MUMBAI (Bloomberg) -- In July last year, as Nissan Motor Co. prepared to bring Datsun out of a decades-long retirement, the company scoffed at the idea that the budget brand could follow Tata Motors Ltd.’s $2,500 Nano in becoming a flop.
“This is not a Nano,” Trevor Mann, the Japanese carmaker’s top executive in charge of Datsun, said at the time in India, where the brand would debut months later for the first time since it was phased out in 1981. In a more recent interview, Mann said Datsun’s revival is on track and that Nissan continues to have big aspirations for the marque.
The numbers tell a more sobering story. Deliveries have fallen in three of the past four months through August, even dipping below those of the Nano in July, although overall Indian car demand is growing. In Indonesia, sales will need to pick up to meet their full-year target. Meanwhile, Russia, another key Datsun market, is in such turmoil that IHS Automotive predicts the auto industry there will shrink the most in a decade.
Datsun’s growing pains are a reminder that cheaper prices don’t guarantee success in emerging markets, even in a country where most people are so poor they earn less than $2 a day. For Nissan CEO Carlos Ghosn, failure to make Datsun a success would threaten his ability to deliver on a key pledge to raise Nissan’s global market share by a third to 8 percent by March 2017.
“The same factors that resulted in the Nano’s failure are the ones that are leading to disappointing sales at Datsun,” said Deepesh Rathore, director at Emerging Markets Automotive Advisors in New Delhi. For one, many car buyers are status-conscious and “want to be seen driving cars that are not ’cheap,’” he said.
While they may generate lower profit margins than models such as Nissan’s Altima, Datsun cars are key to the company’s sales strategy because they target emerging markets with the highest growth potentials. The carmaker has forecast Datsun will account for a third to half of Nissan’s sales in the countries that the brand is operating in.
“It’s going to be tough for the brand to succeed,” said Edwin Merner, president of Atlantis Investment Research in Tokyo. “But it’s not hopeless.”
In a Sept. 26 interview, Nissan’s Mann said it’s too early to judge Datsun’s performance and that the brand’s roll-out was going as planned. While the carmaker has forecast it will raise its market share in India fivefold to 10 percent by 2016, with Datsun accounting for as much as half of sales, Mann said the brand’s early sales reflect what’s to be expected from the normal course of doing business.
“When you’re a new baby and you’re crawling around, and you’re trying to get on your feet, you fall down every now and again, and you bump your head,” Mann said. “We have big aspirations for the brand.”
In India, deliveries of the Datsun Go hatchback, which starts at 312,270 rupees ($5,100), through August have totaled only 9,557 vehicles since the car went on sale on March 19, according to the Society of Indian Automobile Manufacturers. By comparison, Maruti Suzuki India Ltd., the country’s top-selling carmaker, sells as many of its similarly priced Alto hatchbacks every couple of weeks.
It gets worse. Only 607 Datsuns were sold in July, falling 77 percent from their peak in April and dipping below sales of Tata’s Nano, though they rebounded and exceeded Nano sales in August, according to the latest available SIAM data.
Take Alisha Gracias, a 26-year-old physiotherapist in the western Indian state of Goa, who bought her first car in April. Though she knew about Nissan’s no-frills brand, she paid almost 50 percent more than the top-end version of the Go to buy a Grand i10 from Hyundai Motor Co. Bluetooth connectivity, dual airbags, anti-locking brakes, rear parking sensors and power mirrors were among factors that led to her choice, she said.
“Besides, I didn’t like the looks of the Datsun,” Gracias said.
In Indonesia, where Nissan aims to sell 40,000 Datsuns this fiscal year, the company says it’s delivered 6,400 Datsun minivans, the Go+ Panca it introduced in May. It’s also begun taking orders for the Go hatchback, which went on sale Sept. 18, and expects to meet its full-year target, according to Nissan. Last year, Ghosn was so optimistic Datsun would be a hit there that he forecast 50 percent of Nissan’s sales in the country would eventually come from Datsun.
‘Life changing’ investment
“People who are buying a car for $10,000 or less are making a fundamental, life-changing investment,” Vincent Cobee, corporate vice president in charge of Datsun, said in an interview Sept. 26. “You can’t expect somebody to shift from a household brand to a new brand in tens of thousands overnight.”
Beyond India and Indonesia, the carmaker expects Datsun to account for a third of Nissan’s deliveries in markets where the brand is introduced.
Next up: Russia.
Though Nissan’s targeting of the country as one of Datsun’s first four markets predates the unrest in Ukraine, the company is starting sales of the brand as sanctions take their toll on the Russian economy.
Russia is on the brink of recession, prompting carmakers to cut production. Light-vehicle sales in the country may drop 9 percent this year, the biggest decline in 10 years, according to IHS Automotive.
Known in the 1970s for its sporty, fuel-efficient models in markets such as the U.S., Datsun was revived to widen Nissan’s reach to customers in emerging markets, where car ownership levels are lower than in developed economies. The Bluebird and the 240Z sports car were among popular models Datsun sold -- 20 million vehicles across 190 countries -- before the brand was phased out.
That was then. Today’s Datsun may have more in common with the Nano, which captured global attention when it was unveiled in 2008 only to find that Indians would never really warm to such cheap cars. It took Tata five years to sell 250,000 units, equivalent to one year’s production capacity for the car. More recently, Nano sales have fallen 42 percent this fiscal year after tumbling 61 percent the previous year.
Still, one opportunity for Nissan to turn around Datsun is during India’s festival season that runs from September through November, a time when local car sales typically rise, said Ammar Master, an analyst at LMC Automotive in Bangkok.
“I wouldn’t call it a failure yet,” Master said.