NATIONAL INSTITUTE OF FASHION TECHNOLOGY

HYDERABAD

CORPORATE SOCIAL RESPONSIBILITIES

CASE STUDY: THE BURNING WHEELS - TATA'S NANO!!!!

ASSIGNMENT 2

SUBMITTED BY: SUBMITTED TO:

GREESHMA V. MS.

RAJYSLAKSHMI

KOMAL TAPASE ASST. PROFESSOR

SAI PRADEEP FMS DEPT.

SUSHANT

VISHAL

MASTER OF FASHION MANAGEMENT-III

BATCH 2013-2015

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DEPARTMENT OF FASHION MANAGEMENT STUDIES

ABSTRACT

The case explores how Tata Motors, India's largest automobile company, developed the

Nano, the world's cheapest car. The case focuses on the translation of Ratan Tata's vision of

a safe affordable car for the masses. The case raises questions around fire incidents of the

car, its ethical responsibility towards society and changing existing internal processes to

accommodate revolutionary new ideas that is solutions and their approach towards the

problem.

INTRODUCTION

Tata Motors Limited is India’s largest automobile company, with revenues of Rs.35651.48

crores (USD 8.8 billion) in 2007-08. It is the leader in commercial vehicles in each segment,

and among the top three in passenger vehicles with winning products in the compact,

midsize car and utility vehicle segments. The company is the world’s fourth largest truck

manufacturer, and the world’s second largest bus manufacturer.

Is there anyone who hasn’t heard the story about how Ratan Tata conceived of the Nano as

safe, affordable alternative for Indian families?

The Tata Nano, one of the most ambitious projects of Tata Motors, started in 2003. It was

envisioned by the Tata Group chairman Ratan Tata himself. He found that Indians lagged

behind in car ownership, especially compared to the European Union and the Americas. Just

eight or nine in a thousand people owned a car.

The need for an innovation like Nano has to do something for the people of India and

transport. Unavailability and poor quality of mass transport is a common problem in India.

In a two-wheeler, father driving with elder child standing in front and wife behind holding a

baby is norm in this country. Thus, this is a relatively an unsafe mode of transporting a

family. Thus, with this in mind Tata Nano was created as a safer form of transport.

The only factor the customer knew in advance was its price tag of 1 lac as conveyed by

Ratan Tata. But why it was not a big hit and why is it still lagging to grab the market in spite

of its good and convincing features?

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CASE STUDY:

THE BURNING WHEELS - TATA'S NANO!!!!

By all accounts March 21 was an uneventful, muggy Mumbai summer’s day. Steaming traffic

jams were spread thickly over the city roads. Most people were sweating it out in BEST

buses. Nutan Sawant was not one of them. That day she was in a car. For as long as she

could remember, she had traveled on those lifelines of Mumbai: Local trains and buses. And

then in October 2009 her husband Satish heard about the launch of the Rs. 1-lakh (100,000

rupees) people’s car. “Last year after Diwali, I thought we could afford a small car,” he

recalls. He was so keen that he jumped the queue by paying Rs. 15,000 to a Concorde

Motors employee. March 21 was when they had to collect it. Satish and his wife went to the

Concorde showroom at 10 a.m. Since Satish didn’t know how to drive, Concorde arranged

for a driver. It was a great feeling for Nutan and Satish. They relaxed in the spacious rear

seat as it glided through the tree-lined roads of Prabhadevi. They had traveled 15 kilometers

when Nutan sniffed, turned towards Satish and asked the Rs. 2.26-lakh question: “Do you

smell something burning?”

Satish was unsure. And even more so when the driver said a new car could have such a

smell. They traveled a bit further and still the smell wouldn’t go away. Nutan again

expressed her concern. When Satish or the driver did not pay any heed, she ordered the

driver to stop the car. A biker passing by drew their attention towards the rear part of the

car. The Sawants and the driver got out to look and saw smoke first and then fire. Satish or

Nutan don’t quite remember the exact sequence of events except that in 15 minutes the

entire car was completely gutted. Sawant called Concorde. They towed the car away. The

police, too, turned up but were unsure of what complaint to register. The Sawant’s returned

home by 2.30 p.m., without the car of course.

All that this car could achieve hangs in the balance because of the fire in Sawant’s car. Now,

this isn’t the first time that cars have caught fire in India. But so many cars of a model in

such a short interval are worrisome. Just 17 days after the Sawant incident, on April 7,

another Nano caught fire on the National Highway 8 near Anand in Gujarat. These incidents

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are worrying customers about the safety aspect of Nano. For the Nano cars got fire while

driving. What the company says about it is “It is a problem with the rear engine.

FIRST FIRES: IN A SMOKE CLOUD

Actually, Tata Motors calls them “smoke.” But there is rarely smoke without fire. So let us

call it the first round of fire incidents. There were in all five such incidents–three were

reported in the media and two weren’t–and they all took place last year.

