Industry Practice - Global VMs (Part 5) – Down-Shift Products to Scale-Up Volume & Profitability.

Thus far, over the previous four weblogs devoted to the issue of low cost and ultra low cost cars, investment-auto-motives has sought to provide a broad canvas of description pertaining to the micro-level of industry practices and the macro-level of socio-economic realities.

The emergence of American multi-national VMs as global masters of the 'Budd' engineered motor car in the first-half of the 20th century, abutted by British, French and German colonialism, later superseded by Japanese expansion, set the product and industry template to date. Over the last century Triad financial muscle underpinned global expansion, in turn setting the high standard and high expectation of the motor car for what were then developing nations, from Willys Jeeps in SE Asia to Land Rovers & Toyotas in Africa to Volkswagens in S.America.

Yet those very emerging industrialising nations also sought to join the motor manufacturing club, as part of initiatives for national economic advancement, in turn re-manufacturing and adapting imported vehicle technologies, most acute in India with its 2 / 3 / 4 wheeled machines.

As the global economic tide turns so increasingly it is the BRIC+ and Next 11 nations that will become the new masters of motor-car, themselves now experiencing new EM wealth at commercial and personal levels, effectively re-playing the wealth creation model that served the West, Japan & S.Korea.

However, the immense populational size of many EM nations creates concerns that the 'bottom-tier' become ever more marginalised as the fortunate 'new middle-class' reaps the benefits of accessible education, training, employment and consumption, so further dividing both materially and psychologically what are often culturally sensitive regions.

Thus whilst the 'low cost car' model (LCC) (involving conventional 'recycled' platforms and/or a much amortised parts content) has become the norm for the fortunate middle-class buying new through credit, the demand curve for old but still reliable and proven vehicles still maintains pricing levels which are beyond the reach of the 'bottom-tier' population. The result is the idea of the ultra low cost car (ULCC) which can better substitute the roles of personal and family motorcycles and can replace what is the aged – but still highly effective – commercial auto-rickshaw..

Thus 2 vehicle creation paths have appeared: the well trodden path for mass manufacture of the conventional steel monocoque under the 'Budd' system, and a tentatively trodden path which promise of a new crop of products born from a 'bottom-up' perspective of financial constraint by both provider and consumer which requires 'creative pragmatism' in engineering effort and business model fettling..

For today and into the '20-year mid-term' of far horizon forecasting the conventional car will undoubtedly remain the primary vehicle and business model, it global 60m unit production output, the tentacles of the retailing system, with even greater after-sales tentacles in parts, servicing and repair. Moreover it is a key world-span industry with very strong ties to the global banking system via fixed income (rolling credit facilities and corporate bonds) and the broader equity markets. In short it is a mainstay of the global economy.

Yet a new 'light-car' / ULCC seed appears to be growing, almost invisible today with low production numbers, but which because it 'cross-fertilises' motorcycle and car engineering offers possible opportunities to other companies beyond the major VMs. These range across those very well established multi-sector recreational & utility vehicles producers that operate under a 'keretsu' or structure, EM firms which offer 2/3/4 wheelers under a conglomerate form, EM dedicated motorcycle producers, and finally a number of western companies seeking to deploy the flip-side of the eco-car equation that relates to the ULCC paradigm

The critical aspect here is that the high-minded western 'eco-car' when evolved to its fullest form reflects the same basic mobility 'satisfaction quotient' as the ULCC does for a member of the 'bottom-tier' populace.

The most forward thinking VMs already recognise that reality, and are evolving as necessary to remain in tune with the global zeitgeist..


Single Path Players, Dual Path Players & New Entrants -

The 'manufacturing space' that any singular company or conglomerate occupies is obviously crucial.

Its present competitive position sewn by the seeds of the past, and equally so, the future opportunity available to an enterprise often created by the organic construct today.

Every company sits in its own very specific strategic position, and whilst auto-makers may appears generically similar, no two are the same. Differences regards national importance, historical background, executive leadership, managerial experience & capabilities, operational demands, product and service differentiation, balance sheet, cash-flow, P&L, debt-structures, asset-base, political ties, and much else determine true 'shape'.

That physical shape also affected by its raison d'etre, with pressures to be increasingly socio-ecological, increasingly 'stake-holder' orientated as much as 'share-holder' driven. And ever onward from Deming's Principles, Lean Production, Six Sigma etc increasing emphasis is put onto a improving the marriage between the general value-chain, but especially so in an industrial sphere, the HR component of a workforce's intellectually productive capabilities and the output component of the manufacturing system.

After all, that which is manufactured today under the company, divisional and group umbrella has great affect upon strategic choices, and that which is deemed important yet outside the corporation's immediate hold is typically acquired to enable an improved competitive position in the short, medium and long term.

Having previously affirmed that the 'low cost' car will become an ever increasing staple intent , function and output of established VMs, their EM industrial partners and very probably future national champions (via technology transfer), though of much smaller ultimate global impact, it is still very much worth providing basic conjecture regards the 'ultra low cost' car.

To this end investment-auto-motives very simplistically depicts – with visual aid – the present 'competitive situation' of the primary corporations across the world which could be viewed as: immediately well placed, becoming organically re-positioned, or via 'bolt-on' acquisition are expanding their NPD and production capabilities to explore and ultimately satisfy future 'ULCC' buyers as and when they emerge en mass.

The accompanying diagram depicts three categories of manufacturer that are intrinsic to the overall debate about 'low cost' cars and 'ultra low cost' cars, with special recognition that such products are intended to be successors of (and partially born from) the present 'lowest-cost' middle-ground of 3-wheeler 'Trikes', 4-wheeler motorbike derived 'Quads' and the broad world of 'Buggy's' from golf carts to defence force reconnaissance vehicles. Furthermore given the 'bottom-tier' market dominance of motorcycles and scooters, the fact that buyers will have theoretically traded-up from the 2-wheeler sector and the fact that engineering principles and mechanical parts have thus far been adopted from that realm, companies operating in this highly pertinent sector must be included as they themselves could form the industrial basis of ULCC vehicles.

