Tata, the Indian company, is releasing their ultra-cheap ($2000) car this July. Apparently, they're going to make a loss on each such car they sell. So, how can they claim to have created a $2000 car? Because of the related merchandising and the financing!This article is worth reading in full, but in short: (1) the hype surrounding the Nano is so much that the company hopes to make money selling all kinds of accessories (sort of like the movie studios). (2) the wait list for the car is so long that the company is going to make people pay to be on the waitlist, thus getting a cheap source of funding that bypasses the banks. (3) Only the cheapest car is $2000; vehicles with a few more features (such as air-conditioning) cost much more and make the whole set of cars profitable.
As the Economist notes:
By declaring an impossible price tag, the company has generated enough lucrative hype to make the cheapest car viable after all.At any rate, a smarter business plan and better marketing than those coming out of Detroit.
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