Industry Practice - Global VMs (Part 4) – Down-Shift Products to Scale-Up Volume & Profitability.

The previous three web-log sections have explained why the auto investor mindset across all genres – from institutional to privateer – should recognise the renewed importance of product cost, and the rise of reduced cost vehicle manufacture; which at its farthest reached – though mechanically unconnected – results in the ideals of the 'low-cost' and 'ultra low-cost' cars.


Précis -

Throughout the last decade, and especially so since 2008, there has been a structural re-orientation of the global economy; merging the prime characteristics of those previously distinctly separate 'advanced' and 'industrialising' nations, to form an increasingly 'convergent' global economy. Thanks to globalisation the once highly visible industrial, commercial and consumer chasm which existed has become increasingly blurred.

This obviously most apparent regards the private consumption household consumables, bottled drinks, cigarettes, fast food, coffee emporiums and fashion clothing, but also, as increasing national wealth escalates incomes and credit availability, the trend has become increasingly apparent regards medium-value and high-value goods and services, including of course passenger vehicles.

Consequentially, this ongoing post-2008 worldwide economic re-shuffle has remoulded the corporate perspectives across the world, perhaps most necessarily so and drastically so in the west as historic mature markets struggle to regain traction. But also critically those of advancing EM conglomerates and sector players who themselves see the convergence as not a challenge but opportunity.

Logically, along with the trend toward 'convergent markets' comes the 'convergent product' ideal, the ambition of which is to maximise volume production of a subtly altered but near standardised item to suit the cultural and pricing dynamics of mainstream cars across a broad geographical spectrum. Thus requiring R&D, development programme and production solutions which can finely balance the internal commercial demand of mechanical similarity with the external demand of product differentiation to create discretely matched intra-regional business cases that provide a high margin 'glocal' solution.


Comparing Apples & Pears -

Via the use of previous accompanying detailed diagrams, investment-auto-motives sought to explain the primary elements and issues to the notion of 'low cost' and 'ultra low cost' cars.

From the consumer perspective, the former practically aimed at a burgeoning global middle class across EM countries and the latter still theoretically targeted at mobilising the 'bottom tier' of very low income masses.

From the industrial perspective, the former essentially the commercial re-deployment ( ie notional 'platform recycling') of previously fully or part amortised high capex tooling & plant: typically re-located from 'advanced' to 'advancing' countries; undertaken autonomously by a Triad VM where possible or increasingly so, through JV arrangement with local EM manufacturer or representative.

Whilst the latter tends to the ideal of a largely or wholly 'all new' EM-designed vehicle, encompassing a mix of technology transfer from other mobility segments (primarily motorcycles, but also 3-wheelers and small 4-wheeled quad-bikes) and innovative engineering solutions


Part 4 -

As promised, this last section seeks to provide a closer view of the business formulae for the generic 'low cost' car and the 'ultra low cost' car.

A final Part 5 to follow, will identify and plot those national, regional and world-wide manufacturers which are seeming best placed – on the basis of this weblog's very limited research – to follow each path, and indeed recognise those manufacturers that are indeed able to follow both paths.

So...

Using basic description of the 2 prime examples seen to date: Renault's Logan and TATA's Nano. Although already much discussed, each is worthy to generally recount when set side by side to truly understand the respective prime differentiators.

How success of the inter-national 'low cost' car template depends greatly upon a VM's ability to read and integrate with the external dynamics of EM foreign affairs; with the assistance of its national government, EM regional economic development agencies and the links its own investment advisors hold, with critically the ability to forge deep political relationships.

And how success of the largely intra-national 'ultra low cost' car template is critically reliant upon the ability to orchestrate and leverage the internal dynamics of a conglomerate's own and supplier capabilities, whilst promoting the 'people's car' idiom amongst the masses to thus gain the 'wholesale backing' of the national government, integrating the project as part of the domestic and export growth agenda.

Thereafter, investment-auto-motives seeks to identify those publicly listed manufacturers (on global bourses) which by virtue of their current and near term product portfolio, their industrial divisions and their industrial alliances, are strategically well positioned to follow either or indeed both of the set courses so critical to medium and long-term global profitability*

[NB Though investment-auto-motives maintains that it will be the 'low cost' car, not the 'ultra low cost' car which will be the prime profit engine for regional and multi-national VMs, given the very nature of its narrower development focus, its multi-continental application, its 'middle-class' target market's greater & elastic disposable income, and its general formulaic repeatability]. .


Daimler Led the Way -

Yet before delving into both Renault and TATA overviews, the importance of Daimler's then already underway pioneering ambition must be re-stated. Having ostensibly invented the car in the 1880s, ninety years later the German company set out to re-invent it once again (ironically in near its original yet modernised form) by way of the SmartCar: and its associated business model. Other VMs, perhaps Renault and TATA most presciently, integrated learning from Stuttgart's far-reach and very brave 'live case study'.

This arguably has been the most progressive automotive industrial achievement of modern times - still to be applauded. It created of not just a whole new vehicle segment by way of the 'mass-customisable' 2-seater city-car - thus far retained to itself, but also a totally new, expansive, intelligent supplier-linked production hub; itself centred around an alternative vehicle build schematic.

Daimler's strategic recognition of its need to expand beyond premium cars and trucks, buses was met by a willingness to 'read' the far-horizon European and 'mega-city' future and develop an archetype vehicle with a well understood problematic initial gestation period until its 10 year break-even, but delivering thereafter a long-life (and arguably semi-protected) income stream to the presumable delight of institutional shareholders.

The SwatchCar / SmartCar project formally and informally broadcast its learning throughout the industry, with discrete methodological parcels across various disciplines either directly adopted by others or highly influential toward intelligent corporate practice.


The 'Low Cost' Car Template -
Renault's Dacia Logan: “The Master Class”

Though not in the same innovative vein, over the last decade pundits have applauded Renault's re-invention and scale application of conventional 'platform re-cycling' old platforms through Dacia.. With the 1989 fall of the Eastern-Bloc, Renault well recognised its position of comparative competitive advantage given its historical links with Romania.

Volkswagen Group had been the prime-mover of CEE auto-industry renewal, by acquiring interests in the former Czechoslovalia's Skoda Auto and euphemistically 'bringing it to Wolfsburg' by re-utilising older SEAT shared vehicle technology for marque renewal. In a twist of apparent fate – or more likely, the coherence of backstage CEE macro planning - VW's government tender for Skoda the company beat Renault's application, on the basis that the German company would invest more and produce higher grade vehicles in the country, versus Renault's attempt for a low-cost assembly centre. VW's plan made far greater macro-economic sense for the new lead role region with higher populace.

The Renault ambition would come to fruition in Romania with Dacia, and its sought to maximise that opportunity. Rather than simply produce its base model Twingo in a cost-efficient location - as had been the previous plan - it recognised the might of awakening EM markets across the neighbouring CEE and Russia, close-by MENA (expanding its Turkish operations), and to the further reaches of India, Mexico, Brazil, with the ideal of using these large markets as CKD hubs from which to access smaller yet fast growing regional economies.

So, with such a grand ambition, instead of simply shipping defunct tooling for gradual single local model use and decline, Renault re-deployed the recently 'run-out' X90 Clio 3 platform which has acted as the first shared technology base in the Renault-Nissan alliance. The company then maintained proprietary rights instead of typically selling them off via licence or JV so as to serve as the underpinning for the necessary low-cost programme to become Dacia Logan and its spin-off siblings. Such cost-consciousness supported by the much welcomed but still pragmatic capex refurnishing of the Mioveni plant..

This is a well told story, but the crucial understanding is that Renault was able to draw many strategic threads together, namely:

1. How to best exploit (and partly generate) the then new wealth effect within the CEE's then emerging economy
2. How to create a credible and sustainable entry level brand to compete against and undercut VW's Skoda & SEAT and Hyundai's Kia.
3. How to create a web of international links with the Mioveni plant as the CKD export hub
4. How to continually add / layer fully built and CKD volume capacity.
5. How to manage Mioveni to provide an anti-cyclical, 'off-set' income stream, relative to still heavy reliance upon French and W. European sales
6. How to wield a powerful procurement strategy so as to gain both usual YoY discount rates, increased volume discounts & obtain cost re-engineered parts discounts.
7. How to critically retain full control of what is viewed as the archetype 'world car'.
Fundamentally...
8. How to achieve a reported 6% unit margin (vs 2% on EU mainstream vehicles).

These few highlighted points then illustrate the near perfect alignment of corporate strategy to evolving macro-economic conditions, as 'master-planned' by CEO Carlos Ghosn and ex Head of Product Strategy and ex-COO Patrick Pelata.

[NB. The WSJ article dated 16.04.2012 (p20) quoted a financial analyst's view that “Renault's entry level products are what is saving the company”. This may not be wholly correct given the very important income contributions made by high volume Renault LCVs even in a depressed market and Nissan's passenger cars, but the margin figure stated explicitly assists in such a dour period].

Thus, given Renault's proven ability to produce a seemingly new entry-level class of 'low cost' product, offering mass-market sector leading margins, the race over the last 5 years of so has been for VMs to emulate such benchmark practice.


The 'Ultra Low Cost' Car Template -
TATA Motor's Nano

Part 2 of this web-log series provided a useful account of the hurdles facing those VMs and 'National Champions' that seek to create the 'ultra low cost' car, highlighting the truly fractured nature of personal finance and so credit provision that exists at the 'bottom-tier'.

It also provided general observation of the now legendary TATA's Nano project, illustrating how the original $2,000 vehicle price target drove a raft of considerations which necessitated the need for a wholly new product development approach. Hence creating the “4-wheeled motorbike” drew inspiration from within, but critically also external to, the car industry and so re-configuring the orthodoxy of NPD

The renowned consulting firm A.T. Kearney provided a useful synopsis of the EM affordable car topic, itself identifying the pricing regime of the 'low-cost' car at $5,000 - $7,800 whilst the 'ultra low cost' car spans $2,500 - $5,000.

