They are more appealing in large developing markets like China and India.
Have you heard the news about the world’s cheapest car? Tata Motors, an Indian company, introduced the Rs 1-lakh ― the Nano ― during the New Delhi Auto Expo last month. Brand-new, the tiny car costs 100,000 rupees ($2,500). That is one-third the price of the most inexpensive car in Korea, the GM Daewoo Matiz City, which costs 6.76 million won ($7,160).How is the Nano made so inexpensively?
On the outside it looks like a regular car with four doors and it seats for four passengers. It also has a 600- cubic centimeter engine displacement, which is the amount of air and fuel that a car’s engine uses in one complete cycle. This amount is a bit less than the Matiz, which has an 800 cc engine displacement. However, a 600-cc engine is still big enough for the Nano to be driven on the highway. It can even go up to 130 kilometers (81 miles) per hour.
If you look carefully, however, the Nano is missing many features, such as a radio and air conditioner. Windows must be rolled down by hand, and there is only one windshield wiper. Plastic and glue replace many of the metal bolts and parts that make up other cars. The speedometer and clock are not digital, either. In short, the Nano has only the bare essentials of a car.
Even before the introduction of the Nano, however, the automobile industry has been experiencing a boom in low-cost models. Tata’s new car has pushed the trend further. Now, numerous companies around the globe are producing, or beginning to produce, inexpensive cars.
Carlos Ghosn, head of Renault, announced last year that he would introduce a car to the Indian market that costs less than $3,000. Japan’s Suzuki announced plans to export cars to India for around $4,400, and China’s Geely said it would sell cars priced at around $3,900 to India by 2010. Toyota and Hyundai are also developing low-cost automobiles.
So why are all these companies racing to develop low-cost vehicles? First of all, making these very cheap cars can even be tougher than making luxury cars. One car requires an average of 20,000 parts, and it is quite difficult to cover all these costs when the finished car is sold so cheaply. Costs for labor and materials need to be lowered.
Some experts even say that it is impossible to make a profit from a car priced below $5,000. On top of these hurdles, in order to turn a profit with cheap cars, you need high volume sales.
The growing number of companies worldwide getting into this new trend shows the quickly shifting paradigm in the automobile industry.
The largest market for automobiles is the United States. As the U.S. economy worsens, automobile sales are going down as well.
The same goes for Japan. As the Japanese economy shows no sign of ending its recession, automobile sales are decreasing yearly.
On top of these issues, these countries already have an abundance of cars, so there is little room for new brands to enter the picture.
In contrast, developing nations including India, China and Russia, as well as countries in South America, are emerging as new, profitable markets for cars.
China has already surpassed Japan to become the No. 2 market for automobiles.
Experts estimate that more than 10 million cars per year will be sold after the Beijing Olympics. India is also on the rise as the next big automobile market, according to many experts.
These countries see the movement toward selling affordable yet attractive cars as an important shift that will appeal to ordinary people.
The sales for these low-cost cars are likely to jump if those who ride bicycles or motorcycles buy cheap cars instead.
In many developing countries, many poeple use bicycles and motorcycles to get around.
The shift is already underway in places like Eastern Europe and India, where Suzuki’s Zen Estilo model, priced at $8,000, is quite popular. In India, Suzuki’s Maruti 800 is the No. 1 car in sales. Renault’s Romanian-made Rogan, priced at $7,200, is one of the top selling cars in Europe.
Nevertheless, many criticize this new movement toward ultra-cheap cars. Some critics are worried about the safety and durability of these inexpensive models.
Some reports show that carmakers replace some metal parts in these low-cost models with light plastic. While these materials help lower costs, plastic parts can turn a fender-bender into a serious accident.
Environmentalists are also concerned. If people start to favor driving these new, cheaper cars instead of bicycling or walking to get around town, there will be more pollution. Critics say that there might be less emphasis on auto exhaust standards for these cars because they are made so cheaply.
Although the new, low-cost cars are apparently all the rage, motorcycle sales in India remained high last year, with more than 7 million sold.
Even though Tata’s new Nano costs only 100,000 rupees, or just double the amount of money needed to buy a motorcycle in India, there are many good used cars at around that price.
This leaves skeptics questioning whether the Nano will succeed.
Car experts in Korea are also saying that these cheaper cars will not be a success here because Korea has different standards for safety and emissions.
By Han Ae-ran JoongAng Ilbo [jainnie@joongang.co.kr]
with the Korea JoongAng Daily
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