[NB In this way then, India and other low-income countries that choose the ULCC route will be following in the footsteps of post-WW2 Japan, whose own motorcycle industry formed much of the basis of its auto-sector by devising the micro and small (typically 350cc to 900cc) 'kei' class].

So the categories outlined and populated are:

1. Conventional Car Manufacturers – inc. low & ultra low cost
2. Multi-Sector Manufacturers – inc 3-wheeler, quad-bike & buggy
3. Motorcycle Manufacturers – inc moped & scooter.
4. 'Eco-Car' Explorers – seeking ultra low cost

All major VMs are listed in the first area (left side), with any relative division pertaining to a small and simple type vehicle included:
GM [SAIC - WULING], FORD, FIAT–CHRYSLER, DAIMLER [SMART], RENAULT – NISSAN, TOYOTA [DAIHATSU], MITSUBISHI, HYUNDAI – KIA, PROTON, FAW, SAIC, TATA.[NANO], MARUTI [800], AVTOVAZ, KHODRO

The second (middle) area contains those companies which have both VM and motorcycle production, hence called 'multi-sector', also including those with other product types that are technically closely related to the ULCC; specific divisions also mentioned:
BMW [HUSQVANA], VW [DUCATI], PEUGEOT, HONDA, SUZUKI, KAWASAKI, YAMAHA, FUJI H.I., TATA [NANO], BAJAJ AUTO, FORCE MOTOR, PIAGGIO [LIGIER – VESPA], KTM, LIFAN GROUP, KANDI TECHNOLOGIES, POLARIS INDUSTRIES

The third (right) area contains makers of motorcycles, mopeds and scooters. As an addendum, it also includes an additional sub-list of privately held companies not shown here:
HARLEY-DAVIDSON, HERO MOTOCORP, TVS MOTOR, S&T (HYOSUNG), BRASIL MOVIMENTO, TOMOS
(This group also contains the names of unlisted private companies which could possibly enter the ULCC space but are only available to private equity involvement).

A fourth (bottom right) area contains lead examples of those typically private held companies which hold reputations as 'eco-car' explorers, or have the brand elasticity to boundaries, either as privately capitalised single entities or as sub-divisions of larger corporations:
TH!NK GLOBAL, GORDON MURRAY DESIGN,

The intent is to seek to better distinguish those companies which may be recognised as 'single path' (ie conventional car producers), 'dual path' (ie standard car and possible ULCC producers) or 'new entrant' (ie exploitors of motorcycle or other vehicle technologies to create a ULCC).


“Single Path” Enterprises -
1. Conventional Car Manufacturers

GM: With its stock-price still languishing far below its IPO price, though now into positive earnings, GM's prime concern is to continue to streamline its global operations whilst readying itself for individual regional and general global upturns, as seen in N. America and its apparent intentions regards Chevy and Europe via its JV with PSA. Of prime importance to continued earnings is the need to regain slipped market-share in China. Chevrolet, Buick & Cadillac brands face stiff competition from the mainstream squeeze by domestic & foreign producers (including the recent entry of Ford and the near luxury and luxury brands from Germany & Japan. Whilst still 'holding ground' in China overall this year, Chevrolet & Cadillac sales slipped heavily in April YoY; the latter off a very low base. GM then will maintain its typical modus operandi, concentration upon balancing Chinese, US, European & RoW production efficiency of its standard global platforms and whilst seeking general market-share hold across the globe, fire-fighting initiatives in China, and increasingly relying upon incentives and GM-funnelled credit availability to business and private customers to bolster sales.

However, the company seeks longer term advantage through the SAIC - GM – Wuling joint venture targeting economically 'lower-tier' markets in China, pan-Asia, Africa and Central America ambitions. Whilst SGMW offers C-segment people carriers, its volume production is that of micro-vans and micro-pick-ups in the kei-truck genre. These are now joined by an A-segment micro-car named Lechi – essentially a 'recycled' GM Daewoo Matiz (itself later adapted to 1st generation Chevy Spark) and itself previously copied in China by others. Thus Wuling should benefit from domestic sales given its reputation, durability and parts availability in more remote regions, whilst its old GM origins may be welcomed elsewhere but will be very price dependent and effectively re-runs the low-price, no quibble business model which Deawoo used successfully in Europe, albeit for a short period. As for the impact on GM, given that Wuling Motor is listed on the Hong Kong stock exchange, GM may seek to either raise of reduce its shareholding depending upon latter circumstances. But presently Wuling's own record low share-price reflects its standing, though GM could seek to use it in a low cost car manner, under Chevrolet in China and elsewhere.

Ford has sought to 'life-extend' platforms and core modules through the ongoing exploitation of what have been performance-wise sector leading underpinnings. Such an initial customer-facing competitive product advantage itself benefited by the integration of class leading in-car systems (Microsoft SYNC, self-park, etc), all the time gaining from the ongoing amortisation of primary vehicle system costs. The targeting of mass-market F-Series and Fusion, Focus & Fiesta will continue in the US, whilst Europe will obviously maintain its B to D/E segments in hatchbacks, sedans, people-carriers and SAVs. As for Em regions, Ford looks to maintain a semi-premium 'import' character in China to avoid price-wars, and could seek to introduce the Brazilian Ka (based on the 1st generation car) into India to sit below Figo to provide entry level buyer access, as a precursor to or underling to the 'global Ka' of 2015/6. It is reported to having explored the ULCC business model seen little merit in the concept, choosing to 'recycle' and 'de-cost' as opportunistic.

FIAT-Chrysler has of course had to absorb the heavy costs of the M&A, created badge-engineered market extension products and heavily integrated NPD processes to create the first shared cars, and have relied upon Chrysler's N.American income stream to off-set the collapse of European demand.
Unsurprisingly given its history FIAT Group is very EM oriented, though unfortunately having made little headway in China and India to date, previous Geely shared production and TATA linked distribution not generating the success hope, though a new Chinese JV is underway with Guangzhou and release of the Viaggio in Q3 2012. Given Far Eastern hurdles FIAT seeks to replicate its Brazilian success in Russia, backed by Sberbank, though faces tough domestic and foreign competition. Yet with probably use the production foothold from its recently bought Zastava plant in Serbia for FIAT (and possibly Zastava badged) standard and low-cost cars. With so much executive and management energy devoted to profit regeneration and market expansion in order to resuscitate stock price, the seeming only route toward a true low cost car – though no ULCC - would be for FIAT to exercise its close connection to TATA and import Nano as a FIAT badged vehicle.