[NB investment-auto-motives identified a true ultra low cost' car at $2,000 - $3,000 if it is not to be subsumed by “established incumbent” offerings or by naturally deflating used car values as a country's car parc grows].

However, the paper provides useful insight into the organisational and technical issues which enabled the Nano to move from 'vision to reality'. They include:

- Deep co-operation with suppliers
- Severe parts count reduction
- Invention over adaption
- Value chain standardisation
- New retailing model
- Organically expanded production sites

However, the paper omits TATA's self-admission that the Nano project stood on the shoulders of the previous micro-truck project, sold as 'Ace', 'Super-Ace' & 'Magic' variants. Thus whilst philosophically undoubtedly a 'clean sheet' approach, the fact that such recently developed, cost-absorbed components and systems were available (very probably 'packaged protected' or 'performance ratified' for Nano during the mini-truck programme) means that at least a degree of the 'all new' hype is unjustified.

[NB investment-auto-motives suspects that a number of core 'invisible' items such as steering rack, electrical harness, dashboard armature etc were originally designed to be dual purpose].

However, what is all new is the sales channel being used, with expectation that ever more 'mobilised' sales people will trek to the more remote towns and villages in rural India to presumably 'educate and enthral' about Nano. This then is an organic extension of the conventional sales process used in other sectors, but a first for modern automotive and more akin to sales teams that demonstrate agricultural equipment; but in itself a redeployment of the methods Ford used with his Model T.which took on various utilitarian farm and community roles.

[NB Here is the greatest achilles heel for Nano, the fact that it has limited utility compared to a mini-truck or regular pick-up. Presumably TATA's expectation being that it will in time sit amongst the plethora of TATA and other micro-trucks and bought for general parts and service compatability].

As for the last highly important item listed, the company plans to 'mass customise' Nano and provide complimentary services to better serve 'bottom-tier' needs, thus able to add feature and service value.. This will be rolled out on a “micro-factory retailing” basis, where CKD & semi-complete vehicles are delivered to strategically positioned satellite mini-factories, where each ordered Nano will be assembled and taken to the buyer. This supported by a central warehouse of spare parts and accessories.

If this comes to pass, then TATA will have truly applied the type of new-age assembly process re-invention initiated by Daimler's SmartCar: using pre-coloured replaceable skin panels for late-stage configuration. If however, those pan-Indian regional configuration site are superseded by the building of standard factories then the great potential for process revolution will have been lost.

A.T. Kearney's paper begins and ends by citing a provocative question aimed at prodding the strategic thinking of established VMs. Whether to with relation to the 'ultra low cost' car...to “Preserve & Protect or Participate and Prosper”. (Such a statement implicitly conveying the consulting firm's overt enthusiasm about the transformational impact of the 'ultra low cost' car).

investment-auto-motives remains more cautious given the challenged faced by even those best placed such as TATA Motor. But emphatically hopes to see a continued focus by TATA on its parallel 'smart-thinking' for the good of its bottom-line, broader industry learning, re-bouyed market-capital values and obviously the promise of improved shareholder returns.


Not Such A Simple Choice -

The previously mentioned consultant's paper posits a choice for auto-makers: whether should continue with 'business as usual' or make a leap of faith toward the 'ultra low cost' vehicle. Of course such 3rd parties have intrinsic interests in citing provocative black & white questions.

The reality is of course, as well understood by automotive CEOs and CFO's, is that simplistically described idioms pertaining to general trends must be met with highly considered and detailed plans which themselves require near flawless execution. Truly meaningful strategic insight and strong operational capability are mutually necessary simply to competitively maintain an enterprise as complex as those in the auto-sector; each of which of course sits in its own very particular set of macro and micro circumstances.

To morph from being simply reactionary to socio-economic and market forces, to becoming an proactive, perception moulding, leading industrial vanguard typically takes not only a mind-shift of corporate outlook but also deep vertical and horizontal value-chain links and a suitably strong balance sheet.

Yet the sector lives in a constrained business environment. The very fact that the majority auto-sector participants survive from the innate stable conservatism required in a smoke-stack industry to attract share-based equity, maintain a stable credit rating, to enable corporate bond issuance, retain revolving credit sources to ultimately meet or beat quarterly, half-year and annual earnings expectations.

A large automotive company's operational complexity is often equally matched by its financing complexity and its long-term obligations to both mid and long-term bond-holders and its pension obligations.

Thus corporate radicalism of the central mindset relating to products, services, markets or manufacturing is only ever typically seen when a company faces either near extinction, or when it can financially afford to expend time and effort to generate a distinctively new competitive advantage, or when it has implicit/explicit national backing.

The verge of extinction radicalised Chrysler in the early 1980s to re-create itself as 'avant garde' and regained N. American popularity. It was a combination of solid corporate finances and recognised need for a long-term USP that prompted Daimler to create SwatchCar / SmartCar. And it was conglomerate industrial reach and echoes of India's 1947 “national promise” that set TATA on its course with Nano.

Thus three different motivational catalysts to actively mould the future.


To Follow -

In Part 5, investment-auto-motives very simplistically evaluates the prime national, regional and global automotive manufacturers, to better understand the present strategic perspective of each.

So as to ascertain the likelihood of following a single-path 'low cost' car route, or a far more demanding dual-path 'low cost' (LC) and 'ultra low' (ULCC) cars development route. The general picture is given greater conjectural content by the inclusion of other possible 'new entrant' companies which could theoretically alter the state of play if able to develop far lower cost non-traditional cars.

Industry Practice - Global VMs (Part 3) – Down-Shift Products to Scale-Up Volume & Profitability.

In contrast to the high PR impact, but low financial 'value-added' of innovative cars like the GM Volt Nissan Leaf or BMW i3, investment-auto-motives has sought to re-prompt previous strong debate about 'low cost' and 'ultra low cost' NPD and product actions, amongst both the investment community and its intersect with auto-sector.

'Far-horizon' high innovation products – typically EVs and (ICE generator “range extending”) RE-EVs – fill the pages of life-style magazines, TV advert slots and web-pages, extolling an ecological utopian future and 'halo-effect' over a brand. However, in stark contrast, the fundamentals of business and economic reality dictates that mainstream vehicle producers actually focus a far far greater portion or R&D and development budget and innovative focus toward the far less 'sexy', but singularly important, topic of cost.


Thus Far...

Part 1 explained the basic premis of global 'product convergence', itself a consequence of the reducing wealth divide between (largely western) post-industrial / advanced industrial countries and the advancing industrial countries across the globe.

In short, constrained consumerism in the west contrasted with expanding consumerism elsewhere has created a general 'purchasing parity convergence' effect. To react to this more price sensitive yet far larger global market, major VMs have sought to create more affordable passenger cars, which in turn places 'cost-down' new product development (NPD) initiatives high on the corporate strategic agenda. The outcome has been new interest in the idea and execution of the contemporary 'low cost' car, consisting of the 'recycling' of primary vehicle systems, NPD de-costing efforts and product 'de-contenting' to provide budget motoring solutions.

Furthermore, the previously ignored 'bottom-tier' of global society is increasingly explored by progressive enterprise, so as to reach into a millions / billions strong global market-place whilst also depicting corporate social responsibility.

Part 2 illustrated such attempts with the three influential case studies of: 'micro-pack retailing', the (supposed) '$20 laptop' and 'micro-finance' credit programmes. Yet whilst each has enthralled the ranks of middle management, the reality is that to date each has incurred very real business case hurdles; these born from the reality (not theory) of the 'bottom-tier' environment.

Nonetheless, a few visionary industrialists in EM regions strive onward, India given its massive yet largely poor population a prime arena. TATA Motors' Nano the poster-child of an industrial movement which takes the ideology of the 'low cost' further still, toward the 'ultra low cost' car. Bajaj Auto also having conceptually developed an aesthetically less sophisticated city-car directed at its and competitor's (ie Force Motor's) rickshaw drivers.

Although described by investment-auto-motives, the TATA Nano deserves meaningful investigation by the auto-industry, investors and business/industrial academia alike. Cynics may view the prime intent of the car programme to substantially minimise development and manufacturing costs under the banner of an ethical edict. Then at launch raising the product's price, starving the market of entry-level vehicle volume and over time raising the average / median product price to a trends-led (critically middle class) marketing influenced consumer as additional 'content' (ie specification features) are built onto the base car, thus spawning additional substantially higher priced model variants. The real intent to supplant the entrenched and massively popular Maruti 800. Nano project supporters would conversely highlight that the mission of mass-motoring is still on track – even if those real-world 'bottom-tier' headwinds hurdles do pose problems in the near-term. They cite that Nano's launch price increase the inevitably result of input costs inflation, with little left to financially squeeze from the car itself, and that the provision of more variants will ensure that the low utilisation rate of the Nano factory will be improved to in turn lower unit costs and so provide flexibility for medium-term return to the promised “1 Lakh car”.

Thus we see that for strategically well placed corporations such as TATA – typically indigenous to a large EM market with a massive conglomerate capability (like past examples of Toyota in Japan and Hyundai in S.Korea) - the 'ultra low cost' business model, when perfectly constructed, is a very attractive proposition. It will muster national popularity and draw world attention, which polishes the corporate name, it provides a rational by which to engage suppliers in R&D and strongly negotiate supplier pricing structures, and so provides valuable route toward a very low cost product solution. One which gives the foundation of a much reduced 'cost-floor' upon which which layers of unit profit-margin can be built.


