As the workers strap the crash-test dummies into the front seat of the little car, they look concerned. Not about the vehicle, they insist, they are worried about the dummies.

Each of the figures, engineered to resemble the height, weight and bone structure of a human being, are worth about €100,000 (£82,000). For the same sum, you could buy the vehicle they are sitting in 60 times over.

When it was launched in 2009 at a cost of roughly $2,000 (£1,210), the Tata Nano was heralded as the low-cost vehicle that would motorise the Indian masses, a kind of Asian equivalent of the Volkswagen Beetle. If the car proved a success in India, the industrialist Ratan Tata hinted at the time, a European and US version would be rolled out within a couple of years.

The car passed a crash test in England, and Tata claimed to be confident of a four-star rating in the Global New Car Assessment Programme (Ncap).

But the results of the Ncap test, conducted last month at ADAC, the German equivalent of the AAA, in Landsberg, Bavaria, raised serious questions about the risks posed by Tata's so-called frugal engineering approach to car safety. The Tata Nano received a zero-star adult protection rating and failed to meet even the most basic UN safety requirements.

After hitting a wall at 40mph, the vehicle pirouetted around its axis by about 150 degrees and skidded a couple of metres to the left. Its nose folded like a cardboard box, wrapping around the dummy in the driver's seat. The right-hand wheel burst through the floor of the vehicle, crushing the dummy's legs. By the time the car had come to a standstill, the right wrist of the driving dummy was protruding from the burst intersection between the windscreen and side windows.

About 50 cars are crash-tested at the Landsberg laboratories each year. Makeup is applied to the dummies before a test – to the nose, brows and lips – to determine the initial impact, which will leave a smiley face blotted on to the inflated airbag. The Nano, crucially, does not have an airbag, so there were only smudges of paint on the dashboard.

The results were unequivocal. While the dummies were not quite beyond further use, the test centre reported that human passengers in the front seats would not have survived the crash. The vehicle was also given a zero-star rating for child protection, since it was not possible to install child seats in the car. So far, Tata Motors has not commented on the results of the test.

Since its launch, the Nano has failed to live up to its creators' high expectations.

In 2011, the Economist reported that the factory in Sanand, Gujarat, was "barely ticking over". In October last year, the company was selling 2,500 Tatas a month, down from 10,000 in April 2012. This month, before the death of managing director Karl Slym dealt a further blow to the company, Tata launched the slightly more expensive and upmarket Nano Twist in an attempt to boost sales.

Despite the Nano's travails, David Ward, the secretary general of Ncap, believes the car provides an important service. Even though the Nano has not proved the success story predicted, it is symbolic of changing worldwide car trends. "It took 100 years for the number of cars on the planet to rise to a billion," he adds, "but the amount has doubled in the past decade, and is expected to come close to 2bn in 2020."

Ward hopes the test results will increase consumer awareness in India, encouraging manufacturers to produce safer cars. "India is sort of the last frontier," he says. "The Chinese are actually moving in a very impressive way towards much better quality vehicles. But India is just twiddling its thumbs. If India came onstream, then gradually the world would be covered."

Ncap argues that, contrary to suggestions from within the industry that producing cars able to withstand the basic UN crash tests would add thousands to the price of the vehicle, the additional cost would actually be less than a hundred dollars. Standard air bags and so-called "bird beaks" – diamond-shaped cuts in the body frame that direct energy away from the occupant area in a crash – could mean the difference between life and death in an accident, it claims.

"Poor structural integrity and the absence of airbags are putting the lives of Indian consumers at risk," Ncap's chairman, Max Mosley, says. "They have a right to know how safe their vehicles are and to expect the same basic levels of safety as standard as customers in other part of the world."