Prices of second-hand cars in India, primarily compact models, have fallen 15-20% in the last few days in what an Indian newspaper has dubbed “the Nano effect”.

Demand for used cars across the country has fallen by 25-30% after Tata Motors’ announcement of the 23 March launch date of its ‘people’s car’, the Business Standard said.

Tata chairman Ratan Tata wants the Nano to bring mobility to the Indian masses and began the project after seeing an Indian family of four riding precariously on a two-wheeler, still the staple transport for many Indians.

Mumbai car dealers told the paper used car prices had fallen 15-20% with mainly compact models such as Maruti’s 800 and Alto and the Hyundai Santro, among others, affected after Tata’s announcement.

Tata plans to launch the cars in showrooms on Monday and open its order books early in April.

Dealers fear a further price dip of 10 per cent when deliveries start and the Nano starts to be seen on the road.

The head of one of Mumbai’s largest used-car dealers, told the Business Standard: “We started to feel the impact of Nano since the announcement of the launch date. People are postponing purchases and there has been a lull in the market ever since.”

The Nano is expected to start at an on-road price of INR1.25-1.3 lakh (INR125,000-130,000; US$2,400-2,500) for the most basic version, competing with rivals from Hyundai, Maruti Suzuki and General Motors. A high-end version with air-conditioning, central locking, power windows and power steering, will cost about INR1.7 lakh ($3,270).

Earlier this month, Tata launched the Nano Europa at the Geneva show; the ‘European’ version has a larger, engine, longer wheelbase, more safety equipment and  minor styling changes including new headlamps.

As well as hitting the prices of compact used cars, the imminent arrival of the Nano has also hit prices of entry-level, mid-sized sedans like Ford’s Fiesta-based Ikon sedan, Maruti Esteem, Hyundai Accent, Tata Indigo and Fiat Petra by at least 10%, the paper added in the used-car market.

Sellers are being forced to cut rates as the demand is expected to fall further. “The more time a car spends with the seller, the more its resale value falls,” a dealer said.

But Shubhabrata Saha, chief executive, Mahindra First Choice Wheels, told the Business Standard: “The launch of Nano will largely impact the unorganised sector, where cars are sold without any warranty or proper service record.

“The organised sector has continued to grow despite the hype created around the car. We have healthy demand for well-kept cars that are bigger than Nano but come with a price tag similar to Nano and carry a warranty.”

Although the organised players offer warranty and benefits like service back-up, they charge Rs 30,000-60,000 more than the unorganised players on an average, the report said.

Nano dream gets closer