Part 3 -

So far, investment-auto-motives has explained the macro-level (PESTEL) shifts and micro-level (auto-sector) replies by comparing the modern notion of the 'low cost' car and the 'ultra low cost' car; which to re-iterate are distinctly different creatures

The 'low cost' car intrinsically important to globally established multi-national VMs - whether self-marketed or by way of a joint venture agreement. In the JV case, a strong commercial proffering to those large, high-potential and so understandably self-defensive BRIC nations; illustrated by VW-FAW, VW-SAIC, GM-FAW, GM-SAIC, Dongfeng-PSA, Changan-Ford, and GAC Group's affiliations with PSA, FIAT, Honda, Toyota, Mitsibushi & Isuzu and so many other Chinese couplings. Russia of course touts the Renault-Avtovaz relationship to help modernise its sector.
With very probably PSA seeking new JV agreements across MENA and the CIS regions as political and socio-economic stability increases; and quite possibly a new similar (though retrograde) JV structures inside Argentina if it seeks to continue its nationalistic ferver.

The 'ultra low cost' car thus far, though attempted and often failed by private enterprise (eg AFRICAR) is largely the ideology and domain of the indigenous EM auto-maker – either established or new - in support of a national economic agenda seeking to generate a substantial medium to long-term growth. This to be achieved partially through a 'productivity-push' itself linked to formulaic wage increase (ideally during an inflationary period ) to create an internal-market demand (akin to Ford's landmark “$5 per day” initiative), and partially through broader policy and socio-commercial efforts to financially integrate what is presently a very fragmented socio-economic 'bottom-tier'. (One such effort being Kenya's M-PESA scheme, in which local shops act as banks' deposit-taking agents and the personal mobile phone acts as a payment transferral device).


Two Very Different Routes -

Both new product development strategums form what could be described as powerful 'investment magnets', yet as demonstrated, the business model each incorporate must be considered 'poles-apart' and could be emphatically labeled as 'Darwinian' and 'Creationist'.

The 'low cost' car is a far more technically and financially “evolutionary”, small and medium step improvements in standard practice across all operational facets of an auto-maker. The practice was perhaps best illustrated by Ford's Model T, where ongoing cost absorption allowed ongoing price decreases; a lesson deployed time and time again to a less obvious degree by established VMs throughout the decades – typically seen in detail artifacts such as windscreen wipers, door-handles, quarter glass, side market lamps and such, the more expensive 'under the skin' mechanicals re-deployed to an ever greater extent given their hidden nature; this of course not publicised when advertising what is supposed to be a truly new vehicle.

Whilst the 'ultra low cost' car demands that an organisation be either radically altered to embrace the 'revolutionary' leap of faith idea, or more likely, a distinctly separate mini-organisation be created – a type of officially sanctioned skunk-works - to critically avoid any central corporate disruption, as a standalone business unit and cost centre, and to convince external bodies of its autonomy to introduce change.

From investors' perspectives, the prime distinction is not necessarily operational – though of course key to successful implementation – but the fact that here appears two distinctly different 'investment threads'.


Mapping the Vehicle Cost (& Investment) Space -

By its very nature of horizontal and vertical industrial reach, the automotive sector's cost-base is highly complex, which without the very rare event of corporate disclosure of accounting details for worldwide divisions, cost-centres and administrative departments makes the de-constructing of company workings – essentially the cost-benefits – nigh on an impossible task.

Investors, from institutional to private individual of course have a multitude of investment originated formulae and criteria by which to assess the performance of companies. And whilst many standard 'market ratio' conventions are useful by virtue of the fact that they are standard, simple, popular and so influential (eg such as p/e's, EPS, dividend rates, book values, the raft of measures across profitability ratios, liquidity ratios, activity ratios and debt ratios can lead to an infinite number of results but clouding overall conclusion, aswell as being overtly “micro-micro”.

The other extreme is to over focus on general – or rather perceived trends – in the macro-economic picture, which can be themselves very ethereal and long-range, adding little value to the here and now of topic appreciation.

What is required is an intermediate model which combines both the micro and macro perspective, in a meaningful manner. This the real creative task of value-creation analysis

So to provide a far broader understanding of the 'low-cost' car vs 'ultra low cost' car discussion, investment-auto-motives provides an accompanying matrix diagram, which marries the two prime aspects of a vehicle's cost-base: its development methodology and its generalised production location & its specific build process type.

To this end, the diagram highlights the five different new vehicle development route options and the three regional types of location, each divided by 3 generic build approaches.

Thus the vertical shows NPD type in ascending cost order, spanning:

- All new 'ultra low' cost
- Recycled 'low cost' platform
- Standard platform evolution
- Modular systems set
- All new premium hi-cost

And the horizontal shows location and build type:

- TRIAD production base
- BRIC production base
- CIVETS / “Next 11” production base.

These sub-divided by:

- Capital intensive build methods
- Mixed cost methods
- Labour intensive build methods


Interpretation -

The diagram then depicts a very general schematic of the car production cost-base, each square effectively representing a specific cost-base environment, which either underpins or undermines any new vehicle business model.

The innate complexity of whole industrial equation, - market type relative to product type relative to production capability type - highlights historic industrial tendency to “feed the machine”.

Nonetheless, in order to create other types of non-standard (ie steel monocoque or steel chassis) vehicles, various other low-volume production methods have been developed over decades specialising in lightweight and hi-strength alternative materials including aluminium, magnesium, other alloys, and basic and advanced composites; carbon fibre perhaps the best recognised today. Used for dedicated performance and specialist products, ranging from a plethora of race-track categories, to various road-based sports cars directed the wealthy, to emergency service, agricultural, national defense and other specialist tasks on and off road.

Companies providing such vehicles tend to operate at the top of the cost-base (see top right of diagram), creating innovative structural, propulsion and task-orientated solutions; applying both hi-R&D and practical pragmatism when devising, constructing and producing their vehicles. Such operators are mostly located in the Triad countries and primarily rely upon a broad semi-skilled and skilled labour force suited to the physical fettling of prototypes and the practical demands of a largely unmechanised build process which avoids onerous capital expenditure.

However, when feasible, such companies may seek to move production, low-value elements of development (such as product testing), and indeed aspects of central services 'off-shore', to a much lower cost country (ie a “Next 11” nation) especially if close to a major foreign market. So as to lower the man/hour assembly costs of the labour intensive build process, reduce development and overhead costs. Alternatively, another company based in a low-cost location may seek to undertake manufacture and / or other activities by way of a JV partnership, or seek to sub-contract to a third party.

Importantly, the learning and methods previously deployed in this most cost extreme area has had a direct effect upon the lowest cost area (see bottom left of the diagram). The position from which various auto-industry 'disruptors' have sought to create the 'ultra low cost', going against the grain of the conventional business model. Through the decades, business start-ups seeking to offer low-priced mass-mobility to the 'bottom-tier' have well recognised the very different business model constraints - spanning market dynamics, customer income level & seasonality, and the very different general product use conditions their hypothetical, prototype and production cars should satisfy.

Yet to date, nothing has truly convinced as true competition to the omnipresence of 'grey import' or locally assembled motorcycles, rickshaws, old but durable Japanese, Korean, German passenger cars (in towns) and Japanese and Indian 2WD & 4WD LCV double-cab trucks (in rural areas).

Yet nonetheless, the basic demographic and national growth numerics offers much apparent promise.

Yet any such opportunity looks far less likely to be tapped by new entrants, typically with high ideals but shaky finances, unless as seen with electric vehicles, a whole crop of new VC community backed enterprises are born and backed; in the knowledge that but a small few may grow “from acorns into possible oak trees”. Yet recent EV history is a solemn one, with a loss of many such enterprises and no surviving company (inc Tesla and Fisker) actually having made any substantial headway into the premium space of the mass market.

More likely that any 'ultra low cost' space is to be hard fought by those well established names; if indeed more than a few are compelled to join, given the over-whelming presence of the 'low cost' model. They appear the only present viable candidates since they have the core industrial competencies and for the most part far stronger balance sheets. Of these the most likely are those EM national champions with conglomerate standing (as seen with TATA) which are in a position to design and manufacture a credible product, have a broad distribution network, can tie-in sales with other goods and services, may offer a good after-sales service and critically create a sound financing basis by which to gauge potential customers and so step-by-step popularise the vehicle.

Even so, as of today and well into the medium-term, the previously described barriers and pitfalls in serving this apparent mass-market presents substantial challenges; the willingness to absorb substantial start-up costs and 'burn cash' for years to come until the tipping-points of slow break-even and market acceptance is attained.

A wholly new realm targeting Indian and SE Asia, and the rural far reaches of China, which could in time transform from a trickle into an stream and onto a river,.

But the competitive terrain which that trickle must pass will be uphill and with broad meander as the business model is honed year after year.


Continued Prevalence of the 'Low Cost' Paradigm -

Hardly surprising is the seeming majority opposition of Triad auto-makers and their Chinese counter-parts, so as to seek to maintain general global market dominance in the sales of new vehicles, and expected increasingly control of their product in used car sales channels. To defend their prominent position, they will leverage the increasing cost-benefits that intelligent engineering will bring, and so promote the evolutional character of the 'low cost' car, which will increasingly consist not of whole cost re-engineered platforms but distinctly discrete systems modules, which themselves can be more effectively re-engineered for specific functionality. Speedier amortisation of systems and parts and so give further business boost to similar and extended future 'low cost' car ambitions.

Obviously, not directed not a the 'bottom-tier', but far more logically toward the greater near-term (and long-term) promise of an ever growing, more prosperous EM middle-class, as well as a less prosperous western middle-class.

