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The Race to Build the Cheapest Car

Logan We have been studying costs in, well, cost class.  The Logan appears again at left.

Now B/W (remember Ariane mentioned this magazine to the class both last semester and this semester, no wonder it is a regular feature in this blog). And so as Audi introduces its new $100K+ supercar, the race is on to build the new low cost car. Read about it in this article on

The Race.  The boom in car sales the next ten years will be at the low end, the markets we have discussed here, China and India.  The Logan has proved to be a hit in Western Europe, though it was designed to sell in Eastern Europe.  Why, because people want to spend money on things other than cars.

How will these low costs be achieved?  I have advocated relaxing the rules on what can be licensed for the street here, let the rest of us do what govt does, drive Kaw Mules on the street, but only in urban areas.   Please read about how Tata and Chery plan to do the impossible, build the sub $3,000 car.

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12 responses to “The Race to Build the Cheapest Car”

  1. Jason Raper Avatar
    Jason Raper

    Apparently the slump in car sales is not affecting only the US automakers but now the Japanese as well…..I found this article on BW (below) stressing that Nissan has seen a slump in sales the past year and expects worse to come. Relating this to your article, maybe people are not seeing the value in spending so much on transportation anymore as they once did; or since the rise in poverty now prevalent in the US (37 million Americans below the poverty line) and the decrease in the Bourgeoisie class….maybe some just can’t afford it like they think.
    But refering back to my article, maybe automotive troubles are not just a US problem but starting to become a global problem; that only one or two companies (Toyota and Hyundia) have really seemed to find a solution. Refering to your article, if someone can find a way to create a product at lower cost and produce the same quality/better quality, kudos to them!
    My feelings are that maybe Nissan is now facing some of the problems that the US automakers have for years with them opening factories here in the states for political reasons…who knows, but those who are saying that the Japanese are the only ones doing it right may need to pull back their statements and foresee that bad habits and hard times can arise within any company….just as a reference I have included the article below..WHAT IS THE DEAL WITH THE DISCUSSION TAB ON WEB CT??????
    Nissan Motor may push back sales target
    By HIROKO TABUCHI
    Nissan Motor Co. said Monday it may have to push back a key sales target it aimed to hit next fiscal year, a blow to Carlos Ghosn, the chief executive who has led Nissan’s turnaround.
    Nissan, Japan’s third-largest automaker, is aiming to sell 4.2 million vehicles globally in the fiscal year ending March 2009 as part of a three-year revival plan.
    But weak performance last year, blamed on a dearth of new models in North America and sluggish sales in Japan, may mean it might take longer to meet the target, said a Nissan spokeswoman who spoke on condition of anonymity.
    “There’s a growing possibility that meeting the target could be delayed by a year,” she said, citing company policy.
    The official declined to offer a new timeframe, saying Ghosn would likely provide additional details when he briefs on Nissan’s results later this month.
    The company’s setback would underscore the difficulties Nissan faces in recovering from a slump last fiscal year. Tokyo-based Nissan slashed its annual profit forecast in February after seeing a 22 percent slump in earnings in the October-December quarter.
    The company now projects annual earnings through March to fall to 460 billion (US$3.8 billion; euro2.9 billion).
    The automaker is likely to report its first annual drop in net profit in seven years for the year ended in March on account of sluggish sales in Japan and the U.S — a stark contrast to rival Toyota Motor Corp., which is expected to report record earnings.
    The dire outlook prompted Ghosn, once credited for saving Nissan from bankruptcy, to declare a “performance crisis” at the automaker in February.
    Nissan shares, which saw moderate ups and downs in recent months, closed down 0.08 percent at 1,227 yen (US$10.31) on the Tokyo Stock Exchange Monday.

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  2. Dennis Elam Avatar
    Dennis Elam

    Well I don’t know that I would call 3.8 B a performance crisis, Nissan has done much better under Ghosn but I don’t think they carry the cachet of a Honda or a Toyota, at least he did not merge with GM and end up with a trying to cross two unrealted entities.
    The fact of the matter is that the car business is rather crowded, Jerry Flint made the observation a while back that while Honda and Toyota and now Nissan again are making good money real success seems to have eluded Mazda, Subaru, Suzuki all of whom struggle to sell 300,000 cars a year, in fact they don’t. Meanwhile KIA and Hyundai show up on the scene, in these low ball markets Tata and Chery will be players
    Sort of reminds me of the Model T, a simple design that could be a roadster, pickup, sedan as long as you wanted black, which dried faster than other colors so that is why ford chose it.
    I think we should allow simpler designs like the KAW Mule on the street in suburban areas, the govts certainly drive them on the street. Why can’t we?

