Race On for World’s ‘Cheapest’ Cars

Commentary

It looks as though the bar is about to be raised – or lowered, depending on your point of view.

Auto makers, already scrambling to fill growing demand for more conventional small cars, are about to be challenged again by a newly emerging class of ultra-low-cost vehicles destined to tax engineering resources and ingenuity even further.

The nascent sector is germinating in places such as India, but vehicles that meet the new criteria rapidly are spreading to drawing boards worldwide.

In the U.S., the market is just catching up to the so-called B-car, models the size of the Honda Fit, Toyota Yaris and Chevrolet Aveo that have been a longtime staple in global markets but are just beginning to proliferate here.

Among those running hard to get back in the race are Ford, which plans to launch by 2010 a version of its Verve concept unveiled in Frankfurt last week, and Chrysler, working with China’s Chery Automobile on a new small Dodge.

But several auto makers appear to be eying the next step: emerging-markets models well below the B-car in cost.

The march down the pricing scale was initiated three years ago by France’s Renault, which tapped into a low-cost manufacturing and supply base in Romania to produce the Logan, a small, no-frills car designed to sell for as little as $6,000-$7,000. A runaway hit, it now is produced in seven countries.

India Tata Motors kept the ball rolling downhill when it revealed it would one-up Renault with “the cheapest car in the world,” a $2,500 4-door due next year that Tata claims will meet all global emissions and safety regulations.

Initially, most competitors dismissed the Tata concept as unachievable. But when Toyota disclosed plans for a low-cost car of its own, the race was on.

Partners Nissan and Renault now are teaming up with India’s Mahindra & Mahindra on their own Tata and Toyota fighter.

Meanwhile, Volkswagen rolled out the Up! concept at the Frankfurt auto show last week, a small, rear-engine concept expected to take the German auto maker back to its “people’s car” roots.

Ford this month said it would invest $79 million for control of a state-owned assembly plant in Romania, where it will cultivate low-cost local suppliers for an all-new small car – with 90% of production bound for export.

General Motors is in the midst of a bidding war with VW for a stake in Malaysia’s Proton, another potential candidate to produce a global price beater.

Auto makers consider these cars key to expansion into Latin America, Africa, the Asia/Pacific and Eastern Europe, where success is critical to future survival.

Perhaps just as important though, anyone choosing to ignore the trend risks becoming a technological laggard.

Renault CEO Carlos Ghosn doesn’t name names, but he appears to point a finger at Detroit and its struggle to get back into the small-car game, now dominated by the Japanese and Koreans.

“Every time you are not competitive in the low-cost segment, you lose your edge,” he warns. “Now the Chinese and Indians are getting into low cost. If we are not in there, we lose some of our know-how and knowledge of how to compete.”

Ford’s move on Romania, Chrysler’s tie-up in China and GM’s interest in Malaysia suggest that lesson has been learned.

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