News : The Nano, world's cheapest car, to hit Indian roads

By Janaki Krishnan

MUMBAI (Reuters) - The Nano, the world's cheapest car, will hit Indian roads in July, four months after its formal launch on Monday, and demand is expected to far outstrip supply as the price tag of around $2,000 draws legions of new buyers.

Hundreds of thousands are set to queue up to book, including motorbike owners and people who have been using public transport.

But launching six months behind schedule in a subdued market, with production in the first year severely constrained and the threat of further ratings downgrades hanging over the company, it will take over a year to deliver the first 100,000 cars.

"We are at the gates offering a new form of transportation to the people of India, and later I hope other markets as well," Chairman Ratan Tata told a news conference.

"From the drawing board to its commercial launch, the car has overcome several challenges. I hope it will provide safe, affordable four-wheel transportation to families who till now have not been able to own a car," he said.

Since the Nano was first shown, the main production plant had to be moved following land protests, Tata Motors posted a first loss in seven years as sales slumped, its shares have dropped 70 percent and Tata Motors' credit rating was downgraded.

The first 100,000 Nano owners will be randomly picked from bookings made from April 9 and 25, and their prices will be protected, said Tata, who had promised a 100,000 rupee ($1,980) dealer price at a glitzy unveiling more than a year ago.

A European variant will be launched by 2011, and the company is also looking at the United States, as the current economic situation has made low-cost cars even more attractive, Tata said.

"This was never conceived as the cheapest car, but as providing transport to those people who never owned a car."

"Driven mainly by the change in demand that we see elsewhere in the world, we suddenly felt we had a product that could be of considerable interest as a low-cost product in western Europe, eastern Europe, the UK and even the U.S.," Tata said.

STUPENDOUS RESPONSE

The Nano can be booked at more than 30,000 locations in 1,000 cities across India, including Tata-owned department and electronics stores, with booking forms costing 300 rupees each. It can also be booked online (www.tatanano.com).

Dealers expect bookings will need a down payment that Managing Director Ravi Kant said would be very close to the price.

"We have had a stupendous response so far, breaking all class and other barriers," Kant said of the enquiries so far.

Heavy bookings could help the firm battling falling sales of commercial vehicles, its mainstay, and help repay $2 billion of bridge loans due in June. The bridge loan was taken for the acquisition of the Jaguar and Land Rover brands last year.

While costs of raw materials such as steel had changed a lot since the Nano was first proposed and even since its unveiling, the company decided to hold the price for the first 100,000 cars and expects the car to be profitable, Tata said.

"It's often asked whether this project is going to be an act of philanthropy which I assure you it will not," Tata said.

Analysts say Tata will most likely raise prices soon, but the slim margins, initial capacity constraints and depressed market sentiment mean that breakeven on the project will take 5-6 years.

"Scaling up challenges are expected to be humungous," CRISIL Research said in a note, adding volumes of 200,000-500,000 units were needed in the medium-term for the project to be viable.

Tata can currently produce about 60,000 Nanos a year until a 250,000-unit plant in Gujarat state comes onstream by year-end.

PRICE CORRECTION

Competition is not far off: Volkswagen, Toyota, Honda and Fiat are eyeing the segment and the venture of Renault/Nissan Motor with Bajaj is on track to launch their $2,500 car in 2011.

Meanwhile, Maruti Suzuki and Hyundai Motor, the No. 1 and No. 2 carmakers in India, are unlikely to cede ground to the Nano without a fight.

"I would imagine there'd be some reaction from the market. I expect price correction from small car makers," Tata said.

The Nano is also keeping environmentalists awake, with worries about the impact on India's already-polluted cities and congested streets. Tata has said the Nano is less polluting than the millions of motorbikes on the road.

"Every additional car or scooter on the road is going to add to congestion. But congestion in rural India is not an issue. Connectivity is still in its nascent form there," Tata said.

"I just hope the dream that we've all had and we've worked so hard for proves itself to be the kind of product that we would like it to be."

(Additional reporting by John Mair; Writing by Rina Chandran; Editing by Ranjit Gangadharan)