As seen today and over the last decade, the eastward migration of western automotive technologies has provided a 'low cost' furrow for both the western corporate IPR proprietors and their EM manufacturing partners. Such ongoing 'low-cost' and 'reduced cost' vehicles will undoubtedly form a continued cornerstone in such commercial relationships. Those EM partners gain relatively advanced western engineering for national manufacturing and self-branding needs, whilst the Traid company gains from yet further rounds of NPD cost re-engineering and reduced cost manufacture.

Given that the endemic prevalence of the 'low cost' car has far greater affect upon the real-world economics of the auto-industry, and the conventional cars' economic impact across many industrial & service sectors, although some academics and management consultants are enraptured by the idea of ultra low cost cars (due to intellectual fascination with re-orientated practices), the fact remains that its very existence - in comparative terms - will be at the edges of the global automotive story, relatively fringe given the present 80 millions plus annual units of conventional vehicle produced; though undoubtedly of major lifestyle impact to those few million across the Indian sub-continent and elsewhere, if indeed proven on market, product and business bases.

Paradoxically, by default of the general status quo, at least an equal amount, if not more, auto-industry and externally sourced 'brain-power' ought to be devoted to progressing 'low-cost' car thinking, so as to vitally understand how it can better fit within conventional business practice, and how a new 'basement level' business model could operate at the Tier 0.5 level, itself created from the integrating the interests of VMs, Tier 1 (OEM) suppliers and contract manufacturers.


To Follow -

This web-log piece was intended to be limited 3 distinct sections, providing:

A. general overview of both the 'low cost' car and 'ultra low cost' car theorums.
B. these 2 distinct models within the wider global cost-base picture
C. conclusion: highlighting the overwhelming weight of the 'low cost' model

However, an important issue promised – but as of yet unaddressed - is analysis regards the strategic positioning of international, regional and national vehicle producers. So as to maximise the leverage of one, or indeed possibly both, these highly absorbing and business critical income stream models.

A Part 4 will end this series by reviewing a suite of VMs which are publicly listed across the world's major bourses.

Industry Practice - Global VMs (Part 2) – Down-Shift Products to Scale-Up Volume & Profitability.

Previously, Part 1 introduced and expanded upon the auto-industry's more recent, necessary obsession with new product cost consciousness. Such singular strategic focus very necessary so as to try and industrially re-couple previously very separate cross-regional product offerings.

This effort to unify NPD operations ironically comes about as the result of the de-coupling of the advanced-industrial nations of the Triad 'olde worlde', and those speedily advancing-industrial nations that constitute an ever enlarging EM base; with 'established emergent' and 'newly emerging' status.

Such Triad vs EM developmental economic flux is most effectively illustrated by the ever apparent reduction of what was once a massive chasm in living standards chasm. Whilst still of course wholly evident between the top and bottom rungs of the social-ladder rungs, the fact remains that late 20th and early 21st century globalisation has elevated the living standards and aspirations of countless people across Asia, South America, the Middle East & Africa.

EM industrialisation largely replays the Western and Japanese models of yesteryear, and that of S.Korea more recently. In doing so, it has furnished lower cost goods and services to Triad markets thanks to the philosophy of intra-national competence, and has installed within EM regions self-perpetuating economic engines; comprised of: materials extraction, processing, goods production, multi-media marketing and an ever more sophisticated consumer. The foundations of the "economic miracle".


Global Product Convergence -

That convergence of national wealth and consumer expectation has in turn generated the general idiom of globalised product convergence. This most obviously seen in basic household items, fashion clothing and white and brown goods, but also increasingly evident with motor vehicle choices. The prime difference being that in such a capital intensive sector, the trend provides a basis upon which automotive VMs are able to re-utilise what were previously sunk costs in R&D and CapEx previously directed at Triad zones. That recycling of 'old' Triad technology and tooling thus able to provide seemingly new fashionable, safe and better performing vehicles to those buoyant EM zones.

In very simplistic economic graph terms; the matured Triad market demand curve has become increasing shallow, but now - at its near 'flat' end-point - been conjoined with a second EM market demand curve, which given high growth rate, shows a strong and steep gradient. This has been well understood for over a decade, and so the old-guard western and Japanese automotive companies have sought to combat the increasingly hostile Triad investment environment through global expansion, seeking to attract receptive new EM consumers by effectively 're-playing' – and critically technically re-utilising - those products and services which previously served Triad audiences.

Since 2008, it has become ever more apparent that the global macro-environment sees constrained consumption in western countries and fast paced consumer growth in the BRICS, CIVETS and remaining 'Next 11'. This trend has thus consequentially re-orientated the destination of corporate investment. But of course such decision making is not wholly binary nor wholly instantaneous. Thus we presently sit in an economic and commercial transition period, where the respective dynamics of consumer expectation and corporate capability relative to Traid and EM regions effectively overlap.

In reaction to this environment, VMs have sought to worked more intelligently, with rationalisation across the value-chain, but best illustrated by the undertaking of aver more joint ventures to provide geographic reach and the invention of sophisticated 'module-set engineering' to gain increased cost-benefits from creating a greater number of mechanical combinations. In turn, such engineering intelligence allows auto-makers to both extend the life-cycles of their newer automotive products and also recycle, with minimal changes, older cost-absorbed products. So greatly amortising the VM's overall costs, yet also able to maintain apparent product renewal and model variant choice for western consumers; seeking to maintain competitive advantage.

Such heavily cost reduced products are then able to be offered to government, fleet & private buyers in EM countries, with the additional volume gained also providing for additional cost reduction, and so product pricing flexibility.

Here then western auto-makers have sought to continue the 'recycling' of previous generation products & platforms, just as they has done previously with the many examples highlighted in Part 1.

But instead of being generally 'hands-off' as was the case, changed global conditions and opportunity require a VM to be far more 'hands-on'. Indeed to integrate 'product recycling' centrally into its strategic thinking.

They must then be able to recognise and satisfy both the similarities and differences between regions in a converging yet still disparate world; through construction of an ever more multi-faceted and intelligent corporate mindset.

Such complicated research and development requirements are masked by the apparent simplicity of the generic term 'Low Cost Car'.


Re-Cap of the 'Low Cost Car' -

More detailed description was presented in the previous web-log (Part 1)and is perhaps best recognised by Renault's impressive efforts with Dacia's base car Logan, and its spin-off variants and models which grew and ever wider Dacia range.

Yet there have also been powerful examples before and after Logan, set by Detroit and other European VMs.

GM was able to re-conquer Brazil in the early 1990s with the introduction of a more durable yet cost-down engineered Corsa small car, also expanding that base model into other Latin only models.

Later Ford re-engineered its previous 'run-out' European Fiesta hatchback to gain market-share in India, regenerating model as the Ikon small sedan. And more recently enlarged its project budget to re-design the next generation European Fiesta to become India's Figo. Overlaying the Fiesta's mechanical package with (bigger brother) Fusion like styling so as to create a more mature premium-like product.

The long established and successful operations of FIAT Brazil meant that it could effectively create its new Novo Uno 'in-market', as a ground-up 'low cost' product. It sought to design a car “for Brazil by Brazil” (and Latin America), exploiting regionally lower R&D & CapEx costs, with the project's business case expected to gain from the boosted amortisation rate derived from high volumes thanks to FIAT's sizable Brazilian market grasp. (That car is very probably due to be both exported and productionised in Italy, with its formula of affordable no-frills functionality expected to be an Italian and Southern European hit if/when released).

However, it is the Ford Figo example which demonstrates the far greater cultural market sensitivity required by VMs when adapting new product for EM ragions and devising a 'low cost' car strategy.

The rate of competition and broad exposure to western consumer trends means that the expectations of those 'deeper pocketed' middle-class EM buyers has far surpassed that of a cheap, native, homogeneous, durable, 4-wheeled box. Being well down the track of their “economic miracle” relates to ever greater product and service demands - arguably more so than the western consumer. This because such regions are effectively "buyer's markets' where achieving complete consumer satisfaction is critical for business credibility and success. Obviously then, the idea of what could be called a 'commodity car' seeking to serve the expanding and demanding EM middle-classes is almost laughable; a fact known by most, except the least informed and so most blinkered of western eyes.


Mobilising a Nation -

Of course each EM nation is unique, each sits at differing points of the 'received' economic growth path and has differing social structures – statistically and culturally: the shape of the population pyramid, levels of wealth (wealthy, middling & poor) and levels of social (and commercial) interaction between different ethnic groups. All of which comprise a socio-economic matrix. Yet, even though many EM countries tend to have greater internal 'social mosaics', the historic precedence set by the economic growth models of 20th century America and Europe means that it is well recognised that any nation's GDP growth and parallel GINI rating depends a great deal upon the advancement of its citizens' personal and private mobility.

This is being achieved by virtue of an increasing size in the middle-class, yet these are largely 1st and 2nd tier city dwellers, and make up only a fraction of any EM nation's populace. The real challenge is to mobilise the remaining millions in other lesser cities, towns and villages so as to create far greater social links, commerce and enterprise across a country.

Vehicle affordability is of course key.

It has previously been sought by creation of 'national champions' with the invite / tender of foreign manufacturers, Malaysia's Proton & Perodua, and India's Maruti prime examples, via Mitsubushi, Daihatsu and Suzuki respectively. Such created entities have proven highly effective, their successes achieved via a combination of low cost assembly, protectionist vehicle market policies from government (often for lengthy periods) and secondary assistance through state-based vehicle purchase programmes to speed financial break-even. In this way indigenous commercial success of the 'national champion' is ensured, which in turn provides for 'organic' and 'bolt-on' growth of a nation's internal automotive value chain.

This model seen in India, China, Brazil and elsewhere essentially reflects the 'low cost' car template: licensed and re-utilised technology achieving a substantially lower ex-factory unit cost and offered to the still relatively thin sliver that is the new bourgeoisie. Whilst undoubtedly important for nation and fortunate individual, the such a template cannot reach and mobilise the less fortunate 'very shallow-pocketed' remaining millions that sit within the 'bottom-tier'.