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  3. Jason Raper Avatar
    Jason Raper

    The discussion tab is not working or I am an idiot (probably both, HELP….I AM TRYING TO DO WHAT YOU ASKED!!!!!!!!) but this does relate to to this discussion some….I found this this morning on Yahoo Business and it talks specifically regarding the shift towards buying from the Indian markets that appear to offer cheaper COGS, supplying our plants here in the states, as well as starting to market more vehicle sales in India.
    Hopefully GM can avoid the “No-va” blunder from the 70’s in Latin America…I still laugh at that one!
    GM to buy more auto parts from India Tue Apr 17, 5:41 AM ET
    NEW DELHI (Reuters) – General Motors Corp. (NYSE:GM – news) is looking at a “multiple increase” in auto parts sourcing from India, Chief Executive Rick Wagoner said on Tuesday.
    Wagoner also said India would be the world’s second-fastest growing auto market over the next decade.
    “Half of (the population) is under 25 years, so there’s a lot of potential buyers for everything,” Wagoner said.
    Annual passenger vehicle sales in India are forecast to nearly double to 2 million units by 2010, on the back of rising incomes and new launches from the world’s top car makers.
    “We are not only focusing on leveraging our supply base to suit our local needs, we are also looking to source more parts out of India to supply our global operations,” Wagoner said at a business conference in India.
    “We hope to increase our sourcing significantly over the current level, perhaps as much as five-fold over the next two years.”
    Wagoner was in India to launch the mini Chevrolet Spark and visit GM’s engineering centre in Bangalore. He was also expected to meet India’s prime minister.
    GM, which aims to have 10 percent of the fast-growing Indian market by 2010, makes the Corsa, the Chevrolet Optra and Aveo sedans and the Tavera multi-utility vehicle at a plant in Gujarat state, which has a capacity of 85,000 units.
    It is building a second plant in western Maharashtra state with an initial capacity of 140,000 units and has said it may build an engine and transmission plant as well, as it tries to wrest share from Suzuki Motor Corp.’s

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  4. Jason Raper Avatar
    Jason Raper

    Here’s a good one for marketing about Ford. They have hired on the writer of Glengary Glen Ross to help market their vehicles during American Idol. I am sure that they are paying high prices for this spot on TV. The story says that many BMW buyers are trading in their cars to buy Ford vehicles…I find that hard to believe but the stats ususally don’t lie.
    Here is one point from the article that just seems a bit…..well……DUMB?????
    “Art Spinella, president of CNW Marketing Research, an automotive research firm in Oregon, said the comparison strategy is an effective way of getting noticed, but it doesn’t always convert to sales.”
    WHY THE HELL DO THIS IF THERE IS NO GUARANTEE FOR SALES????? Isn’t that the point of marketing?
    By TOM KRISHER, AP Business Writer
    Mon Apr 16, 8:53 PM ET
    DETROIT – In an effort to get more people to notice its new vehicles, Ford Motor Co. has enlisted the help of filmmaker and Pulitzer Prize-winning playwright David Mamet to direct some of its commercials.
    The television spots, to debut Tuesday night during Fox’s “American Idol,” compare the company’s Edge crossover vehicle to the BMW X-5 and the Lexus RX-350, Ford officials said.
    The idea of calling in Mamet, known for writing sparse, choppy dialogue, came from Ford’s advertising agency, J. Walter Thompson Co., said Barry Engle, general manager of Ford Division marketing.
    The spots feature two men sitting in Edges, talking out the window about how their vehicles compare with the BMW and Lexus.
    Agency copywriters drew up the dialogue in an effort to mimic Mamet’s work, and he didn’t change any of the words, Engle said. But Mamet was in charge of camera angles, lighting and the actors’ facial expressions.
    Mamet won a Pulitzer prize for “Glengarry Glen Ross,” a play that catapulted him into the ranks of America’s elite playwrights with its gritty portrayal of the cutthroat world of a Chicago real-estate office during the greed-driven 1980s.
    The ads are part of Ford’s effort to tell people that its new products are competitive even with vehicles that cost several times as much, Engle said. Ford has run ads comparing its Fusion mid-sized sedan and Expedition large sport utility vehicle with the competition.
    Art Spinella, president of CNW Marketing Research, an automotive research firm in Oregon, said the comparison strategy is an effective way of getting noticed, but it doesn’t always convert to sales.
    “Comparisons are the most effective at getting kind of an instant recognition among consumers to at least position the vehicle with consumers, position it with comparable vehicles,” he said.
    But to many people, comparing a Ford with a BMW might be a bit of a stretch.
    “Nobody goes out and buys a Ford thinking they’re getting a BMW,” Spinella said.
    Yet, Engle said Ford did the spots because people are trading higher-cost vehicles in for Edges.
    “It’s very much up to par with vehicles that do in fact cost a lot more,” he said.