Daimler [Smart] has obviously sought to maintain its broad-reach global operations across cars, vans, trucks and buses with all divisional revenues except bus climbing markedly in Q1 2012. As befits a sector leader, Mercedes-Benz maintains strict in-house control of old model tooling etc, and whilst it has on rare instance sold-off truck and engine production licences, it has made virtue of maintaining 'factory-control' of any 'recycling' platform/vehicle; typically in CKD local assembly form in previous developing nations. As for its entry level offering, after its long 'gestation' in Europe and roll-out in other countries, Daimler used the 2008 economic crisis to launch Smart in the USA, recognising the persuasion struggle that the 'micro-car in maxi-land' would initially and still encounters. Yet the much altered and conventionalised A-class indicates that Smart remains the mainstay of Daimler's city-car effort. Interestingly whilst not notionally classified as a 'low cost' or 'ultra low cost' car, its business model and uniqueness indicates that now programme break-even is well passed, the car's base technology can be indefinitely 'life extended' both up and down the price ladder relative to different markets, For example, supplanting the steel Tridon frame for that of aluminium alloy or carbon fibre in 'western premium' guise, or 'de-contenting' the vehicle for low income Asian markets. Equally production of the base standard structure can be undertaken for contract manufacturing purposes for other VMs and niche producers. Importantly, not only the Smart vehicle was designed to be configurable, so was its core business model. This puts Daimler in a possible leadership position relative to urban personal mobility, something not yet recognised.

Renault-Nissan presently experiences a 'glass half empty, half full' situation, with Renault suffering as a result of Europe's economic woes (-5.7% in 2011), yet Nissan gaining ever greater earnings traction; this thanks to the procurement restructuring necessary after Japan's earthquake, the Fukushima nuclear alert and the Thailand flooding. Thus the intended 'counter-weighting' intended by the alliance proves its worth. Renaults's low cost car strategy (deploying Dacia) appears to go from strength to strength, and whilst sales are down from previous highs across the CEE, western EU sales are reportedly maintaining volumes. Both Renault & Nissan have sought to established themselves as the EV pioneers, yet behind the PR gloss, the real effect on future earnings will come from strategic contributions made by respective technical and production JVs with Daimler and Avtovaz These are not specifically 'low cost' car initiated, though Avtovaz offers production potential. The critical aspect here is that Renault's Twizy EV micro-car presently constructed in very small numbers in Spain, may be developed from - or production engineered to - the adapted 'Tridon' structure of Daimler's SmartCar; and could be offered as both an 'eco city buggy' EV variant in Triad markets and a no-frills simple car in EM nations using small capacity conventional engine.

Toyota, like Nissan and other Japanese manufacturers expects to bounce-back after a troubling 2011. Its US presence, though somewhat tarnished by earlier consumer concerns and model recalls, looks to re-strengthen as does its domestic sales position over the remaining 3 quarters, yet its far higher Japanese manufacturing base means that the very tail-end of the Fukushima disruption and importantly the strong Yen will continue to have effect, with FY2012 earnings expected to be still only 60% or so of those pre-2008. In 2007 Toyota said it would – like so many other VMs – explore the 'ultra low cost' car space, yet little appeared. Instead the NPD and manufacturing process 're-workings' providing the philosophical approach for the IQ city-car. In recent weeks Toyota has formally stated that it will not be creating an ULCC, nor indeed a 'de-contented' 'low cost' car such as Datsun (Dacia's sister brand), instead concentrating on its key global segments and product quality. Like other VMs, Toyota's closest efforts regards entry level products has been in India with the Etios model.

So whilst Toyota states that it will not be undertaking a ULCC programme, the irony remains that it holds what is possibly the strongest industrial card in the global automotive pack. Daihatsu is renowned for its small rugged 4WDs of the past decades and its long heritage of small kei car development; Toyota ensuring that 'other owned' Subaru defer to Daihatsu. Interestingly, Daihatsu is finalising the building of a plant in Indonesia to produce a car smaller and cheaper than Etios, a plant also build in Venezuela, which then moves ever slowly closer to EM market alignment and the ULCC ideology, though not intrinsically stated by Toyota.

Mitsubishi Motors has experienced a worrisome decade, having been hit hard by the previous Asian crisis, and has realistically become a minnow player both in Japan and abroad (6th & 17th in size respectively). Its sparse but ironically global production footprint has not sustained its thin product pipeline, and so become ever more reliant upon contract manufacturing. Whilst it still retains credibility in Russia thanks to its 4WD SUV the few product hits that have been Lancer Evo series and 'i' city-car suffer from the respective inverse: lack of volume on a high margin product, and lack of unit margin on a mass scale vehicle. However, since 2006 the corporate situation has slowly yet erratically improved; the invention of its rear-engined 'i' car (and i-MiEV variant) does set the modern quality standard for a small 'people's car'. The closure of its EU manufacturing base and general sales decline in the USA (even with recent improvements) means that Mitsubishi has become once again far more Asian oriented. Unfortunately for Mitsubishi, although the Japanese kei car segment volume was boosted by government eco-car initiatives in 2011, 'i' car sales declined YoY, from their heady highs of 2006-9.Yet Mitsubishi may well seek to 'monetise' the 'i' car from contract manufacture to other VMs, as seen by its re-branding as PSA Peugeot & Citroen EV cars (iOn & C-Zero). Given that the 'i' car's central sub-structure is advanced, predominantly aluminium alloy, it could feasibly be re-produced after low level engineering adaption in much cheaper steel. Whilst aluminium was key for the 17,000 electric i-MiEVs, heavily 'de-costed' ICE powered vehicles would be steel based. Thus two versions could be manufactured depending upon the type of VM client, simplistically 'western advanced' (alloy or steel) and 'EM' (steel), with subtle cosmetic change and feature change to suit. This then if well executed could feasibly create the foundations of Mitsubishi Motor's return to consistent mid-term profitability and create the foundations for an Asian 'low' and possibly 'ultra-low' cost car.