The 'Ultra Low Cost' Car -

To do so theoretically requires something akin to a 'commodity car'; very low cost, simple construction and mechanics, good durability, easy repair and minimal running costs.

Such qualities are the prime aims within the design brief of what is now known as the 'ultra low cost' car.

As its name implies, recognition that a large economic gulf exists between the newly emergent middle class of a certain financial standing and those uthers who live and work (when available) within the 'bottom tier' of society.

[NB. Whilst the very ideology of such a 'commodity car' appears exemplified by the old Eastern-Bloc Trabants, and FIAT sourced LADA's, FSO's & Polski's, given their near omnipresence, it is evident that these instead befit the 'low cost' car business model].

The massively challenging goal facing optimistic 'visionary' industrial pioneers is to create a widely accepted, popularised, bought and so successful 'ultra low cost' car.

However, such an ambition appears to obviously 'fly in the face' of convention.

Convention dictates that the automotive sector's 'natural order' is one where the ongoing manufacture of ever better new vehicle replaces a previous generation vehicle. Replacement purchase of ever newer vehicles then releases older vehicles for sale on the used car market, thus creating the typical descending staircase of market prices; each 'price point' step – latterly aided by independent pricing guides - reflects a vehicles age, condition, specification level etc. The model notionally stands true even if actual prices are highly dependent upon each nation's unique market characteristics.

So, logically, the 'commodity car' exists at the far end of this staircase, where price and pure functionality meet. Such as in the UK, where a cheaply bought old vehicle can be used as everyday commuter transport to the local train station.

However, given the importance of vehicles in EM countries, they tend to retain good residual values with merit given to brand reputation, condition and new and used parts availability - as opposed to the bias of age as is the more the case in the west.


The Mass-Mobility Exclusion Effect -

Circumstances then create a pricing sandwich where by new cars are far far too expensive for those on society's 'bottom tier' to afford even if there own manufacturing cost-floors have been reduced by way of the 'low cost' car basis. Yet also, there presently exists a nigh on static price-floor for even the majority of old used cars which still remains far beyond the means of most.

Whilst this remains the case presently, the fact that global TIV growth is heavily biased to EM regions suggests that eventually that price-floor will lessen when the availability-demand equation alters.

However, to the far-sighted EM industrial moguls, these prevailing, presently deeply embedded conditions which have thus far excluded the majority, are viewed as a central challenge to the national economic good.

To date healthcare for the masses, whilst not yet wholly adequate, has improved immeasurably thanks to government and foreign NGO efforts. Likewise, educational reform has ensured that far more of those children living below, at, or just above the poverty line do receive a basic education, so that they may be better prepared for adulthood; even if again much is still yet to be done. Public transport improvements in rail and bus have been ongoing for decades so as to mobilise the workforce. Housing has slowly improved, though of course man urban slums remain prevalent as people seek to maximise their income levels from higher paying city jobs whilst seeking low cost living areas. Yet even the slums are morphing into conventional neighbourhoods as corrugated steel is swapped for concrete, and sanitation and roadway programmes are started to better the locale. And in rural regions ongoing - though slow industrialisation in some areas - promises better paid, more stable incomes from the core of agriculture, aswell as mining, processing and assembly factory work.

Yet economic progress and so the development of a sophisticated bottom-tier consumer culture the is still largely distant, and highly correlated to population size, its educational capability, the speed of national and regional economic advancement and the bias of cultural issues such as caste, ethnicity and class.

Yet given the size of populations and the inherent inertia therein, the pace of progress seems snail-like.


Plying the Bottom-Tier of the EM Social Pyramid -

In many spheres beyond the auto-sector, and well before the financial crisis, consumer goods companies (and the supporting suppliers of materials and capital goods) have long sought additional income streams by building models which could adequately satisfy the global 'bottom-tier' customer – if he/she can be so generalised

[NB Generalisation must be viewed as overtly simplistic and very probably misleading, so may be a highly deceptive concept, given the 'real world mosaic' which exists within such a stereotype].

Nevertheless, an apparent automotive market opportunity has been identified by local and global auto-makers, the core proposition of an 'ultra low cost' car formed from observation of commercial success in the household consumables sector and social transformation ideals of the IT sector. The case studies themselves could be viewed as a marriage of 'management science fact' & 'management science fiction' given their respective real-world and theoretical origins. However nonetheless, for some years now an emerging school of corporate thought regards 'bottom-tier' opportunities has arisen. Three of the most influential influential examples have been:

1. 'Micro-Pack' Retailing
2. '$20' Laptop
3. 'Micro-Financing' Initiatives

'Micro-Pack' Retailing -

Claimed corporate successes have been achieved by staple consumer goods companies which have expanded 'product-line reach' via the offering to poorer customers the purchase of re-packaged goods into smaller quantities or sizes. Known nominally as 'Micro-Packs' they are also termed “one-hit” or “bite-size”, and span such basic consumables as washing powder, coffee, cigarettes, imported foodstuffs (chocolate/candy) etc. Typically sold through alternative informal distribution channels using local sales peoples who themselves are already respected, or command soft-power, within the community.

Such corporate initiative mimics the dynamics of local market trends that have been in-situ for decades; where local “entrepreneurs” recognising the limited spending power of people have split often (legally & illegally) imported standard sized boxes of goods and split them into far smaller pack sizes for re-sale. This multiplication then offering greater profit margins on each item sold.

There have been apparent corporate successes, but realistically most corporations still face a very tough task in circumnavigating those indigenous self-styled “goods broker” entrepreneurs. They have for decades bought goods through a well established commercial network which when 'multiplied' are sold via a network of street hawkers; often door to door. Those apparently enterprising connections also often linked to less desirable parties such as loan sharks and protection rackets.

Across the more squalid quarters of Mumbai, Maputo & Mexico City the reality of local conditions is that of an invisible but prolific 'power-centric' economic ordering; often corrupt and with powerful links to local authorities.

Hence, many large western corporations who had little previous EM 'bottom-tier' experience gained from in-market production, have woken-up to the fact that reaching-out to directly service cities, towns and communities with their own official micro-pack goods (such as cigarettes sold in packs of five, or sachets of washing powder) is far harder to accomplish given the vested interests already in place.

Thus whilst the central rules of 'simplification' and 'multiplication' could be seen to simplistically apply to automotive, as 'de-contenting', 'de-costing' & production capacity expansion, the intimacy, intricacy and 'persuasive' element of the everyday sales connection is absent.

The '$20' Laptop -

Further inspiration for auto-makers conjecture and exploration – though far more ethereal than 'micro-packs' - comes from deliberations within the electronics industry.

Specifically the 2009 announcement about the Indian “$20 laptop”. To purportedly aid the education of even the poorest and most disadvantaged of Indian school-children.

As is often the case the PR buzz masked the reality of a much smaller concept-based untested hand-held device that offered little of the original promise.

However, whilst there is at least some feasibility in building a $50 laptop by simply using low grade motherboard, processor and screen technology, there seems little direct automotive equivalent.

Simply because the rate of 'standardised' technological change and improvement is so vastly different between the electronics industry and vehicle industry. The former gains from a comparatively far greater 'linear' R&D advancement in product (largely processing) performance – as invoked by the now legendary Moore's Law. Whilst there is no similar seemingly endless exponential advancement curve for automotive, whose own industrial fundamentals were initiated a century earlier. It is to compare what is ostensibly a 1970s industry with an 1870s industry

Drawing direct parallels between the still empty dream of education boosting cheap laptops and the ideal of the cheap mass mobility car is then either inadvertently naïve or highly disingenuous. Contrary to the possibilities of personal electronics, it is not only product but indeed whole process that requires full re-invention. Not to do so only leads back to the pricing limitations – the inherent business model 'floor' that is already 'low cost' car.

'Micro-Finance' Initiatives -

These have developed over the last 15 years or so, and as the name suggests, have been created to assist those small scale typical sole traders who were caught effectively in a poverty loop whereby a sizeable portions of their daily profit was paid to their wholesale goods provider and to the owner of the vending cart or retail plot, thus unable to secure the savings required to grow their business. Their unfortunate position meant that access to formal bank loans which offered lower borrowing rates was prohibited given a bank's typical need for an asset-backed security, whilst the borrowing available from informal (loan shark) lenders is ridiculously high.

The book 'Poor Economics' notes that on average formal bank lending – as opposed to family, shop or 'loan shark'- represents under 7% of loans for the rural poor and about 10% for urban poor. State-backed lending exercises at reduced rates are often skewed to political bias or were operationally inefficient, running at YoY financial loss.

Thus, often because of local social network or intimidation pressures, usury money-lenders are by far the default port of call when the poor need external financing. However, more often than not the terms are onerous.

These circumstances then left room for the start-up of funds providers with a social consciousness and so less demanding rates of return and this different business models.

Micro-Financing Initiatives (MFI's) originated by way of middle-class individuals and groups seeking better ways to more effectively back the 'bottom-tier' populace, with the intent that such availability of small-sum capital would create a catalyst for the creation of small businesses in local communities.

Fifteen or so years on and this new financial sector, offering alternative financial instruments that rely heavily on local social inter-responsibility, has spawned many operators. Yet it has encountered problems, and is unable to grow the size of its loan book - or more likely unwilling to risk the higher exposure - as small company borrowers seek greater sums to become larger entities. The model is then successful in taking small margins from a broad worldwide customer base, but cannot provide the bridge for people to move out of their 'bottom-tier' lives.

Furthermore, its very ethos of social consciousness can be both intentionally abused or exposed to the far higher life risks that poorer people generally face. Such risks the very reason why formal banks and co-operatives do not lend to the poor and why informal lenders are able to charge such high rents.

