projected net income calculation. The numbers presented capture the fiscal expectations for Tata should it choose to sell the Nano in the US market under alternative distribution and selling methods. The analysis indicates that, while building out a dealership network would require a large initial capital expenditure, even financing the entire cost of the project would result in Tata earning more than $17 million in net income over three years. Alternatively, sharing revenue with a partner by selling cars through an existing dealership network would cost Tata too much money in the near-term, and result in an almost $14 million net loss over three years. Simply put, the demand forecast for the Nano is not generous enough to make profit-sharing with a partner a fiscally worthwhile approach.
The prospect of profit-sharing loses traction under the realization that until a network of dealerships is built, Tata will forever have to share a large portion of its profits with other car companies. Even distributing Nano cars through Tata’s recently acquired partners, Land Rover and Jaguar, faces rejection. As each Land Rover and Jaguar dealership is franchise owned, each dealership’s owner will require profit-sharing if the Nano is to be sold through them. Once a dealership network has been built, on the other hand, Tata can use those facilities for several decades with very little additional capital investment. The financing costs of building out a network of dealerships, combined with the costs of operating those facilities, only amounts to roughly $64 million over three years. This is less than the $81 million profit-sharing would forfeit. At this rate, Tata’s dealerships would pay for themselves in roughly five years, and the company would have the infrastructure to begin selling other Tata car models at the same locations. Building out a dealership network is the best long-term course of action, as seriously competing in the US market is a long-term strategic goal of the company.
Other posts on Tata Motors related to US expansion:
Executive Summary: Tata Motors' Expansion into the US and other Foreign Markets
Tata Motors Recent Financial Performance and Customers
Method and Rationale for Tata Motors' Expansion into the US
Demand Forecast for the Tata Nano in the US
Tata Motors Expansion into the US: Retail Pricing Forecast
Tata Motors Expansion into the US, Build Dealerships vs. Dealer Network
Tata Motors Expansion into the US, Import vs. Auto Mfg Plant
Works Cited for Tata Motors Expansion into US
"Dealerships for Sale." Gordon Page. Gordon Page & Associates, Inc., 1 Apr. 2011. Web. 6 Apr. 2011.
Tata Motors Expansion into the US: Retail Pricing Forecast
Decision-Making Framework for Tata in the US
1) Build out a network of dealerships versus utilize existing distribution networks (Mercedes, Volvo, Land Rover, Jaguar, etc.).
2) Import all completed cars from India versus setting up an auto manufacturing plant in the US or Mexico.
Retail Pricing Forecast
Before going in-depth with the strategic decision-making process, it is necessary to understand the basis for some key figures. An initial concern regarding bringing automobiles from India to the US involves the safety specifications that each market requires. The US and Europe have vehicle safety and emissions standards that far exceed those mandated of car companies in India. Everything from glass to plastic components and engine specifications need to be upgraded for an Indian car to meet US vehicle standards. Clearly this kind of transformation will add substantial costs to the Tata Nano car. The difficult question of what the new selling price will be in the US, however, is answered by the Tata CEO. Recently, the CEO, facing an audience at Cornell University, stated that should the Nano be introduced to the US market, the $2,000 Indian car would run in the $7,000 to $8,000 range. Further, Tata previously announced that the Nano Europa, a version of the Nano soon to be retailed in Europe, would sell for roughly $8,400 (6,000 Euros). Blending these figures, an estimated US retail price of $7,500 seems appropriate, as indicated in Exhibit 2. As is customary in the US auto industry, the customer will be expected to pay around $750 for the car’s delivery fee. This brings the total US retail price for the Nano to $8,250. This ultra-low price for a vehicle will garner mass appeal from the US market. Using the average Tata cost-of-sales, Exhibit 2 shows the details of expected revenues and cost-of-sales for US nano sales based on the demand forecast formed in Exhibit 1 of 92,000 cars over 3 years.
Other posts on Tata Motors related to US expansion:
Executive Summary: Tata Motors' Expansion into the US and other Foreign Markets
Tata Motors Recent Financial Performance and Customers
Method and Rationale for Tata Motors' Expansion into the US
Demand Forecast for the Tata Nano in the US
Tata Motors Expansion into the US: Retail Pricing Forecast
Tata Motors Expansion into the US, Build Dealerships vs. Dealer Network
Tata Motors Expansion into the US, Import vs. Auto Mfg Plant
Works Cited for Tata Motors Expansion into US
Schultz, Jonathan. "Tata Chairman Says U.S. Car Will Cost '$7,000 or $8,000'" Automobiles - Wheels. The New York Times, 15 Mar. 2011. Web. 06 Apr. 2011.