Hyundai – Kia is presently the darling of the mainstream VM producers, showing no sign of slowing its global growth ambition, having obtained previous car and truck footholds in EM markets now with ever better products recognised as a credible alternative to the long established Triad players within their own domestic markets. The company's continued quest to build upon global mass-market achievements (Latin America targeted next) combined with a still prevalent FX advantage of an under-valued Won is the perfect combination to maintain strong and boosted repatriated earnings from conventional cars. Thus there is no immediate goal to create dedicated low cost or ultra low cost cars which would necessitate unwarranted organisational change at a time when all is well. However the continuation of the 1996 Atos model, badge engineered for 3rd parties and various EM nations, is perhaps the best example of the firm's use of its accrued cost advantage
The new 2011 Eon model was however 'designed to cost' for the Indian market.

Maruti [800] has been the iconic Indian VM for decades, known for introducing the entry level 800 model based on the 1983 Suzuki Alto. Though the company itself is the JV partner to Suzuki, the relationship bringing together Japanese technology and Indian low cost production, and offers a diverse range of Suzuki designed vehicles, the 800 – though often reputed as to be discontinued – soldiers on as the veritable low cost car to date. It ubiquitousness across India, with concomitant parts network means that it is still the preferred choice for many understandably cautious first time buyers trading up from a motorcycle. However, it is being slowly phased-out as a result of emissions laws (requiring Euro IV compliance) from sale major cities, also no doubt an economic prompt to have the metropolitan middle classes spend on more modern cars and so assist the national economy. Unlike TATA or Bajaj, Maruti has no immediate plans to create an ULCC given that it would demand self-creation with limited R&D as product continues to originate from Japan.

The remaining list of producers are involved with the strategic implications of either seeking to build domestic presence with a low cost business model, as is the case with Chinese producers or alternatively 'divest' the remaining assets of an ex-national champion VM, as is the case with Malaysia's Proton.


“Dual Path” Enterprises -
2. Multi-Sector Manufacturers – inc 3-wheeler, quad-bike & buggy

These companies have the benefit of product portfolio diversity, spanning either cars - motorcycles, cars – motorcycles – other vehicles, or motorcycles – other vehicles. Those 'other vehicles' being the likes of 3-wheelers, quad-bikes, golf-buggies, recreational buggies, snow-mobiles & jet-skis.

The broad technical reach (or specific sector knowledge) enabled by operating across (or within) this ULCC aligned sphere theoretically provides the necessary experience and resources within R&D, project development and production realms to create a ULCC vehicle type if so desired.

BMW is renowned for its cars and motorcycles (Motorrad), but whilst their has been periodic interaction between each division's R&D functions, the push for eco-engineering solutions has demanded that greater knowledge share take place between the two divisions. Though ostensibly a Car's project, the i3 EV has adopted a radical alternative technologies including of a 'battery-chassis' for electric drive and a necessary lightweight carbon fibre body sub-structure placed on-top of the chassis. Hence BMW AG's 15% stake in the composite maker SGL. A range-extended variant is being developed which houses a small ICE unit to re-charge the battery, very probably sourced from the Motorrad. Furthermore, investment-auto-motives suspects that the general i3 architecture will invariably be developed to explore the installation of a conventional ICE unit (eg Motorrad mid-capacity engine approx 750cc), so as to gain additional benchmark performance metrics for ICE, Hybrid & EV. At this stage, given an small ICE propelled standalone chassis, BMW may explore the application of a more conventional metal 'bird-cage' body structures, onto which are 'hung' lightweight plastic body panels to create a buggy-type vehicle. Such a development task could be split between the BMW Car's division and Sweden's Husqvarna, a sub-company of BMW Motorrad, itself with a distant history of (then unachieved) low cost car ambition consisting of a motorcycle engine and FIAT Topolino wheels. Sixty years on there may be a natural space for a successor.

VW [Ducati]: As conglomerates know, diversity and strength provides future options, and looking at recent events in the sector, that is precisely why Ferdinand Pieche's purchase of Ducati was so important to VW Group. It was anything but an irrelevant egotistic trophy purchase, as many have stated, but a market and technical strategic imperative bought at a near perfect time when Italian assets are suffering general under-valuation. Ducati allows VW to mimic BMW by reaching into the high margin motorcycle business which has opportunity for product and geographic (ie volume) expansion, whilst its underlying technologies of lightweight metal and composite structures and high-output small engines can be deployed elsewhere in 'light-car' ambitions. Like BMW, VW is exploring (SGL) carbon-fibre and composite structures, adding to its learning at Audi, Lamborghini & Bugatti. But if using these traditional typically expensive routes fail to balance the 'light-car' business equation (spanning input material pricing, unit BOM costs, labour assembly), Ducati could provide more conventional alloys and composites engineering solutions and/or a more cost effective assembly process.

This all the more useful if at some undetermined future date VW Group did in fact choose to create an alternative low cost car (ie not 'recycled') or a ULCC type vehicle based on motorcycle structures and powertrain technologies, much like its XL-1 concept vehicle. That is presently a far off expectation, but it seems likely that VW Group will have a cross-linked materials & manufacture R&D strategy that can deployed in a coordinated manner.