The first incident was reported from Ahmedabad. A Nano (GJ 1KA 4648) parked at Vaibhav

Gokul Bungalows in Ahmedabad suddenly caught the attention of Jayanti Patel when he

heard a loud noise outside his house at around 12:30 p.m. on Sunday, Sept. 13, 2009. Patel

noticed smoke coming out of neighbor Ravindra Bhagat’s Tata Nano. With the help of a few

neighbors Patel broke one of the windowpanes and doused the fire emanating from around

the car’s steering wheel. After almost 30 minutes and after pouring fifteen buckets of water,

they saved the Nano from any major damage.

Over the next month two similar incidents were reported from New Delhi and Lucknow. It

was a sticky situation for Tata Motors. All three owners–Bhagat, Sunil Kumar Panwanda

from New Delhi and R.H. Rizvi from Lucknow–expressed concern and shock. “I drove the car

for about two hours and then parked it at home. After an hour my kid [came] running inside

saying that the car is on fire. I rushed outside and saw the steering wheel burning,” says

Panwanda.

Within no time Tata Motors attended to these cars, repaired and returned them to the

owners. It attributed the problem to a short circuit in the combination switch area. And then

the company said that it will carry out a pre-emptive check of all the 7,500 cars that it had

sold by then. As it turned out, the problem was indeed with the combination switch, a

steering column switch assembly that manages the car’s headlamps, indicators and wiper

blades.

Tata Motors hasn’t specified the underlying problem that led to the short circuit. This is all

that a company spokesman would say: “The three incidents of ‘fire’ that are being referred

to were actually not fires but noticing of smoke and localized meltdown of plastic parts

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due to short-circuit in these cars’ combination switches. As announced earlier, the issue

has been rectified.”

“If it was a design failure, it would have been seen in many more cars. So, it is likely that a

particular batch of combination switches was the problem,” The next most plausible

explanation, which Tata must investigate, is that some suppliers cut corners. This gave rise

to a bad batch of faulty vehicles that somehow ended up in the market.

Tata Motors had had a spate of bad news–JLR acquisition issues, the commercial vehicle

market slowdown–and it perhaps wanted to give some good news. And suddenly everybody

was under enormous time pressure. Tata Motors was forced to shift production temporarily

to Pantnagar in Uttarakhand and then post-Singur everything was put in fourth gear. Tata

Motors wanted the Nano out as quickly as possible. There was a lot of pressure from the top

management to launch the Nano even though they had concerns about the noise, vibration

and harshness of the engine. And the deadline was the Geneva Motor Show [March 2009].

“A vendor knows his product very well but transferring that knowledge to Singur, Pantnagar

or Sanand in the short time frame was a challenge,” adds the supplier. Some other suppliers

talk about how they had to ramp up from 3,000 units a month to 15,000 units a month of a

particular product.

In July 2010, Tata Motors sold 9,000 units of the Nano. This fell to 8,103 units in August,

5,520 units in September, and to 3,065 units in October. In November 2010, a festival

month during which it is considered auspicious to buy new and big ticket items, the sale of

Nano came down to just 509 units (85% drop from November 2009). This was despite the

fact that the overall sales for the Indian auto sector rose by 45% in October 2010

In August 2010 a Tata Nano car caught fire again. This was the sixth incident since launch in

March 2009. The August incident occurred three months after a company investigation

declared the car “absolutely safe”. These incidents have raised concerns amongst customers

about the safety of the car. Let us study various aspects of this case in respect to business

ethics and corporate governance.

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In a statement the company insisted that it was not recalling the cars and was merely

providing customers with additional safety features. The statement said that the Nano was a

safe car with a robust design and state-of-the-art components. The Tata statement said that

"customers can rest assured that there are no generic defects in the Tata Nano".

The company said an investigation by a team of internal and international experts had

concluded that the reasons for the fires were "specific to the cars which had such incidents",

rather than being a general fault. However the Tata statement says instances of "additional

foreign electrical equipment having been installed or foreign material left on the exhaust

system" had been discovered. On a hypothetical basis is it ethical for a company to deny a

situation which may exist that may result in risk to a customer’s life? If another incident occurs will

this not raise questions on corporate governance of the company?

1. Do the actions of the company in respect to these incidents reflect the company’s

commitment to walk the talk?

2. Tata Nano’s fire incidents – Do they raise question on business ethics?

The substantial drop in the sales figures indicates that the customers may be unwilling to

buy Tata Motors version of truth. In your view what should Tata Motors do to regain the

trust of the customers? Here are two options to consider:

I. Do you think it is a good policy for an organization to acknowledge its mistakes and

rectify them?

II. Is it possible that organizations fear that if mistakes are publicly accepted, the

customers will legally sue the organization?

