Major Chaos at India’s Tata Nano Plant

Burning a cheap car in effigy

An Indian factory that will make the world’s cheapest cars has been besieged by 30,000 protesters, who say it was built on land taken illegally from farmers. Is the October launch date for the $2,500 car in jeopardy?


In January when Tata Motors unveiled the Nano at the Delhi auto show, this would-be king of econo-boxes took the auto industry by storm. The acclaim for Tata’s “People’s Car” came despite the fact that no one had driven the Nano and it wouldn’t be available for almost another year.

Today, with the Nano’s launch slated for October, the car — or, more specifically, the plant that will make the Nano in Singur, 20 miles west of Kolkata — is attracting the wrong kind of attention. On Aug. 24, an estimated 30,000 protesters, angry at the way the state government had acquired 400 acres of land surrounding the plant, gathered at the factory and blocked roads leading to it. Some 4,000 riot police with water cannons were on standby in case of violence.

The protesters, headed by opposition politician Mamata Banerjee, claim that the land was acquired by the West Bengal state government illegally. Tata and the government deny any wrongdoing. Speaking at a function in Darjeeling last week, West Bengal Chief Minister Buddhadeb Bhattacharjee said: “Not even an inch more of land necessary for the project has been acquired. We are willing to show respect to the opposition and sit for relevant discussions, but not for talks that are irrelevant and illogical.”

Having set up 21 camps near the factory, however, protestors say they won’t stop until the land is returned. “Our party will fight to the finish to get the land back,” Banerjee told the crowd, according to an Associated Press report. “Our agitation will remain peaceful unless we are provoked.”

Carmakers Betting on India

For rival automakers, Tata’s latest difficulties with the Nano, which come at the same time the company has struggled with rising prices for steel and other raw materials, will be of great interest. While still small in comparison with China, India is of growing importance to global automakers and many are rapidly expanding production in the country. One attraction is the fast-growing domestic Indian market. Another is India’s potential as an export hub for small cars. Japanese automaker Nissan, which is building a 400,000-capacity plant in Chennai with partner Renault, and Japan’s India market leader Suzuki, for example, have bold plans for exports to Europe and other markets from India. Nissan and Renault have also hooked up with India’s Bajaj Auto to make a cheap car of their own.

Still, even if Tata’s West Bengal problems continue, don’t expect rivals to be crowing too loudly. In 2006, Toyota had problems at its plant near Bangalore. After 27 members of the Toyota Kirloskar Motor Employees Union were suspended following a 10-day strike, some employees reportedly went on a hunger strike. The previous year, a strike at a Honda motorcycle subsidiary cost an estimated $57 million. Worse, disgruntled workers were involved in running battles with the police in New Delhi.

Tata, which says the land is needed for parts suppliers for the Nano, insists it still plans to launch the revolutionary car in October, with the lowest-priced version at around 100,000 rupees (about $2,500) before taxes. Nevertheless, the protests raise the question of whether the automaker will be able to build Nanos in sufficient numbers on time.

Factory Relocation Possible

On Aug. 22, Tata Chairman Ratan Tata suggested the company may move Nano production to another factory in India. “I’ve made a major investment here.…To move will be at a great cost to Tata Motors and to shareholders,” Tata told reporters in Kolkata. But “we can’t operate the plant with police protection.” Tata, who was in the city for the annual general meeting of another group company, Tata Tea, added that protesters had attacked Tata employees and taken equipment from the site. For sure, Tata could easily find sites more welcoming than Singur.

A Tata spokesman says the company is being wooed by eight Indian states, each of which would be willing to supply land for a new factory. A speedier short-term solution would be to move production to one of its existing plants. However, analysts say that a last-minute move would raise numerous issues. One obvious problem is the impact it would have on Tata’s deadline to have the Nano in production in time for India’s Diwali celebrations in late October. The festival season coincides with the busiest time of year for car dealers. Ramnath Subramaniam, director of research at IDFC-SSKI Securities in Mumbai, warns that the cost of moving to a new site could endanger the $2,500 price tag. “Ratan Tata has two options if he moves out of West Bengal: He will either retain the selling price and delay the project by six [or] seven months, or he might sell the Nano at a higher price,” he says.

Then there’s the cost of mothballing a factory that is due to begin trial runs of the Nano in September. Tata says it’s already spent $350 million on the Singur factory. Add the cost of building a new plant or retooling an existing one, and the low-cost car project is looking increasingly expensive.

Indeed, even before the current troubles, rising costs and delays already have had many industry watchers wondering how long it will take Tata to turn the Nano into a profitable venture. In May, monsoon rains flooded the site in Singur, stretching the budget for the car and causing delays. When Tata insisted the Nano would still go on sale this fall, that led to raised eyebrows among industry executives. In Japan, for example, car companies usually spend several months between finishing a factory and beginning production to ensure a smooth ramp-up to full production.

Via der Spiegel