Peugeot is lesser known for its motor-scooters and bicycles, because the Peugeot family separated the 4-wheeled company from the 2-wheeled in 1926. However, there are still family and commercial ties across an empire spanning cars,vans, motorcycles & bicycles. And under the recent 'Mu' initiative seeking to offer rented multi-vehicle transport solutions, it appears that PSA once again seeks to draw the once different threads into a more cohesive 'corporate portal'. This chain of technologies – from 50cc scooter to the electric e-Vivacity scooter to RCZ coupe-convertible car to 3008 Hybrid to Boxer van - then provides PSA with a host of developmental possibilities. However its apparent desire to slowly relinquish non-core manufacturing so as to avoid heavy development & CapEx costs, and seen by the use of 're-skinned' PSA badged Toyota & Mitsubishi vehicles, demonstrates its desire to focus internal R&D upon high-value technology differentiators; most notably the 'bolt-on' electric-drive rear axle of 3008 HYBRID 4, providing both zero emission rear drive propulsion, standard diesel engined front drive propulsion, and mixed 4WD. The apparent PSA strategy to 'piggy-back' other producers vehicles in lower volume segmnets (ie non small car core) whilst adding differentiation from what it sees as high-margin value-adding technologies and both Peugeot & Citroen aesthetics

As to the 'light-car' / ULCC question and PSA's desire and ability to inter-mingle alternative vehicle technologies and packaging, as shown in the SmartCar like Peugeot BB1 concept of 2010 cross-fertilising scooter driving style inside a city car shell seating 4 people. Here then PSA appears ready to compete with progressive designs where legally possible most directly against its French counterpart, the (Piaggio owned) Ligier company (see below).

The following 5 companies share the basic traits of Japanese conglomerates, in that they have been grown from bicycle, motorcycle and small engine roots, and used that knowledge to enter and create a wide range of diversified utility and leisure vehicle segments. Spanning their origins of motorcycles, small (kei) cars, quad-bikes (small ATVs), buggies (large ATVs), snow-mobiles, jet-skis and marine engines. And of course importantly for EM nations and natural disaster zones, generator sets for domestic and industrial power, aswell as in advanced nations the provision of garden equipment. All developed from a central competence in small capacity ICE technology which bolstered Japan's monumental economic rise between the 1950-1995.

More recently exploring areas such as aerospace and single-person mobility and robotics in order to find a new high-value era for Japan and serve an ageing population. But of course it was the landmark Kyoto Treaty which underpinned Japan's eco-exploration, with best examples being progress with variously hybrid, all-electric, hydrogen, flex-fuel & LPG propelled cars.

Honda, unlike its counterparts of Toyota and Nissan, has managed to build a brad profile that spans a multitude of sectors, especially so in N. America, where it essentially created whole new sectors like the ATV in 1970 – then a trike for farm use and later adapted to leisure and 'heavy duty' utility with 4 wheels – leading to the MUV (Multi-Purpose Utility Vehicle) known as 'Big Red'. This along with other 'customer visioneering' innovations centred around low capacity but high power output engines has been the cornerstone of Honda's success to date beyond automobiles, into utility and leisure 'power products'. That bolstered in recent years by Hybrid power-trains. However, whilst it undoubtedly has the core competencies to develop a ULCC based on its MUV architecture, it has not to date shown signs of doing so. However, the fact that the MUV's transmission is essentially a scaled-down car gearbox indicates that exploration has taken place with the option to create a ULCC effectively sat on the R&D shelf.

Instead, it showcased what it named a low cost car in mid 2010, coming to market a year later in Q3 2011 in India & Thailand as the Brio, positioned below the Fit / Jazz (the Triad region entry level car). Competing against Hyundai's i10 and the Suzuki Alto / A-Star, it – like its counterparts - is not a low cost 'recycled' car, but is indirectly drawn from Fit / Jazz and does include high levels of component 'carry-over' to build to cost for EM regions.


Suzuki is known for its small and compact cars and vans, its performance motorcycles and leisure ATVs. Well known alliances with Maruti in India and Pak in Pakistan, aswell as having acted as a contract manufacturer of its own products on behalf of other VM producers, pragmatic adding a 'bought-in' small vehicle to a line up. Suzuki then as a multi-sector player has broad reach capabilities which could marry different vehicle technical sets (architectures & powertrains); this was shown in the GSX-R/4 concept car of 2001, illustrating the installation of a Hayabusa motorcycle engine into a sportscar body. However, whilst reflecting performance ideals, nothing to date has been conceptually shown regards a ULCC, though Suzuki could feasibly install its large scooter engine (650cc) which is coupled to a CVT gearbox into a small vehicle package, possibly by developing the ATV packaging of the Eiger 400 into a MUV and car-type vehicle.

Kawasaki spans a myriad of sectors including: ship-building & seaward logistics, industrial plants, industrial robots, tractors, trains & rail rolling-stock, aerospace equipment (including military aircraft) and small engines used in power generator sets. It also is increasingly involved in environmental infrastructure systems (incineration plants, gasification, sewage, water & recycling). Though best known in the consumer sphere for motorcycles, ATVs, MUV “Side x Side” and water-craft.

As with other large MUVs, the basic packaging of its Teryx & Mule products (with 2 engine sizes and 2 or 4WD) could be used as the basis of an ULCC, in either 2 seat SWB and 4 seat MWB forms. However, to date Kawasaki has not publicised any intent to create a ULCC. However, one route to do so, discounting any primary alliance with another Japanese company, would be to develop its links with India's Bajaj Auto – explorer of the ULCC – given the motorcycle distribution rights held by Bajaj for Indian retail of Kawasaki bikes. However, presently that looks a distant reality.

Yamaha is well known for its motorcycles. But its origins lay in musical instruments, today the world's largest manufacturer across: keyboards, guitars, percussion, brass, wood-wind and using that base to create a platform of electronic music and entertainment hardware.; in turn developing semi-conductors and computers. Vehicle-wise, it producers scooters, motorcycles, ATVs, golf carts snowmobiles, boats and wave-runner watercraft. It also designs and manufactures engines on behalf of third party automotive VMs, aswell as being renowned for its marine outboard motors. Furthermore it seeks to be an EV leader.

Whilst appearing to offer a lesser number of ATV & MUV variants (ie not so obviously de-lineated) the fact that it also manufactures golf carts adds to the internal design and production capabilties regards the creation of a ULCC.

