Tata Nano sales figures dropped in November 2010. On comparing year on year data, sales in September 2010 were 61% higher in respect to last year. In November, sales were 85% less when compared to last year. 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.
The first aspect is regarding quality of goods sold. The Sales of Good Act, Section 16 covering “Implied condition as to quality or fitness” states that when goods are brought from a seller by specifying a product description there is an implied condition that the goods will be of merchantable quality. That is, if a new car is bought, the buyer is relying on the seller’s judgment (manufacturer or in a car dealership store) that the car will be safe to drive. In this case, the buyer does not have to personally check the engine of the car to assess its durability and safety. This is a condition for the buyer to enter into a contract to purchase the car.
In Tata Nano’s case, the merchantable quality clause is debatable although the company is stating the car is safe. On 10 November 2010, Tata Motors Company (manufactures of Tata Nano) released a press statement “Tata Motors reconfirms robustness of Tata Nano design.” The first three paragraphs from the statement are as follows:
“Basis some media reports on the Nano recall, we would like to clarify that Tata Motors is not recalling Nanos. We would like to state again, as we had done in May 2010, that the Tata Nano is a safe car with a robust design, state-of-the-art components and built with an uncompromising attention to quality in all aspects. This has been re-established through a second analysis, conducted during the months of September and October 2010. Customers can rest assured that there are no generic defects in the Tata Nano.
Besides, our customer satisfaction studies with current Tata Nano owners indicate that about 85% are satisfied or very satisfied with the car, because of it being ‘small yet spacious’, its performance, maneuverability, durability, low operating cost and safety. Some owners have taken their Nanos on countrywide trips or to altitudes like Khardungla, the world’s highest motorable road. This adequately corroborates the Tata Nano’s reliability and safety, as was seen during the validation of the car with about 300 prototypes which covered more than 2 million km of safe operation before launch.
The investigation, by a team of internal and international experts, has once again concluded that the reasons for the incidents in few Tata Nano cars are specific to the cars which had such incidents. We have noticed instances of additional foreign electrical equipment having been installed or foreign material left on the exhaust system. It is also our belief that as we penetrate deeper, the Tata Nano will be bought increasingly by users in the hinterlands not fully familiar to cars.
As stated above, 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.
My 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. I 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?
Therefore, let us analyze the corporate governance and code of conduct of the company. The first paragraph of “Company’s philosophy on corporate governance” as specified in its Corporate Governance report is given below:
As part of the Tata group, the Company’s philosophy on Corporate Governance is founded upon a rich legacy of fair, ethical and transparent governance practices, many of which were in place even before they were mandated by adopting highest standards of professionalism, honesty, integrity and ethical behavior. As a global organization the Corporate Governance practices followed by the Company and its subsidiaries are compatible with international standards and best practices. Through the Governance mechanism in the Company, the Board along with its Committees undertakes its fiduciary responsibilities to all its stakeholders by ensuring transparency fairplay and independence in its decision-making.
The key words in the above paragraph are “ethical, transparent, integrity, fair, honesty and professionalism”. My question is do the actions of the company in respect to these incidents reflect the company’s commitment to walk the talk?
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:
- Do you think it is a good policy for an organization to acknowledge its mistakes and rectify them?
- Is it possible that organizations fear that if mistakes are publicly accepted, the customers will legally sue the organization?
Invite you to share your opinion here.