BERLIN: When the automobile was first invented, it was a luxury only aristocrats and the bourgeoisie could afford, that is, until a certain Henry Ford introduced the machine that “put America on wheels in 1908.
This man had a dream of manufacturing a family car large enough to carry five people and their luggage, compact enough to maneuver around the city, easy to maintain and – most of all – affordable. To achieve this goal, he used a multitude of new techniques, industrial processes and materials, cutting costs tremendously.
Thirty years later, Adolf Hitler ordered the country’s top engineer, Ferdinand Porsche, to build a car for the people: a car that can transport two adults, three children and their luggage at the speed of 100 km/h with minimum comfort for the price of a motorcycle. The Volkswagen Beetle saw the light, and again the challenge was achieved.
With an increasing purchasing power and standard of life in emerging markets, affordable cars are very much in the spotlight. But the playground is no longer the US or Europe – the challenge is now Asia.
History is repeating itself. A hundred years after Henry Ford’s creation, a man with a similar vision is on his way to breaking records in affordable automotives: Ratan Tata, chairman of Indian conglomerate Tata Group, announced that by the end of 2008, his company will launch a car for the markedly low price of $2,500.
The Tata Nano has been making headlines ever since, as many await what was dubbed the least expensive car in the world. Newsweek said Nano is a “new breed of 21st-century cars that embody “a contrarian philosophy of smaller, lighter, cheaper. The new era in inexpensive personal transportation, they said, could result in “global gridlock.
While experts confirm that the challenge is astounding, the Indians are confident of their engineers’ ability to make it happen. Years of manufacturing inexpensive goods makes them masters at cost-cutting, trimming expenses to the bone by keeping only the essential components of any machine to perform the main function. Coupled with the low cost of labor in India, the idea seems less far-fetched.
At the same time, Tata acquired Jaguar and Land Rover from Ford this past March for $2.3 billion, what many called a bargain-basement price as they wondered about the synergies and added value of such a union. The company obviously has several ambitions.
Tata is not the only carmaker who is working to pull prices down, notable western brands will soon be flooding the Chinese, Indian, Brazilian, Russian and even African market with low cost cars. However, most lack the know-how to make affordable quality cars, which is why these automobiles giants are teaming up with Chinese and Indian carmakers: Renault Nissan and BAJAJ, Peugeot Citroen and Dongfeng, Fiat and Mahindra, Chrysler and Chery, to name a few.
Vehicles priced under $10,000 are likely to reach 18 million by 2012, compared to the 12 million of today. Most carmakers are trying to get a piece of the action, which is currently dominated by India and China. Some tried to sell stripped down, lightened, outdated models at a cheaper price, but it simply did not work – a low cost car must be designed from scratch to cost less.
This is what Renault did with the Logan, proving that this is the only successful way to go about introducing these types of cars to the market. The effort they invested in designing their ?5,000 sedan paid-off for the whole range. They now use their experience in cutting expenses to design, test, tune and manufacture all the vehicles they produce.
After the announcement of the TATA Nano, there was a rush of press conferences around the globe from car manufacturers revealing their strategies for the future: Volkswagen announced the Up for 2010, a light compact car, innovatively designed, a consumption of 2.9L/100km and with enough power and security for everyday use. The car will be produced in VW’s facilities in Brazil for a price tag of under ?5,600.
General Motors, with the help of their Chinese partner SAIC, are planning to introduce a basic version of an existing model, the Spark, for $2,800.
Renault partnered with Indian scooters manufacturer BAJAJ to work on a simple vehicle that they hope will cost under $3,000.
Most other carmakers announced similar projects but gave little details.
Two downsides face western carmakers if they launch cheaper cars. Firstly, their image and brand would be affected. To get around this, most will likely create a sub-brand or acquire another brand that will be technically and financially linked to the mother company, but without the shadow of “cheap quality.
The second is a tougher consequence: When cheaper cars are introduced, there will be less demand for the more expensive ones because people nowadays prefer to spend their money on something other than cars. Renault, for example, witnessed a severe decrease in the sales of the Clio and the Twingo shortly after they began to sell the Logan in Europe (even for the price of ?7,600).
The year 2010 will probably be the year of low-cost and ultra low-cost cars, which will help put the third world on wheels. What consequences will this have? We’ll have to wait and see.