Fuji Heavy Industry [Subaru] consists of 4 divisions: automobiles (Subaru), aerospace, industrial power products (engines etc), and an eco-tech section (waste trucks, wind turbines, robot sweepers).
Its bus and rail-road sections were divested in 2003. Toyota has a 16.5% sharehold, with its growing interest reflected in the joint development coupe (FT-86 / BRZ) . In turn, a commercial relationship between FHI as supplier to Polaris Industries (see below) means FHI still owns a sizeable percentage of Polaris stock.

Subaru Cars grew its reputation first amongst those in rural communities because of its 4WD USP , and latterly came to worldwide recognition via World Rally Championship success and the associated Impreza WRX and Sti models. Today its model range, is biased toward SUV and cross-over models to play to its 4WD advantage, but also includes, though retains the core 4WD sedans / hatchbacks and a small city car, all recently joined by the BRZ coupe. Nothing has been muted regards a Subaru ULCC, and furthermore its own small car is sourced from Daihatsu, so would have little influence in developing something similar. However, its now legendary boxer configuration engine – being ostensibly 'flat' – improves vehicle packaging and vehicle dynamics possibilities, and whilst current engines are over-sized for a ULCC, a small capacity boxer engine sourced from elsewhere would provide Subaru with a ULCC advantage. The 'brand-embedded' 4WD system adding another positive element. However, a ULCC does not fit the strategic market positioning intent of Subaru as semi-niche and performance orientated 'near-luxury', without small car R&D it appears to have has little technical freedom or capability to initiate such.

TATA [Nano], as well documented, has to date been the only large scale manufacturer to accomplish the necessary NPD process required for a ULCC type vehicle, even if Nano has ultimately been launched at a far higher price than originally promised. As also stated previously, it is no doubt within the business model envelope to introduce the promised 'bottom tier' car later in the product's life-cycle when set-up and overhead costs have been amortised and piece costs further reduced. The Nano has not come to market as a true ULLC, but comes closest yet to the “poor people's car” conundrum.

Bajaj Auto, the renowned maker of 3-wheeler 'tuk-tuks' recently displayed the BE60, essentially a 4-wheeled, structurally stronger and weather covered micro-vehicle; positioned philosophically half-way between car and van / people carrier. Destined for the Indian and EM taxi trade it is not as technically sophisticated as the Nano, nor as cosmetically pleasing, given its narrow track stance & tall roofline. But then it is far more a service workhorse rather than family pet. As to whether it actually becomes popular remains to be seen, since the innate payload flexibility of a tuk-tuk (passengers vs baggage vs goods load) hard to achieve without undermining all the car-like attributes the vehicle offers. The interesting aspect of BE60 is that it would split the public persons and goods carriage sector into 2 distinct sub-sectors, people & baggage vs goods; the BE60 essentially replacing the role of the old Hindustan Ambassador but without the luggage space, a roof-top luggage rack also probably creating severe instability issues raising the CofG on such a narrow tracked vehilce. However Bajaj must be congratulated for exploring the new vehicle space and for attempting a ULCC. It should continue its exploration.

Mahindra & Mahindra (conglomerate) Group spans the following sectors aerospace, agribusiness, after-market, automotive, components, construction equipment, defence, energy, farm equipment, finance and insurance, industrial equipment, information technology, leisure and hospitality, logistics, real estate, retail, and two wheelers. The latter via acquisition of Kinetic Motor in 2008.. Vice-chairman Anand Mahindra recently spoke of his desire to see India's industrial base move away from 'make do' engineering solutions and to seek the higher ground and improved profit margins of world standard engineering and product offerings. Thus able to gain greater national competitive advantage by offering benchmark quality vehicles at a lower cost base (so improving margins and pricing flexibility). M&M recognises it must compete against TATA's own branded SUVs, themselves improved by stronger relations with the (Jaguar) Land Rover division.

Yet, like BMW and now VW it also has 2-wheeler capability since the 2008 takeover of Kinetic Motors, and has been working through the process of introducing cleaner 4-stroke engines into its scooters and motorcycles. Moreover, it owns REVA which whilst presently using EV powertrain also offers the structural platform for an ICE powered ULCC. So exploring the ULCC space may yet prove attractive in years to come even if today not immediate on the strategic radar, or admitted by Anand Mahindra.

Piaggio [Ligier – Vespa] is a company heavily endowed with the historical spirit of pragmatic low cost vehicles for passenger & commercial use. As its wikipedia entry states [it] “encompasses seven brands of scooters, motorcycles and compact commercial vehicles. As the fourth largest producer of scooters and motorcycles in the world, Piaggio produces more than 600,000 vehicles annually, with five research and development centres, more than 6,700 employees and operations in over 50 countries. Originator of the legendary Vespa scooter it also explored a low cost car in its post-WW2 years, the Vespa 400, with Agnelli family ownership in 1959 extinguishing 4-wheeled vehicle hopes to protect FIAT and create distinct separate bike & trike and car identities. Today the famous 3-wheeler Ape is still build in India, but is exported in low volumes for the 'vintage / classic' style markets in Europe and N. America it has become a low volume niche lifestyle build in Italy. Its 4-wheeled successor is the badge engineered Daihatsu micro-truck. However, Piaggio innovated with the MP3 'front track' 3-wheeler, intended to attract new riders from car driving toward motor-cycling.

But most important relative to the ULCC (ie 'light car') idea is the construction of high quality micro-cars by Piaggio's French sub-holding Ligier. Based in de Vichy en Auvergne, the factory has received 3 tranches of capital expenditure in design and process technologies since 2003, demonstrating production leadership in the 'light car' arena benchmarked against conventional VMs quality levels. The application of advanced thermo-formed body panels fixed to an aluminium & steel cage sub-structure, ever more precise with increasingly 'close tolerance' of panel fit.

KTM (Sportmotorcycles) AG has become known for its ever broadening model range. Initially recognised for its wins of motocross competition events (eg Paris-Dakar Rally) it gained popularity and entered new road-bike sub-segments of SuperMoto and SuperBike with similar competition success and high profile. Unusually it bucked the motorcycle norm by contined development of 2-stroke engines, stating the NVH refinement and emissions requirement could be met by a less complicated engine.