1) Build out a network of dealerships versus utilize existing distribution networks (Mercedes, Volvo, Land Rover, Jaguar, etc.).
2) Import all completed cars from India versus setting up an auto manufacturing plant in the US or Mexico.
Retail Pricing Forecast
Before going in-depth with the strategic decision-making process, it is necessary to understand the basis for some key figures. An initial concern regarding bringing automobiles from India to the US involves the safety specifications that each market requires. The US and Europe have vehicle safety and emissions standards that far exceed those mandated of car companies in India. Everything from glass to plastic components and engine specifications need to be upgraded for an Indian car to meet US vehicle standards. Clearly this kind of transformation will add substantial costs to the Tata Nano car. The difficult question of what the new selling price will be in the US, however, is answered by the Tata CEO. Recently, the CEO, facing an audience at Cornell University, stated that should the Nano be introduced to the US market, the $2,000 Indian car would run in the $7,000 to $8,000 range. Further, Tata previously announced that the Nano Europa, a version of the Nano soon to be retailed in Europe, would sell for roughly $8,400 (6,000 Euros). Blending these figures, an estimated US retail price of $7,500 seems appropriate, as indicated in Exhibit 2. As is customary in the US auto industry, the customer will be expected to pay around $750 for the car’s delivery fee. This brings the total US retail price for the Nano to $8,250. This ultra-low price for a vehicle will garner mass appeal from the US market. Using the average Tata cost-of-sales, Exhibit 2 shows the details of expected revenues and cost-of-sales for US nano sales based on the demand forecast formed in Exhibit 1 of 92,000 cars over 3 years.
Other posts on Tata Motors related to US expansion:
Executive Summary: Tata Motors' Expansion into the US and other Foreign Markets
Tata Motors Recent Financial Performance and Customers
Method and Rationale for Tata Motors' Expansion into the US
Demand Forecast for the Tata Nano in the US
Tata Motors Expansion into the US: Retail Pricing Forecast
Tata Motors Expansion into the US, Build Dealerships vs. Dealer Network
Tata Motors Expansion into the US, Import vs. Auto Mfg Plant
Works Cited for Tata Motors Expansion into US
Schultz, Jonathan. "Tata Chairman Says U.S. Car Will Cost '$7,000 or $8,000'" Automobiles - Wheels. The New York Times, 15 Mar. 2011. Web. 06 Apr. 2011.
Demand Forecast for the Tata Nano in the US
Decision-Making Framework for Tata in the US
1) Build out a network of dealerships versus utilize existing distribution networks (Mercedes, Volvo, Land Rover, Jaguar, etc.).
2) Import all completed cars from India versus setting up an auto manufacturing plant in the US or Mexico.
Demand Forecast for the Tata Nano in the US
An initial forecast of demand for the Nano in the US is a necessary baseline for future calculations. Several factors will determine how many Nanos Tata is able to sell in the US. To achieve a forecast, three specific figures appear to form a solid balance: (1) The number of Smart cars sold in the US market during its first three years of sales; (2) The number of Tata Nanos sold in India last year and forecast for this year; and (3) The price differential between the Nano and potential competitor vehicles in the US marketplace. The Smart car is similar in size to the Nano, and the Nano fills the same super-cheap void in the Indian car market that it would fill in the US. Exhibit 1 details these figures, and generates a 3-year demand forecast for the Nano. As with both the Smart car and the Nano in India, second and third-year sales have been lower than those of the first year. This is explained partly by consumer hype about the new products and the added environmental awareness that these products encourage. Due to global events, the cost of gasoline is high in the US compared to traditional prices, and as such will encourage additional near-term demand for the Nano. The final demand forecast stands at 36,000, 28,000, and 28,000 units in years 1, 2, and 3, respectively, of sale in the US market. This produces a combined 3-year sales estimate of 92,000 Tata Nano cars.
Other posts on Tata Motors related to US expansion:
Executive Summary: Tata Motors' Expansion into the US and other Foreign Markets
Tata Motors Recent Financial Performance and Customers
Method and Rationale for Tata Motors' Expansion into the US
Demand Forecast for the Tata Nano in the US
Tata Motors Expansion into the US: Retail Pricing Forecast
Tata Motors Expansion into the US, Build Dealerships vs. Dealer Network
Tata Motors Expansion into the US, Import vs. Auto Mfg Plant
Works Cited for Tata Motors Expansion into US
1) Build out a network of dealerships versus utilize existing distribution networks (Mercedes, Volvo, Land Rover, Jaguar, etc.).
