CAN a car be too cheap? Tata Motors Ltd is hinting at pricier models based on the Nano, the US$2,000 compact it introduced with great fanfare in 2008. The reason: Few buyers wanted a vehicle that was primarily pitched as an inexpensive alternative to a motor scooter.

Though the Nano captured global attention, Indians never really warmed to the tiny, egg-shaped car. The company has sold just 229,157 Nanos since deliveries began in July 2009, and sales in March were off by 86 percent from a year earlier.

While Tata Managing Director Karl Slym says he won't kill the Nano, he says the company will soon add improvements designed to breathe new life into the model - which would bring prices closer to those of rival offerings.

The Nano's marketing "didn't gel with anybody," Slym, 51, said over coffee in his spacious office filled with cricket and soccer memorabilia at Tata group headquarters in Mumbai.

Scooter drivers weren't attracted because others "don't think I'm buying a car, they think I'm buying something between a two-wheeler and a car. Anyone who had a car didn't want to buy it because it was supposed to be a two-wheeler replacement."

Slym points to the Pixel, a Nano-based concept Tata showed at the Geneva Motor Show in 2011 as an example of what he has in mind for the brand. The two-door hatchback takes the skeleton of the Nano but adds "scissor" doors that rotate up from the front, an automatic transmission, and a diesel engine.

The Nano will be offered to "a wide variety of buyers and price points," Slym said, without providing more detail.

Updating the existing Nano may not be enough, said Haritha Saranga, a professor at the Indian Institute of Management in Bangalore.

Fourth place

"Just creating variations is not going to help increase sales," Saranga said in an e-mail. "It is important to change the current image of the Nano as a cheap car."

With Nano sales in freefall, Tata's passenger vehicle sales dropped 15 percent in the year ended March 31 even as industrywide sales rose 2.2 percent in the same period, according to the Society for Indian Automobile Manufacturers.

"If they are able to get the Nano on track, that will revive buyer interest in the brand" and allow Tata to boost prices, said Ammar Master, an analyst at LMC Automotive in Bangkok.

The problems extend beyond the Nano: Tata's Indica Vista hatchback, Indigo sedan and Safari sport utility vehicle ranked near the bottom of J.D. Power's 2012 India Initial Quality Study. The company sold 17 Aria and Xenon utility vehicles in March, versus 389 a year earlier, and sales of its Indigo and Manza sedans dropped 63 percent in the 12 months through March.

The Nano's woes have persisted despite Tata's success with the Jaguar and Land Rover luxury brands, which it bought from Ford Motor Co in 2008 for US$2.3 billion.

With the cars winning praise from reviewers, global sales rose 30 percent in 2012 to 357,773 vehicles. Profit at the luxury unit contributed 74 percent of Tata Motors' operating income in the year ended March 2012.

Tata Motors' Indian business has seen earnings fall for two years, and it's expected to post another profit decline in the year ended March 2013, according to the median of 17 analysts' estimates compiled by Bloomberg News.

Last month Tata sold 1,507 Nanos, versus 10,475 a year earlier. For the year through March, Nano sales were off by 28 percent, to 53,848 units.

Tata's factory in western Gujarat state was designed to make 250,000 Nanos a year - almost half the company's car manufacturing capacity.

By contrast, Maruti Suzuki India Ltd, the country's biggest carmaker by volume, has sold 125,000 units of its revamped Alto 800, a 244,000 rupee (US$4,880) hatchback introduced in October.

People's car

As of April 11, Tata Motors' shares' had lost 14 percent this year, versus a 5.2 percent decline in the benchmark S&P BSE Sensex. Maruti's shares were down 5.2 percent, while Mahindra & Mahindra Ltd, India's biggest SUV maker, had slid 10 percent.

Ratan Tata, who in December retired as chairman of the Tata group - a conglomerate with interests ranging from software to steel - ordered up a "people's car" after seeing a family riding a scooter.

When Tata conceived the idea in 2003, he established a target price of 100,000 rupees, a bit more than US$2,000 at the time.

Since the Nano's introduction, the price has crept up to about 142,000 rupees for a stripped-down model and as much as 200,000 rupees for a version with air conditioning and power windows. These days, Nano buyers are more often wealthier Indians rather than families upgrading from a two-wheeler.

"People are buying the Nano for their mothers, fathers, children, second cars," said Slym, an Englishman who took charge at Tata in October after 17 years with General Motors Co in Europe, India and China. "That's actually a good thing because it allows us to do a lot more with the car than just make it at a low price."

Slym said Tata has overhauled its manufacturing process to ensure fewer problems after cars roll off the assembly line.

To convince customers that the changes are real, it is offering to buy back its Manza sedan at 60 percent of the purchase price after three years. And it has added features such as peppier engines, touch screens and satellite navigation in its more expensive models.

Alarm bells

Tata will have to change the exterior and interior of the Nano and add features such as power steering to compete with cars from Maruti and Hyundai Motor Co, said Umesh Karne, an analyst at Brics Securities Ltd in Mumbai.

Doing that would require Tata to raise the price to about 250,000 rupees, said Karne. Instead of selling solely on price, he said, the Nano must be "more aspirational."

To get sales moving, Tata last month started accepting credit cards for Nano payments and offered to convert the entire amount into interest-free installments spread over 12 months.

Tata is also offering 4.5 percent discounts on the Indigo, and as much as 250,000 rupees, or 14 percent, on its Aria crossover.

"The discounting at Tata Motors rings a lot of alarm bells," said Deepesh Rathore, the Indian managing director of IHS Automotive in New Delhi. "It means that they're really running out of ideas and are desperate to sell cars at any price."