ROOT CAUSE OF THE PROBLEM:

In all probability it was a combination of all these factors–supplier quality, lack of

integration, design adaptation–that has led to a faulty batch of cars. There are no shortages

of reasons for the Nano’s poor showing: production delays, fires, the stigma attached to

buying a “cheap” car. In order to bring Nano at cheap cost Tata reduced the use of quality

materials which affected the performance of the car.

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The combination switch had to be replaced because the Headlight Dim switch started

malfunctioning. Another issue was with accelerator cables. It gets broke frequently. Starter

motor behaved as if there was a loose contact. Occasionally the motor wouldn’t crank when

the ignition switch was turned. Sometimes starter motor burnt off due to a malfunctioning

solenoid.

However, experts say it is a problem with the rear engine. "The rear engine does not have a

proper cooling system as a result of which the engine heats up leading to such an incident.

The summer season will be the toughest test for the Tata Nano," said Mahendra Dhruva,

national president, The Institute of Insurance Surveyors and Adjusters.

There is not enough space and ventilators are not enough to provide sufficient air

circulation. In cities where temperatures in the summer shoot up close to 48-50 degree

Celsius, it is difficult to manage this car if the cooling systems are not functioning properly,”

In a rear engine, the air does not get circulated properly, which could lead to overheating of

the engine. The coolant capacity must be optimized and a different coolant other than

ethylene glycol, which is normally used, must be tried.

An unfortunate irony for a car touted as a “safe.” A safe car whose safety has been

questioned.

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REVIVAL OF TATA NANO: CAN THE WORLD'S CHEAPEST CAR MAINTAIN THE

MOMENTUM?

The sequential downfall of the Nano's sales figure compelled Tata Motors to rethink and

revisit its strategies.

ADDRESSING SAFETY ISSUES

As the major threat to the car's image was the fire incidents, engineers at Tata Motors made

some changes in the Nanos existing design, providing additional protection in exhaust and

electrical systems in view of some fire incidents.

FINANCING

Tata Motors Finance (TMF), the Tata Motors vehicle Finance Branch, announced a special

finance scheme for the Tata Nano, in which a buyer could get an easy loan with selected

documents in just 48 hours.

Tata Motors' efforts bore fruit with the sales figure showing signs of a revival after reaching

its lowest level in November 2010. Backed by the television advertisements, provision of

additional protection in the exhaust system, extended warranty schemes, incremental rise

in sales point in smaller towns, and the introduction of the 90% financing plan through its in-

house vehicle financing unit, TMF, this became possible. Sales of the Tata Nano went up

dramatically.

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CONCLUSION

The first aspect is regarding quality of goods sold. We believe that the Tata Nano needs

more safety features, like air bag, the reason attributed for the incidents is foreign material left

on the exhaust system or installation of foreign electrical equipment. The company is denying that

there is any failure of design. There is no way one can assess whether this is an accurate assessment

or not.

Tata didn’t put enough effort in pre-launch testing and research on the proposed cars

rather, they launch the cars in basic form, let the people use it and in the due course find

out the defects in the car, give free service for 3-5 years, and then based on the study

develop the new variants. THEY SIMPLY EXPERIMENT THEIR NEW PRODUCTS ON PEOPLE.

Tata Motors should assist in developing India’s infrastructure in order to accommodate the

increased number of vehicles on the roads. In addition, they should consider about ethical

responsibility towards society. Therefore, there are no chances of degradation of company’s

reputation. In Tata Nano’s case, the merchantable quality clause is debatable although the

company is stating the car is safe.

Our reasoning is simple, why are these incidents not occurring in other small cars. Maruti 800,

Maruti Alto, Santro and Tata Indica are other cars in the small car market segment. We have not

heard any similar case though these cars have been longer in the market. On a hypothetical basis is

it ethical for a company to deny a situation which may exist that may result in risk to a customer’s

life? If another incident occurs will this not raise questions on corporate governance of the

company?

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BIBLIOGRAPHY

1. http://www.team-bhp.com/forum/indian-car-scene/77921-tata-nano-fire-incidents-

updated-tatas-analysis-pg34-34.html

2. http://soniajaspal.wordpress.com/2010/12/06/tata-nanos-fire-incidents-do-they-

raise-question-on-business-ethics/

3. http://indiatoday.intoday.in/story/tata-motors-to-replace-faulty-starter-motor-in-

nano-cars/1/166022.html

4. http://www.hbs.edu/faculty/Pages/item.aspx?num=38716

5. http://www.hbs.edu/faculty/Pages/item.aspx?num=38716

6. http://www.eller.arizona.edu/stories/governance/2009/

undergrads_analyze_new_tata_nano.asp

7. http://www.icmrindia.org/casestudies/catalogue/Marketing/Revival%20of%20Tata

%20Nano-Excerpts%201.htm

8. http://madrives.com/tata-nano-problems-and-issuesmerits-and-demeritsstudy-by-

madrives-team/

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