Radically, it created the X-Bow race-track car, shown in 2008, but instead of the project being created wholly in-house, KTM adopted Audi powertrain with Dellara chassis, limiting itself to bodywork fabrication, interior fitments etc. This appears a let-down to KTM followers, but should be recognised as an internal learning exercise whilst developing a high-bar product, albeit in very small numbers. X-Bow points to a possible avenue of later stage track cars which are increasingly developed from in-house resources. However, returning to its roots KTM would be well positioned to develop a ULCC vehicle using both motorcycle engineering principles and its 2-stroke engine. This a possible topic of debate given KTM's product distribution agreements with India's Bajaj (re-badging and Bajaj retailing of KTM bikes).

Lifan Group also had motorcycle origins, but grew under the Chinese economic miracle to now encompass compact cars (amongst which sits a Mini lookalike), and Daihatsu derived micro-trucks micro-vans. However, whilst it has access to certain micro-car, and so 'light-car' / ULCC systems, the fact that its company logo is an obvious copy of GM's Buick brand highlights its desire to pitch toward the upper strata of inland and western China's bourgeoning middle-classes. Moreover, the company demonstrates itself to be inimitably tied to the large-volume Budd production system of stamping (of metal sheet) and welding for monocoque bodies. Thus it seems unlikely that it would contemplate a ULCC requiring 'non-Budd' methods..

Kandi Technologies has as a sub-division Zhejiang Kandi Vehicles, which operates across: off-road leisure buggies, ATV “Quad-bikes”, MUV “Side x Sides”, ”Community Vehicle” (akin to golf-cart but derived from MUV), EV city car (which is a near copy of a SmartCar, and it categorises as 'Ariel') and 3-wheeled 2-seater (side-by-side) 'trike' with single wheel to rear. The company then has sought to reproduce all types of leisure vehicles previously seen across North America and Europe, and sells its products to both the newly wealthy Chinese in its home market, and as lower priced leisure vehicles in export markets. Kandi's introduction of more affordable ATVs and off road buggies boosted corporate performance in Q1, but EV sales have seen sales decline. To support its strategic focus in the EV space Kandi bought-out Konga investments which in turn had a majority stake-hold of an EV parts supplier.

Given Kandi's manufacturing prominence in ATVs, MUVs and small city-car EVs, it appears to hold the basic production capabilities which would allow the merged capabilities creation of a simple ULCC. Wheelbase extension of its 2-seater EV to seat 4 with installation of a small capacity ICE unit and required restyling, critically with a low fabrication and build cost could give Kandi an edge regards a ULCC if it so desired, naturally positioned to move into this (as yet unproven) space.

Polaris Industries has become recognised as perhaps the lead player in the utility and recreational off road space given its range of ATVs and MUVs (Side x Sides), whilst becoming more established in the premium motorcycle arena with the development of Victory Motorcycles and 'fold-in' acquisition of Indian Motorcycles, so substantiating its motorcycle interests far beyond its stake in aforementioned KTM AG. The company previously had a engine procurement relationship with Suzuki Motor, but in 2010 chose to bring engine assembly in-house at its St. Cloud Minnesota plant; simultaneously re-purchasing the clutch of B-class voting shares Suzuki owned in Polaris for $79.3m, whilst maintaining engine parts supply with Suzuki Motor Corp. In early 2011 Polaris bought GEM (Global Electric Vehicles) from Chrysler, an EV focused business which offers 'neighbourhood vehicles' to a broad spectrum of customer groups including: local and state government, industry, commercial enterprise, educational campuses, gated communities, and private clients. It also has a distribution agreement with BobCat (see below) to deploy its sales channels on what are essentially non-compete items, Late 2011 saw the acquisition of Goupil Industrie in France, a producer of EV and hybrid powered micro-trucks aimed at eco-minded owner-operators.

Thus Polaris has beyond doubt the conglomerate capabilities to create a ULCC if so desired, but its heavily US focused business (70% of sales turnover) appears the prime intent at present and into the mid-term. Its RoW business (outside USA & Canada) is about 15% of turnover, and only 15% of that pertains to Asia, where a ULCC would be naturally targeted. However, it will maintain focus on the growing trend for eco-sensitive vehicles in North America, which will in time create ever more developed car-like small vehicles.

Arctic Cat was founded by the previous founder of Polaris Industries, and offers ATVs, MUVs (Side x Sides), snowmobiles and watercraft. Its MUVs are typically classed as 'high-performance', 'leisure' and 'utility' as befits the sector, and comes with small (approx 650cc) capacity IL2 engines and larger (approx 1.0L) capacity V-Twin engines. However, its prime historical and business interest is that of snowmobiles, deploying its greatest engineering effort to progress its competitive edge.

For this reason, and with far less R&D capability than its MUV rivals, it seems unlikely that Arctic Cat would choose to strategically step into the unproven realm of the ULCC.

BRP (Can-Am)

BRP is the present incarnation of Bombardier Recreational Products, itself spun-off from Bombardier Inc, and owned by Bain Capital, the Bombardier Family and Canada's SWF 'Casse Depot'.

Can-Am is the notional 'motorcycle' subsidiary, but actually offers 3 and 4 wheeled recreational vehicles by way of the Spyder trike (single-wheel rear), ATV 'Quad-Bike' and MUV 'Side x Side' models. So essentially BRP might be regarded a light-vehicle producer already albeit not with a ULCC product. The Spyder trike includes traction control, stability control and anti-lock brakes, systems which in turn either are or could be applied to the MUVs and so to a ULCC car-like configuration.

Case IH of course operates in the Agricultural & Construction sectors, primarily manufacturers large tractors – in wheeled and tracked forms - and combine harvesters. It is part of the Case new Holland (CNH) Group, itself majority owned by FIAT Industrial SpA. Below yet complimenting its primary products, Case IH offers its Scout named MUV in diesel and petrol versions. As a producer of very large and expensive AgCon products it seems unlikely that CASE IH would independently seek to create a ULCC of its own accord. It would be too great a distraction given the present growth opportunity in the AgCon sectors. However, if FIAT Industrial – still effectively managed by FIAT SpA (Cars) representation – did decide to create a long-horizon ULCC, it would evaluate how Case IH's MUV knowledge – together with Piaggio's general knowledge – could be utilised. Yet for the present, that seems a remote exploration. (International Harvester created the American 4x4 Scout in the 1960s to seek to create its own complimentary farmers vehicle - vs Ford's Bronco – but the ULCC appears a very different proposition given the lack of global customer 'big farm' needs).

