Market Tracker: Nano, Now What? Is Nano The Exception or a New Rule?

Small, extremely inexpensive cars are touted to be the next big trend in the automotive industry, with the top management of suppliers and manufacturers showing great interest in this new development.

This year saw the introduction of what many consider to be the harbinger of a new era, with the launch of the $2,500 Nano from Tata Motors. What is interesting about the Nano, even more than its price tag, is the way that each of its components was designed to minimize cost, and the innovations in product, process, and technology that have made a car like this feasible.

Tata’s Ground Rules to build the Nano

• Build similar handles and mechanics for both left and right side doors.

• Install a basic instrument panel with just speedometer, odometer, and fuel gauge.

• Place the instrument cluster in the middle of the dashboard to suit both left-and right-hand drive markets.

• Install a single windshield wiper instead of two.

• Install 12-inch wheels with just three wheel nuts.

• Install 65R12 tires, which use less material.

• Custom-design a tiny 624cc, two-cylinder gasoline engine that uses only a single balance shaft instead of one per cylinder and fits under the rear seat.

• Hire Bosch to design a 35-amp alternator weighing 5.4 kg, slightly smaller and lighter than a normal 40-amp unit.

• Install a motorcycle starter motor.

• Shrink the electronic chip and its housing, by having Bosch remove 700 of the 1,000 functions of its European- market engine control module.

• Reduce the throttle position sensor to half the size, to substitute more sensitive

material in the pressure plate. • Reduce the weight to 580 kg.

The methods mentioned above will likely lead to even more new manufacturing innovations designed to offer affordable cars to consumers heretofore unable to afford a car, or at least a new one.

Tata Motors is expecting to build around 250,000 units annually, not counting the markets of Africa, Southeast Asia, Latin America or Europe. In the next couple of years, more than a million Nanos are expected to be on the road. In addition, many OEMs have shown high interest in tapping into the emerging BRIC (Brazil, Russia, India, China) regions with their own version of a people-oriented, low-cost car.

Renault is working together with Indian two-wheeler manufacturer Bajaj Motors to build a $3,000 car within the next two years. Toyota is also working on a $7,000 subcompact car for emerging markets, using the iQ concept unveiled at the Frankfurt motor show in 2007 as a blueprint.

Volkswagen, which started the biggest small, cheap car revolution of the last century, is looking at increasing local sourcing and cutting costs, and recently unveiled its concept car, the UP, but its plan for an ultra low-cost car is not clear at this point.

The Cheap Car Dilemma

More often than not, however, automakers prefer to stay away from making small cars, due to the fear of low-profit margins with cost pressures to maintain sufficient product quality.

Design-to-cost is the dominant concept in building cars at low cost today, and is seen as a route to reinvent the way cars are built through innovative ideas. The Nano approach was to design-to-cost from the outset, with the collaboration of more than 1,000 suppliers. The Renault Logan, in contrast, uses a simple exterior design, a windshield that features a single-curve shape to avoid quality issues and complexity in manufacturing, and a generous helping of carryover parts from the Renault B-car platform. Both companies are looking to open up new car markets with this approach, and they’re not alone.

Manufacturers interested in the art of building cheap cars are turning their attention towards India as a production hub for their BRIC strategy. China has also been producing a lot of low-cost cars, and is aiming to capitalize on the export market. Chinese manufacturers such as Geely and Chery are already producing cars under US$7000, and China’s Guangzhou Motors recently announced its collaboration with an Indian-based company, Global Automobiles, to roll out a low-cost car. Researchers say it is within those growth economies that manufacturers’ ultra-low-cost offerings are truly going to find buyers.

Making it Big in Small–The Future of The Low-Cost Car Market

According to the analysts at Frost and Sullivan, cheap and practical cars designed for emerging markets are expected to reach approximately 8% to 10% of overall global production by 2012. Because they make car ownership available to a new economic class, these vehicles will create a new segment that will not significantly affect any of the existing segments. Supplier contribution will also play a major role, through the development of new electronics, powertrain, and chassis systems for these vehicles.

Many vehicle manufacturers, including Tata, Renault, Ford, Honda, and Toyota, are chasing this opportunity to make an impact, with big global suppliers such as Bosch, Continental, and Delphi hurrying to grab their share of the market by partnering with automakers.

The focus is, though, on attracting buyers in developing economies; the $2,500 car is really not intended for the North American market. It may never touch our shores, but the global market trend is out there and it is growing–and could potentially change the way in which some consumers view the repair market.

What happens to the repair equation for a client who is looking at a $1,000 repair bill on his four-year-old Nano, when the repair is worth more than the car itself? And what of the repair rates of some of those low-cost parts?

The idea of cars as a throwaway proposition may be a long way off in North America, but as emerging manufacturing economies like India and China continue to evolve, don’t be surprised if your business does as well. People thought the Beetle was a fad, too.

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Editor’s Note: While you’re waiting for your neighborhood Tata dealership to open its doors, feel free to design your own Nano at ww. tatanano.com. Customize your ride with wild colours, wheels, and accessories. (Allow me to recommend the bitchin’ air vent covers and the racing stripe.)–J. D. Ney