Lending to the poor then is known to be a demanding, time consuming and often loss-making enterprise, where the cost of initial client due-diligence, monitoring and repayment administration eats into the low loan margins gained if seen to be a socially conscious lender.

Thus, even for VMs with in-house 'captive' finance divisions which appear to be set-up to expand into the 'bottom-tier', the risk exposure to lend is high, and the vehicle re-possession efforts costly.


The Visionary Challenge -

Hnece the aforementioned issues and no doubt many more indicate that the headwinds for such apparently good-willed and high-minded visionary industrialists are still immense, and appear very hard to ultimately overcome.


'Bottom-Tier' Business Learning -

Tapping into the consumer habits and aspirations of the many millions that reside in the lowest social strata may appear a tempting 'text-book' solution to achieve that magical thread of long-term profitability. And yes, there obviously exists massive numbers of poor, so necessarily thrifty customers who en mass appear to provide large-scale & small-margin commercial reasoning.

But as seen in the commercial history of household consumables, such an approach typically takes great financial muscle to achieve, even then only when a company is or has become culturally enshrined in the region, which can take decades for foreign entities. The item or service must work with the market's popular consciousness and provide a truly meaningful functional advantage, and so create a powerful emotional affect.

Even then, the instigator is open to attack either horizontally by a similar domestic or foreign enterprise, and especially from those with greater cultural or political connection or financial might.

Within this, it must be recognised that bottom-tier EM market consumers have an in-built bias toward their respective indigenous manufacturers, a natural consequence of local history, engrained by cultural roots and the protectionist or pseudo-protectionist measures that are put in place as national economies morph through different phases of a mixed economy from a communist or heavily socialist past toward a free-market economy. Yet realistically apparent 'free-market' steps are only taken when new knowledge can be obtained from external foreign parties to the advantage of a specific primary, secondary or tertiary industrial sector.

This sense of nationalism and the 'national good' tends to reside most prevalently in poorer countries where melded national, group and personal identities are far more closely coupled to a generational historicism. This exacerbated by a sense of being the global underdog and an ambition to recapture lost regional or worldwide status from a bygone age.

Beyond the cultural connection, the domestic commercial advantage is often retained by pro-domestic governance, an historical ruling elite (though under a pro-people banner) with family or keiretsu / chaobol-type holding structures across much if not all of major industries.

[NB As seen in Japan to this day, this method used to ensure that sections of corporations cannot be wholly bought or majority controlled by foreign interests – the lessons of history].

However, this industrial holding structure is criticised – typically by western bankers - as being archaic since it prohibits the wider transformative influences of entrepreneurialism and access to more broadly available capital. In contrast, those poweful business leaders and politicians across sections of Japan, S. Korea, India, China, Russia, Brazil and elsewhere view the importance of self-determination as vital, with the endemic conglomerate heirachy not as a barrier to ideas sharing and internal entrepreneurialism but as a pathway.

[NB Both philosophical corners have merit, and should ideally be combined to provide EM countries with an ethos of “Dynamic CSR” (for want of a better phrase) so that some EM countries do not take similar retrograde steps to those seen by Argentina recently with Repsol YPF].

This then gives a massive home advantage to domestic goods and service providers within that seemingly all important 'bottom-tier' consumer population.


Chasing the Ultra Low Cost “People's Car” Dream -

Nevertheless, the attraction of satisfying the 'marginalised masses' for some indigenous CEOs and executives still appeals; stepping in the footsteps of historically important others who have initiated 'people's cars'. Especially so, when such individuals lead a domestic industrial power-house, one with an engrained popular social connection and wields political influence.

That 'People's Car' path has obviously already been trod by Henry Ford with the Model T in 1908, the Austin 7 & Citroen Type C in 1922, the FIAT Topolino of 1936, the VW Beetle in 1938, the 2CV of 1948, the FIAT 600 of 1955 (also SEAT & Zastava badged), and the1959 Austin Mini.

Yet lesser known is the long distant 'ultra low cost' car path traversed by many early pioneers and established companies in the late 19th & early 20th century. Much as is being discussed today within EM spheres, they offering small light and critically affordable 'voiturettes'; also known as cycle-cars given their technical re-appropriations of bicycle and motorcycle technologies . Many names appeared, the majority Anglo-Franco initiatives, and ranged from Amilcar in France to Mascot in Sweden to Pluto in Germany to Xtra in Britain.

There is an obvious primary difference between the creators of those now legendary successful 'People's Cars' and the forgotten 'Cycle-Cars'. The former were firms led by individuals with strong financial muscle or backing, had political influence (private or as part of the national agenda), often had engrained social connectedness from established operations, played a role (subtle or less so)in social-engineering and created a self-perpetuating momentum by having its staff earn enough to buy the very cars they were building.

In contrast many, though not all, Cycle-Car companies were set-up in a manner far more like today's Venture Capital operators. Recognising the mass-market opportunity, they combining the singular attributes of different business entities from different sectors (eg bicycle makers, generator firms, hardware companies and failed aeroplane makers) to create the theoretical fundamentals of a small car manufacturing business, aided by high budget spend in newspapers and exhibitions. All had the same profiteering dream of shrinking the dimensions, specifications and so price of what were ostensibly luxury car products, to suit the motoring desires of the masses.

Needless to say given the voracious level of competition few survived their initial start-up periods, and many were consolidated to try and create volume efficiencies and grow market share. But even the most successful in Europe were themselves vanquished by the break-up of the Austro-Hungarian Empire, Europe's ensuing economic volatility and the beginnings of WW1.

The few that survived such as Britain's Morgan Motor Company relied upon the originator's own independent wealth and had the wherewithall to reposition themselves away from the previous 'commodity car' offering toward a sporting car offering afforded by the virtue of its lightweight design.

That small car space was entered by the mainstream manufacturers after WW1 who were able to ride the new economic boom that lasted between 1918 & 1929 selling to the spreading lower-middle class, and gained again when those small cars proved popular amongst all motoring types during the financially tight but optimistic 1930s.

These years saw the reappearance of 3-wheelers but this time primarily for commercial use, with Germany leading the way providing much of that engineering capability to then allied Italy and made highly evident in the post WW2 austerity and regeneration years via Piaggio and Lambretta. These companies in turn licensing their products for manufacture by India's Bajaj Auto and Force Motors which made famous for their 3-wheeled 'tuk-tuks'.

Even though cycle-cars had perished, Reliant Motors sought to revive and modernise a similar 'commodity car' genre from 1935 onward, but in 3-wheel form, offering commercial van and private car models which saw moderate success with low income buyers who has previously ridden motorcycles and were limited by the conditions regards vehicle class of their driving licences which restricted them to 2 & 3 wheelers. Whilst 3-wheel models continued to the 1980s sales declined from the 1950s onward, the company creating 4-wheeled variants from the late 1970s onward but in very low numbers, finally trying to compete in conventional niche sportscars; closing in 2001.

Thus we see that the fortune's of yesteryears 'light car' – engineered as the 'ultra low cost' car – were very much dependent upon very specific time periods of economic squeeze; with reduced cash liquidity and minimal credit availability. Their popularity boosted in such times when governments (such as French and British) saw fit to alter road-tax regimes to benefit small capacity engined cars as part of national economic renewal efforts.

Critically 3-wheeler models survived in the UK for a lengthy period because of personal transport needs of a very specific (generally older) driver type. Similarly France had a larger similar demographic who maintained the fortunes of the re-invented 4-wheeled light-car category from the 1970s to this day.

The cycle-car, light-car or 'ultra low cost' car's market popularity then heavily depends upon a mixture of low personal income and the limitations of a restricted driving licence


Modern Re-Invention of the 'Ultra Low Cost' Car -

The idea of the 'ultra low cost' car was re-born in 2003 when Ratan Tata, Chairman of the TATA Group of companies, saw fit to start a new vehicle development programme that would mobilise India's 'bottom-tier'. The project known as the “1 lakh Car” (approx $2,000) ran for 6 years, the vehicle presented in 2009 as the now famous Nano and available to the public in 2011.

With such great expectation the car created a media and public fire-storm.

Unsurprisingly the high-mindedness and ensuing massive publicity of the TATA project then saw some of its prime Indian small vehicle rivals: Maruti, Bajaj Auto and Force Motor claim that they too were developing similar 'people's car' programmes, either independently or impressively with the aid of renowned western volume manufacturers.

[NB investment-auto-motives retrospectively believes the some of these Indian companies exploited the 'Nano-mania' effect to simply attract foreign VMs with the true intent of seeking other more fundamental industrial synergies]

Thus far the only competitor to showcase a Nano-like vehicle has been Bajaj Auto with its BE60 model shown at the 2012 Delhi Auto Show. Like Force Motor, Bajaj specialises in motorcycles and 3-wheelers, so BE60 is the company's first attempt at a 4-wheeled car. Although Bajaj did indeed instigated 'ultra low cost' car talks with Renault-Nissan in 2010, the BE60 visually appears independently produced, its basic mechanical packaging and cosmetics reflecting utilitarian origins. It is then befitting that Bajaj seeks not to compete directly with Nano, but instead seeks to attract its rickshaw taxi customers into the vehicle, proffering greater comfort and safety.

Thus India now arguably has 2 'heirs apparent' to the 'ultra low cost' car throne, but neither yet can claim that distinction if the 1 Lakh price point determines the winner. Nano retails at a base car price of $2,400 whilst the BE60 is offered at $2,500.

Nano has undeniably suffered marketing, sales and so production capacity problems since launch, beginning with the under-stocking of TATA's dealer inventories' when released, cases of instantaneous combustion, and a failure to reach the predicted 25k per month unit sales figures which fills full production capacity at the Gujarat factory. The contraction in Indian consumer credit availability mid to late last year is blamed for an 85% fall in YoY sales figures in November 2011.

