Road Ahead

Auto Makers Gear Up for New Generation of Budget Brands

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It’s been a decade since Renault launched its successful low-cost Dacia Logan, aimed at first-time car buyers in emerging markets. Now other auto makers are on the verge of vaulting into a segment that one industry insider says is ready for takeoff.

After monitoring the success of Renault’s Logan over the past 10 years, and perhaps keeping a watchful eye on the struggles of Tata’s Nano stripper model as well, auto makers finally appear poised to make a big move toward the extreme low-end of the new-vehicle price spectrum.

The upcoming cars will be aimed chiefly at emerging markets. But they won’t mimic the largely failed business model of the Nano, a bare-bones sedan sold almost solely around its low, low cost – and consequently judged a bit too cheap, even by first-time buyers in India.

Instead they are likely to follow the path carved by the slightly more upscale Logan, which began as an inexpensive Dacia sedan for Eastern Europe but also ended up for sale as a Renault in more mature markets.

Volkswagen is among auto makers signaling plans for a new low-budget brand, with a strategy believed to be in the works with local partner FAW in China that will spawn a stable of new price-busting vehicles.

“We want to bring a true budget car to the market in China in the foreseeable future – a particularly affordable entry-level model for €6,000-€7,000 ($7,800-$9,000),” VW CEO Martin Winterkorn told shareholders at the auto maker’s annual meeting in April.

A bid by Nissan to revive its Datsun brand for emerging markets also has been well-documented. The auto maker reportedly will unleash initial marketing for the marque in India in July, with sales to follow in January or February. It then will roll out the budget brand in such places as Russia, Indonesia and South Africa.

The Financial Express in New Delhi says Datsun will launch with three small models designed to compete with the likes of Maruti Suzuki’s Alto and Hyundai’s Santro in a segment that accounts for 70% of the 2.5 million-unit domestic market. Renault-Nissan also is expected to add a line at its Chennai assembly plant to build the new sub-entry-level vehicles locally, the paper says.

Others are priming their product-development pumps in a similar fashion, says Karthikeyan Natarajan, who heads up the Integrated Engineering Solutions Practice for India-based software and systems developer Mahindra Satyam.

Natarajan told me more than two years ago one Detroit-based auto maker was on the verge of a big emerging-markets push that would see 20 new assembly plants built in 20 different Asia-Pacific countries by 2016.

That timetable has been slowed a bit, probably to about 2019, he now says in a phone interview from Hyderabad, but the game plan remains in force and is being dovetailed with a program to develop a new, economical vehicle architecture similar to the Logan’s B0 chassis.

“They really want to bring a new platform for Asia,” Natarajan says of his OE client. “They really want to see if they can create a new platform that would sell well in emerging markets. If they do that, then they can also take it back to Western markets, instead of trying to bring in a (de-contented, higher-cost) product from the West into this market.”

India, Russia and China are among the targets, and “what you will see is that the cars (derived) from those platforms will be very unique (to) those markets,” rather than modified versions of vehicles already sold in more established regions, he says.

The U.S.-based auto maker sees the opportunity to develop a whole new customer base, Natarajan adds. “Maybe in the past 10 years it would not have made sense, but now they’re thinking the volumes will be in support of this, so they are creating a new platform.”

With the business model proven by Renault, growing interest from competitors and a bullish outlook on potential demand, watch for more new budget-minded cars and brands coming to a market near you.

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