2) Import all completed cars from India versus setting up an auto manufacturing plant in the US or Mexico.
Demand Forecast for the Tata Nano in the US
An initial forecast of demand for the Nano in the US is a necessary baseline for future calculations. Several factors will determine how many Nanos Tata is able to sell in the US. To achieve a forecast, three specific figures appear to form a solid balance: (1) The number of Smart cars sold in the US market during its first three years of sales; (2) The number of Tata Nanos sold in India last year and forecast for this year; and (3) The price differential between the Nano and potential competitor vehicles in the US marketplace. The Smart car is similar in size to the Nano, and the Nano fills the same super-cheap void in the Indian car market that it would fill in the US. Exhibit 1 details these figures, and generates a 3-year demand forecast for the Nano. As with both the Smart car and the Nano in India, second and third-year sales have been lower than those of the first year. This is explained partly by consumer hype about the new products and the added environmental awareness that these products encourage. Due to global events, the cost of gasoline is high in the US compared to traditional prices, and as such will encourage additional near-term demand for the Nano. The final demand forecast stands at 36,000, 28,000, and 28,000 units in years 1, 2, and 3, respectively, of sale in the US market. This produces a combined 3-year sales estimate of 92,000 Tata Nano cars.
Other posts on Tata Motors related to US expansion:
Executive Summary: Tata Motors' Expansion into the US and other Foreign Markets
Tata Motors Recent Financial Performance and Customers
Method and Rationale for Tata Motors' Expansion into the US
Demand Forecast for the Tata Nano in the US
Tata Motors Expansion into the US: Retail Pricing Forecast
Tata Motors Expansion into the US, Build Dealerships vs. Dealer Network
Tata Motors Expansion into the US, Import vs. Auto Mfg Plant
Works Cited for Tata Motors Expansion into US
Method and Rationale for Tata Motors' Expansion into the US
For Tata Motors, expansion into foreign markets is a critical success factor for the company’s future. Specifically, a strategy for the company’s entry into the US market follows. A series of decisions must be made about which products to discuss, where to source the products, and how to deliver them to their final destination before sale to the consumer. For purposes of simplicity, the following analysis deals strictly with the Tata Nano vehicle. The following model is designed to be easily adapted to handle other Tata vehicles in the future, though we limit our focus in this examination to just the Nano, as the method of entry into the US market is more important here than the specific products which enter. To begin, we introduce the financial rationale for key decisions regarding market entrance with a 3-year time frame in mind; following is the supply chain model that will accomplish the task of entering the US market.
Decision-Making Framework for Tata in the US
1) Build out a network of dealerships versus utilize existing distribution networks (Mercedes, Volvo, Land Rover, Jaguar, etc.).
2) Import all completed cars from India versus setting up an auto manufacturing plant in the US or Mexico.
Other posts on Tata Motors related to US expansion:
Executive Summary: Tata Motors' Expansion into the US and other Foreign Markets
Tata Motors Recent Financial Performance and Customers
Method and Rationale for Tata Motors' Expansion into the US
Demand Forecast for the Tata Nano in the US
Tata Motors Expansion into the US: Retail Pricing Forecast
Tata Motors Expansion into the US, Build Dealerships vs. Dealer Network
Tata Motors Expansion into the US, Import vs. Auto Mfg Plant
Works Cited for Tata Motors Expansion into US
Decision-Making Framework for Tata in the US
1) Build out a network of dealerships versus utilize existing distribution networks (Mercedes, Volvo, Land Rover, Jaguar, etc.).
2) Import all completed cars from India versus setting up an auto manufacturing plant in the US or Mexico.
Other posts on Tata Motors related to US expansion:
Executive Summary: Tata Motors' Expansion into the US and other Foreign Markets
Tata Motors Recent Financial Performance and Customers
Method and Rationale for Tata Motors' Expansion into the US
Demand Forecast for the Tata Nano in the US
Tata Motors Expansion into the US: Retail Pricing Forecast
Tata Motors Expansion into the US, Build Dealerships vs. Dealer Network
Tata Motors Expansion into the US, Import vs. Auto Mfg Plant
Works Cited for Tata Motors Expansion into US
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