Monday, May 12, 2008

Why Can’t We Have An Ultra Low Cost Cars In The West?

Renault and Nissan announced their intent to launch a low-cost car by 2011 for the near Asian market, namely India. Their car, priced around $2,500, is to compete with Tata Motors’ Nano, which sells for about $2,500. These “Ultra Low Cost” (ULC) cars get approximately 50 miles per gallon (MPG) per a gallon of gasoline (approximately 22 KM/L) in regular driving scenarios.

Now, if you think that this is nothing more than a glorified golf cart or a tuk-tuk dressed up, guess again. The Tata Nano was designed at Institute of Development in Automotive Engineering (I.DE.A) in Italy, a concept and design company that specializes in compact car. In other words, the ULC cars are real cars. Think Volkswagen. In fact, the Nano is called the people’s car, i.e., Volkswagen.

So the ULC cars are real cars in a no-frill format. So, why aren’t the auto manufactures making them for the Western market? Given the high cost of gasoline (petrol) in the West, one would think that the car manufactures would begin introducing a ULC car. The lowest cost economic car available in the West is the Logan, which sells for about $10,000 in Europe.

The lowest cost economic car in the U.S. is the Chevrolet Aveo, listed at $10,235. With gas prices in the U.S. reaching the $4 mark, people are finally paying attention to MPG and their use of cars. Now our European neighbors already know this and have had very small cars for some time, made by companies such as Renault and Cooper.

The argument in the U.S. that these very small cars could not pass the crash test was rendered bunk with the introduction of the Japanese compact cars in the 1970’s. The alternative argument that the U.S. consumers will not buy into something so small with very little horsepower was rendered moot with the wide acceptance of the Cooper Mini.

So, the big question, especially in the U.S. would be “why couldn’t we import ULC cars to or build ULC cars in the U.S.?” I can only speculate that the automotive companies are firmly against it as being ‘un-American’, believe that it will not sell well, or it will not be profitable.

The Japanese companies have proven since 1960’s that low cost, high fuel-efficient cars do sell well and are very profitable. Companies such as Toyota, Honda, and Nissan (Datsun) became a part of the U.S. automotive lore because of their small fuel-efficient and low cost cars. Where have we lost that sensibility?

Fortunately, the high cost of fuel is reviving our senses. Even Chrysler has realized that it is profitable to go small. May be GM and Ford will also realize the same and begin to forego building SUV and large trucks for fuel sipping compact cars.

I am just hoping that Toyota, Honda, Nissan, and other Japanese car companies begin exporting the Kei cars to the U.S. to join the Copper Mini and the Smart car. Small is beautiful and it is intelligent. And if we can convince Tata to begin importing the Nano to the U.S., then going small will also be very financially sensible.

Ed Kim
Practical Risk Manager

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