The vehicle is in the process of being technically upgraded so as to boost popularity, with inclusion of a broader colour palette, additional features and importantly the inclusion of a more powerful 800cc engine by which to directly match the old but iconic Maruti 800 ('low cost' car). These specification changes will obviously add cost, which together with rising general manufacturing input costs will ultimately create a far broader pricing structure for Nano, relative to chosen engine capacity (624cc vs 800cc) and chosen trim level (Std, CX & LX), thus providing for 6 variants within India, and reaching above the present price ladder of between INR 140,880 rupees ($2,800) and 196,959 rupees ($3,914).

Nano has also been touted in a European guise named 'Europa' which includes additional feature to compete more credibly against entry level cars across the continent, with a base EU price of E6,000, whilst the Pixel concept shown at Geneva recently is presumed to be a halo-effect precursor to Nano's eventual EU arrival.

Thus, even with consideration of much risen input costs which invariably at such a low level cannot be 'swallowed', it appears that TATA's real strategic aim was to create a long-run popular buzz about Nano being something very different prior to and at launch. Although much admired for its engineering simplicity and lightweight ethos, the true point of the vehicle programme was realistically to drive down development and capex costs, so that the car could be latterly adapted to become far more conventional in both Indian, other EM and Triad markets in order to eventually boost per unit profitability and so corporate margins.

Though perhaps very misleading to the press and public at large, with the recent turnabout in the product proposition, if sales figures can critically meet and beat those of the programme's core business case early in the product's intended lifespan, investors will be impressed with TATA's commercial prowess.

To try and overcome any consumer ill-feeling about the broken initial 2003 1 Lakh pricing pledge, TATA is offering a doubling of product warranty to 4 years, a cheap monthly service contract, fast-track 48 hour loan approvals and a low deposit value of just INR14,000 ($300).

Nano then proves itself less than a truly new class of car, but instead – if successful – highlights that the small car business template may prove profitable yet.

This done by initially setting a very low cost target for the product, achieved via very shrewd engineering solutions and hard-nosed supplier negotiations to drive down up-front capex and piece costs. Then launching the car in its original no-frills guise whilst intentionally 'starving' the marketplace, with the true intention of simultaneously pumping up consumer demand. Re-setting base level pricing yet higher, and undertaking what would be considered premature product re-engineering to boost performance and feature specification early-on in the car's lifetime so broaden the pricing ladder, attack head-on the prime competition and ready the much upgraded car for international exposure.


Conclusion -

From the much debated TATA example, and the recent Bajaj example, it appears that the hoped for dream of a mass mobility car provided at an astonishingly low price remains an anathema. Although that specific dream appears dashed for obvious commercial reasons, the fact is that Nano (and presumably BE60) both progress the raison d'etre of ever lower build-costs for small but ostensibly mainstream vehicles.

When developing the Nano TATA managed to combine its conglomerate industrial muscle with a sense of true innovation by questioning the conventional and the possible in both product, process and promotion. Thus TATA managed to impressively coalesce the very distinct and separate attitude and capabilities of those industrial giants and innovative VC-like cycle-car entities from a century ago.

Although still criticised by press and public, TATA's long-view pragmatic perspective with Nano should deliver impressive results over the coming decade, but only if it can maintain its USP relative to more sophisticated similar cost used cars that will unavoidably continue to threaten.

It is not surprising that the fruits of an ultra low cost car build should be orientated in the manufacturer's favour. The positive outcome being that it assists overall company profitability at a time when EM manufacturers must build their financial resources and reserves. Creating such financial fire-power if they are to credibly enter the world stage with plausible business ambitions and attractive product propositions. Both of which will necessarily require in-built operational cost and unit pricing flexibility given the political and pricing power of American, European, Japanese, S Korean and now Chinese players.

Failure of the 'ultra low cost' car to eventually appear and change the lives of millions is of course somewhat sad, but the effort to propagate what can only be regarded as a powerful business template if and when proven - from that original high ideal should be applauded by investors.

India's progress thus far with what should ultimately conclude as a very much altered automotive business equation – in its design, build and marketing methodologies - will very probably be of major influence to other smaller EM nations across the CIVETS and elsewhere who seek to speed their own economic development agendas.

Industry Practice - Global VMs (Part 1) – Down-Shift Products to Scale-Up Volume & Profitability.

Investors and commerce maintain a fingers crossed stance regards the global economic slow-down. So far, although stock markets have sold-off recently, it appears somewhat tempered by periodic, tentative good news labour reports from the US, the sigh of relief that is China's 8.1% growth rate, the deep re-structuring of Japanese industry and an optimistic expectation that the recent productivity loss seen in the BRIC nations can be substituted by the new CIVETS constituents; themselves part of the “Next 11”.

Europe of course remains heavily subdued, still suffering from the entwined relationship between national sovereign debt and the balance-sheets of the EU's banking sector. The ECB acting as drug-prescribing doctor via the LTRO, itself surely with a long-term agenda of slowly weakening the Euro to eventually eradicate the European disadvantage. By way of ongoing phased QE and similar methods which will circulate EU liquidity; the German reluctance a manner by which to manage an orderly devaluation whilst Germany itself re-orders so as not to be highly exposed to the increase in materials import and input costs.

Car-makers perhaps most exposed and so presumably heeded by Brussels and each country's government.


VMs Seek 'Rational Product' Growth -

Upon this highly fractured world-wide playing field, global vehicle producers are having to sensitively balance investment markets expectations against a now much more heavily price competitive international vehicle market.

[NB Investors seeking the equity and bond 'safe-havens' by way of cash & asset-backed corporations on favourably historically low p/e's yet unfavourably muted dividends].

The now firmly entrenched 'new norm' contrasts markedly to the credit-fuelled boom seen in Western and top-tier BRIC consumerism, experienced prior to 2008. The economic contraction, which most affects the behavioral patterns of the squeezed western mass middle class, has re-molded and re-aligned the trends of consumer demand. From what was previously largely desire-driven consumption - arguably focused on increasing frippery - toward a greater needs-driven trend which values innate functionality and quality.

This in turn has closed the chasm which once existed between the distinctly separate psychological perspectives of consumers and corporations in 'post-industrial' and 'advancing industrial' regions.

In short, there has been an increasing meeting of minds over recent years, which re-emphisisies the importance of price and innate utility over the frivolity of fashion. So, behind the seemingly constant reports about mega-wealthy and newly wealthy spending habits amongst the top-tier of BRIC and Middle-Eastern populace, the true reflection of mass global consumption is that intra-national values have necessarily coalesced.

This is of course 'old news' to the DAVOS crowd.


The Dual-Approach Reaction -

For most companies, such intelligence purports that either or both of 2 strategies may be undertaken.

1. To target the 'shallow-pocketed' western middle-class, and simultaneously, the growing, increasingly 'deep-pocketed' EM middle-class.

2. To target the millions – indeed billions – of 'no-pocketed' who exist within the bottom tier, but which en mass, constitute large portions of any EM economy.


Targeting the Thrifty Western Consumer -

Understandably, companies will make strategic investment decisions that align to the squeezed environment, making best use of this understanding and extracting as much environmental and competitive knowledge as possible.

Yet the naturally concluded management recommendations applied internally and externally do not provide guaranteed results.

Companies are having to apply ever greater efforts in reviewing unit-price and overhead cost levels and so 'de-content' to 'de-cost' their products, constantly re-appraise administrative leanness, refine input costs via supplier rosters / price bargaining / delayed creditor payments, re-structure distribution and retail channels.

Yet of course by far the best way to ameliorate costs is to extend the life-span of current vehicle platforms and now with a strategic imperative to re-generate what were defunct 'last generation' technologies. As the profit margins of truck, bus and car-makers in yesteryear's “developing countries” through the 1960s-80s demonstrated, the re-utilisation of 'old' technology platforms – then bought from western firms – provides for healthy profitability when macro and micro market circumstances allow.

That 'recycling' of previous platforms, modules and components has been rediscovered by western VMs in the mid 2000s, to proffer a new type of affordable passenger car. The archetype that pioneered the way has of course been Renault's highly impressive fundamental re-invention of Dacia. Using re-deployed lower-cost parts to create a low-cost vehicle amenable to what were initially CEE growth economies, from homeland Romania up to Poland, then latterly in the MENA region with prime assembly hubs in Iran & Morocco, in Russia, India, Brazil & Colombia.

However, renewed sizable market demand for low-end affordable new cars in Western Europe, within the 'new norm' economic age, provided yet further sales expansion opportunity; a market gap which the Logan and its siblings have filled admirably.

Ironically, even though western consumers are forced to accept the 'new norm' on a rational level, because the private car buying process is such an emotive one, the VM must seek to massage the ego to demonstrate that the affordable product is not necessarily “second-best”. The consumer perception aspects that are customer pre-awareness and sales process persuasion are the all important.

Hence, any car company seeking to fulfil this market gap must have deeply assessed its own corporate position both prior to and after the 'new-norm' watershed, so that it may determine those strategic paths available which are vitally credible in the eyes of the squeezed consumer, with recognition of the ramifications – both +ve & -ve - such new product and probably brand actions may also create.


Re-Taught Lessons From EM Divisions -

The very concept of the 'low-cost' car is becoming increasingly engrained within the heart of all global VM's internal industrial systems. Core learning about low-cost design and manufacture has been seeming back into corporate headquarters from EM located plants, national sales companies and where evident regional engineering centres. This learning spanning all aspects of factory and tooling capex, R&D capital, base vehicle programme development capital, and variant project capital.