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  5. Jordan McClary Avatar
    Jordan McClary

    Hey all I know is that if these cars come to frutition in the States the Big three may be doomed. They are already having a hard time making cars cheap enought that they can sell them and make a profit, and now there suppose to go ultra cheap??? Oh man….I really want to see if they can miracoulously compete.

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  6. Dennis Elam Avatar
    Dennis Elam

    I don’t know why the discussion tab won’t work
    I don’t even know if Simon Cowell will make good on his threat to quit Amer Idol is the Indian guy wins
    I don’t know why Alex Baldwin didn’t leave the country like he promised he would if Bush was elected
    I don’t know if there will be an Indian Beach Boys group spring up, I mean ,cars, beaches, young people, hey, it worked the first time….
    Anyway, I am glad to hear Rick is an expert on India, he certainly wasn’t on America was he.
    Let’s just post on the blog

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  7. Dennis Elam Avatar
    Dennis Elam

    Goes around comes around, this is what the Model T was originall, they built every variation off the same frame, nowadays called a platform, the sedan, the pickup, the roadster with the rumble seat, now Ford has to go to China to figure all this out, geez

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  8. Jordan McClary Avatar
    Jordan McClary

    Hey, I just realized, I read, thought, and wrote my whole blog in less than 20 minutes… its short, sweet, and simple. Surely some of the other classmates have time to do this as well… cause it looks like its just the three of us responding.
    Jordan

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  9. Dennis Elam Avatar
    Dennis Elam

    Jordan
    You have just summarized the difference between an
    Excuse-I don’t have time, I had to take the dog to the vet, the family etc., I have to work, the traffic was heavy
    and a
    Reason
    DLE

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  10. Matthew Moore Avatar
    Matthew Moore

    I just read the article and since you three have done a good job of blogging and commenting on one another I would just like to throw my two cents out there. As Jordan had said, I would like to see how well the big 3 automakers here in the U.S. will survive once production hits the U.S. Only time will tell. Personally I have never been a big fan of expensive cars when you can buy cheaper cars that can do the same job, if not better than the more expensive cars. Why go out and by a Lexus SUV when you can buy a much cheaper SUV that will get the same job done. I believe in buying the car for its intended purpose. How many Lexus SUV owners actually take their vehicle offroad or places where 4wd is required? I doubt few if any at all. The same goes for the Cadillac Escalade truck. Why buy? I guess what I’m trying to say is that I believe in buying a vehicle for its intended use and saving myself as much money as I can, and allocating that savings to other tangible items. No matter how much money I may make in the future, I will never buy a car that is considered “high class”, because to me that is a waste of hard earned money. I’ll just stick to the basics. Just my two cents!

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  11. Dennis Elam Avatar
    Dennis Elam

    Matt
    Good post, and as you say, the original Land Rover was the star in many an African monvie, see Born Free, where its jeep like utility was perfectly suited to the task. The same can hardly be said for a 4wd leather upholstered, carpeted $50K plus luxury version more suited to the New York Met Opera than the plains of Africa. But as I recounted in an earlier post or I think I did, the head of Rolex Europe when asked how is the watch business, replied, I have no idea, I am not in the watch business.
    A few years back the manager of Land Rover Austin actually remarked in the paper that his job was selling people something they didn’t need, ie to get around Austin, Matt’s point. But such is the nature of luxury goods, they are bought to make a statement. What good is the 160 mph Cadillac CTS V with the Vette powertrain, the top speed limit here in Lancaster is 45mph, and a Honda Civic can double that. Like Matt I just replace my Timex Expedition that keeps track of day date time, stopwatch up or down, lights up at night and even includes an electro compass, for 37 bucks. Indeed such an item speaks the owner’s preference for utility not luxury, something we will not say about the Omega in the last Bond film or that went to the moon.
    Goes around comes around, can we re invent the Model T/A? I dunno, Detroit sure had that down in the 1950s, you had to pay for every option.
    And as Matt suggests, if the low cost car trend really catches on, will there be enough buyers here to maintain the high end, I think so. But the popularity of KIA makes Matt’s point, there is always a new low cost leader as others go up market. WMT’s efforts to go up market have fostered Dollar Stores for example.

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  12. Jason Raper Avatar
    Jason Raper

    Just as business and economics go in cycles, trends for smaller and cheaper cars will go in cycles as well. We like to spend and indulge in this country. Once gas prices start downward again, if they do, people will go back to buying the expensive SUV’s again.

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