Whilst industry and press circles chatter about the 'low-cost' car as if a new phenomena, the fact is that this category was created long ago, when the tooling of superseded western vehicles was 'lifted and shifted' into 'colonial' and foreign markets where new low-cost business models could be created to feed local economic expansion and national agenda ambitions.

Long defunct BLMC produced localised. 'cheaper' original Land Rovers and Minis in Australia and South Africa as distant sub-economies of the UK. Volkswagen aided massively in the industrialisation of Mexico and Brazil with original Beetle, Van, Variant, Karmann Ghia and other domestic-only models like the Puma sports-car (not to be confused with Ford's much later Puma) aswell as the eponymous (Euro & South African linked) Gol. Likewise, FIAT sold its 1950s sedan models to India's Premier Motors (as did Britain's Morris to Hindustan) before developing Argentinian and Brazilian interests, starting with the 600 and small van imports and CKD, locally manufactured 147 variants in the 1970s-80s, leading up to Uno variants in the 1980s-90s, the latter Tipo and Palio variants & and recently the Brazilian developed Novo Uno. And Renault produced its own vehicles in Mexico and Brazil during the 1960s before its fateful amalgamation with America's AMC as part of a failed bid to corporately conjoin South, Mid and North America; its retrenchment back into Europe overcome in 2004 with Logan.

Of course it was the Detroit 3 during the 20th century, riding on the back of the American boom fed by materials from abroad, that were able to best demonstrate themselves as producers of localised vehicles, the fervency of Detroit's pathological obsession with new model years thus stylistically ageing cars quickly and – though usually based upon same mechanicals – GM, Ford and Chrysler were able to 'localise' visually older products elsewhere around the globe, able to wield both heavily amortised tooling and its strong (world reserve) US$.

Conversely, when applicable in regions with different cultural backgrounds and domestic national economic agenda ambitions, auto-makers have traditionally sought to provide either whole re-badged vehicles, sent complete vehicles in component parts as CKD kits, provided major sub-assembly components or set-up complete plants as part of a JV agreement.

The past saw Rootes Group undertake the technical feasibility and early development work for Turkey's Anadol national car in the 1960s, soon after also nurturing Iran's nascient car industry with Iran Khodro's Paykan. In the early 1980s Mitsubishi sold its Colt model rights to the newly born Proton Motor of Malaysia to create another national car. During the same period PSA allowed Egypt, Kenya and Argentina to produce the 504 and itself served as the linch-pin for the effective overhaul of Iran's auto-sector replacing the old Paykan with the far newer 406 based Samand.

As seen, 'platform recycling' has long been part and parcel of the international modus operandi of large multi-nationals for over half a century. It was simply a forgotten art over the last 30 years or so as the West lost its previous economic grip over 'developing' nations and so western VMs lost their secondary markets.

After the 1980s, that once integral practice grew ever less required as a consequence of Japan's transformative influence. It had manufactured vehicles that were of such comparative high quality, had such broad international sales reach, were consequentially given grey-import 'second-lives' in a host of then burgeoning EM countries. Toyota, Nissan, Mitsubishi and Honda had inadvertently but effectively banished the local market need for 're-cycled' western models.

Whilst those used, old but reliable Japanese vehicles had sufficed a previous need in many EM countries, rapid economic growth supporting a concordant rise in commercially linked fleet vehicles and private consumerism has meant that second-hand, no matter how durable, does not suffice.
Hence the desire for what at least appears modern and contemporary cars as seen in Berlin, Paris, London, Los Angeles and Tokyo, though with an expectation that they can traverse what are often still problematic roads in such EM regions.


Global Product Convergence -

EM consumer desire, and so the auto-industry requirement, to visually coalescence 'post-industrial' market cars with 'advancing industrial' market cars has come to the fore in recent years.

The trend allows corporations to seize a thus far denied yet massive engineering opportunity to merge NPD philosophies and so marry simplicity and volume growth by producing a close-knit set of structural sub-assemblies, mechanical components, electronic architectures, trim-based styling components etc.

That product alignment is of course good news for VMs if they can create compelling technical strategies to deliver investment and re-investment value.

Yet even though a now squeezed western middle-class, the car buyers across Europe, North America and Japan do not wish to feel as if they've been forced to accept a down-grading of their previous motoring expectations.

So it is imperative that VMs are able to create convincing and compelling product, brand and marketing messages to this somewhat schizophrenic western audience. An audience who still hold much of the prime purchasing power, even if more reluctant to spend as they build-up their own savings levels.

[NB Which in turn provides banking sector capital liquidity which when loaned as investment capital acts to provide the much needed 'productivity push' to boost their own purchasing patterns].

Every major VM seeks to explore and deliver by following in the same footsteps of Renault / Dacia. Especially so given the recent announcement by Renault-Nissan that the Datsun name will be re-introduced as Asia's interpretation of Dacia. (Very possibly badge-engineered Dacia's). The 'anti' raised again by Volkswagen Group's ruminations regards adding an new entry-level brand to compete against Dacia head-on; below Skoda.


The Economic 'Floor' of the 'Low Cost' Car -

The economic advantage gained by 'recycling' a last generation technology set (eg basic structural platform, powertrain, electronic architecture, sub-structure fittings etc) with whole vehicle assembly taking inside a lower tier CEE EU country, is proven by Renault's reported 6% margin to be very impressive.

[NB Those magic investment friendly ROI figures being 3% - 5% margin on mainstream cars (typically presently though <0% - 2%), 5% - 8% on commercial vehicles, a similar level on 21st century 'low-cost' cars, 10% - 12% on premium cars and 15% - 17% on super-cars]

Yet there is of course still the matter of the all important ultimate 'floor' pricing level.

Within the EU, this is estimated by investment-auto-motives to be approximately E4,500 for an A-segment sized car, E5,200 for a B-segment sized vehicle and E5,800 for a C-segment sized car; all consisting of very basic feature and specification.

Thus, as can be evidently recognised, even this much reduced ex-factory base price, such costs, even as break-even market-share chasing prices, would be far beyond the reach of the bottom-tier masses in the likes of India, China, Brazil and Russia.

Renault's previous JV with India's Mahindra and Mahindra managed to save 15% off of the ex-factory price via the use of local parts supply deals and cheaper Indian assembly labour. This then lowers a typical B-C segment car (as is the footprint of Logan) from an estimated E5,500 to E4,675 or INR 3,17,900 (Indian Rupees).

EM nations such as India have such large quantities of poor folk because of economic fundamentals, critically a surplus labour relative to the national productivity requirements. To such an extent that for those earning a basic and average living amongst the 'bottom-tier' mass – typified by the unskilled agricultural worker - even the ex-factory price of that M&M (Logan) sedan at INR 3,17,900 represents 30 years worth of earned income (supposing an above average rate of INR 70 per day and 150 days of work each year). This means that ownership of the archetype 'low-cost' car is nothing more than an unobtainable distant dream for most.


The Ideal of the 'Ultra Low Coat' Car -

This dilemma has prompted political and corporate leaders in EM countries to seek two alternative routes. To try and enable an extension of the 'low cost' car, aswell as (seemingly more prescient) the feasible invention of the 'ultra low cost' car. Solutions required to transform the lives of 'bottom-tier' people so enabling them to achieve mass private mobility in 4-wheeled comfort..

Those two alternative routes to social, commercial and economic change, range from the conventional & conservative to the radical & innovative.

Conservatively, the purchase of old technology from those advanced – and not so advanced - foreign VMs (for a cross-border 'lift & shift'), with of course the least advanced technologies providing the most affordable option.

Radically, to nurture domestic industrial creativity, providing for original, innovative 'homeland' NPD possibilities. Where hopefully the usually opposing forces of management science theory and application can be combined with the re-ordering of the traditional industrial process: as seen with TATA's ideal for the “1 Lakh” Nano

These opposing philosophical road-signs thus present a very contrasting paths for VMs own individual, and possibly multiple shared, technical strategies.

Whether 'thesis' and 'anti-thesis' can meet in the form of a ground-breaking new 'hypothesis' remains to be seen. Business models often can, like cars, with practical creativity be dissected and reconstructed to suit. Presently however, that possibility appears a distant possibility given the widespread reliance on a 'low cost' route, and the great intellectual flux of the 'ultra low cost' route.


To Follow – (Parts 2 & 3) -

Part 2 of this web-log will provide a general outline of those alternative routes.

As the most progressive yet most challenging of those alternatives, it will consider where the inspiration originated for the 'ultra low cost' car.

A potted history of those successful and less successful pioneers should serve as lessons learned but possibly forgotten, ranging from Ford's Model T through to Morgan & Reliant 3-wheelers through to TATA's Nano

It will include 'snapshot' views of today's players in EM regions who have sought through history and today to provide mass mobility private transport and consequentially sought to turn the auto-industry on its head, and the success achieved thus far.

Part 3 of this web-log will contrast and compare the notions of the 'ultra low cost' car as exemplified by Nano, with the 'low cost' car (as depicted by Logan). With the important recognition that these two ambitions, though seemingly on a linear cost savings scale actually represent very different viewpoints and very different commercial hurdles, pitting an adaption of business as usual against a radical re-think of the auto-business.

Given the 'low cost' car's greater affect and potential affect upon the global auto-industry, the piece returns to provide deeper contextual insight regards Renault's impressive achievement with Dacia, by both learning from VW's previous efforts in reviving Skoda, and confidently seeking even greater advantage from the rising economic tide that was EU expansion.

It poses the question as to whether any other western VMs can indeed copy the 'Renault EM Playbook', or whether it was the last example of the West's ability to do so?

Lastly, the natural final question is to ask which vehicle manufactures across 'advanced' and 'advancing' regions might be best placed to follow these wholly separate routes of 'low cost' car vs 'ultra low cost' car? And whether any of those global, regional and national players might possibly be strategically equipped and ambitious enough to explore both paths?