John Deere, similarly has a myriad of large equipment offerings: tractors, harvesters, seed drills, muck spreaders and sprayers all in agricultural, and bulldozers, backhoes, loaders & road graders in construction. Its MUV 'Side x Side' model is generically called Gator which spans “lawn to off-road hauling” uses: known as 'Compact', 'Traditional', 'High-Performance' & 'XUV', available in 4x2, 4x4 & 6x4 drive configurations. Unlike other automotive affiliated or conglomerate owned agricultural sector producers, John Deere has obvious advantages and disadvantages. It positively, does have far more independence to create as it wishes, but to date has been conservative seeking to 'build a better mouse-trap' in traditional equipment sectors. But negatively, it's current client base of 'Big Farm' has no need for a ULCC. However, it does have MUV capability so could adapt and experiment with its MUV to become more of a small jeep (like the 1968 Suzuki LJ10) so as to explore the needs of financially constrained EM farmers; though Maruti-Suzuki could be said to partially fill that role with its successor, its price is not that of a ULCC.

Kubota Corp from Japan spans various industrial sectors, including: water & sewage, valves & pipes & pumps, castings, vending machines etc. But is best known for its agricultural and construction equipment. Much like CNH or John Deere. It also offers an MUV available in open cab and closed cab styles with various engine sizes under the RTV model name. However, the company appears to presently seek to grow its traditional business model in new regions, a large puch in Poland for example. It has good presence across SE Asia and other EM regions, yet the previous failed effort to diversify into computing may have smothered taste for exploratory business ventures. Presently its products are bought by a mix large business and small-holder private buyers, which themselves tend to use conventional vehicles, and thus little opportunity for an ULCC. However the company does have the R&D capability to evolve its MUV..

KYMCO, the Taiwanese manufacturer of scooters, motorcycles and ATVs. It was awarded the contract to supply BMW Motorad with engines in 2008. As its own 'ULCC aligned' products, there is Maxxer & Mongoose model leisure ATVs, utility ATV named MXU and larger model 'Side x Side' MUV called UXV. Further exploration of the 4-wheeled automotive space could be a possibility, much in the same way that Indian motorcycle producers such as Bajaj have done so. However, Taiwan's Yulon Motor already seeks to own the middle-ground and entry levels of Taiwan 's domestic and Chinese export sales (with Dongfeng) using the recently created Luxgen brand for China and the older Tobe brand seeking second-tier EM export markets. So, on the grounds of national economic policy-setting it would seem likely that any KYMCO attempt at a ULCC would need to be formally or informally integrated with Yulon / Tobe attempts.

BobCat, although US originated and located is now owned by S. Korea's Doosan Group. Amongst its products it unusually offers a more sophisticated MUV. Its 'ToolCat' vehicle has both a front coupled ancillery drive to connect pneumatic and hydraulic powered equipment such as a digger, and offers front and rear axle steering to improve the turning circle.

This, unlike many other generic MUVs, highlights BobCat's willingness to find a niche space between traditional mini-equipment items (eg mini-diggers) and MUVs, so creating a new market space by overlapping two previous segments.

[A well recognised similar case study is that of Britain's JCB Fastrac, which merged the 'in-field' power/traction requirement together with the 'on-road' speed/ease requirement. Both Fastrac & BobCat examples provide positive reflections of R&D which explores product(s) cross-fertilisation to create a new category. This then capturing the necessary mindset and technological nexus of the ULCC]


“New Entrant” Enterprises -
3. Motorcycle Producers – inc moped & scooter.
4. 'Eco-Car' Explorers – seeking ultra low cost


Motorcycle Producers -

The following companies could theoretically be viewed as possible 'new entrant' enterprises to the fledgling (and not yet convincing) ULCC sector. Each holds the internal prowess to conceptualise and manufacturer a vehicle which, as shown by the Nano case study, could feasibly be drawn from the pragmatic and lightweight engineering of the motorcycle and eco-car worlds.

Harley-Davidson's roots go back to the early days of motorcycling, and thanks to government & military contracts survived the sector 'shake-out' of pre and post WW2, experiencing lean years but coming back into, indeed arguably symbolising, the American popular consciousness in the 1970s and onwards, becoming a materialist staple of the middle-aged middle-class male from the 1990s to date, yet in later years seeking to recapture its youthful spirit. (The fact that Credit Suiss advertises itself via the iconography of the pro-tennis player Roger Federer and H-D highlights its aim at wealthy customers). Thus as a premium brand which exploits a yesteryear technological heritage, H-D is hardly placed to seek business expansion in the ULCC terrain. Instead, as has been the case, understandably satisfied with rolling out the H-D legend across a newly emerging North America and across the world's new wealthy in EM regions.

Hero Motocorp is the relatively new iteration of what was Hero-Honda motorcycles and prior Honda-Hero, the best known 2-wheeler company in India by sales (57% of the market) covering scooter and motorcycle and by brand equity, noted as a much trusted brand. It is not an overstatement that Hero has been the company that mobilised the lowest tiers of Indian population (and those other export markets). The ambition today that by 2016 Hero reaches $10 bn annual income from sales of 10 m units. However, the recent domestic economic slow-down, and concerns about poor economic policy reaction might halt such hopes. In such circumstances, if ongoing, the company would exert greatest effort to maintain sales traction of its standard product line and probably be faced with cutting back R&D activities. Hero operates in a space that TATA had to discover with Nano, and so very probably does have resource intelligence to create a ULCC, even if pragmatically developed to be less than wholly beautiful - as seen with Bajaj. However, its limitations to small capacity engines of 100cc, 150cc & 250cc would mean that such a car would be woefully underpowered, and exploring the ULCC arena with a far more costly bought-in 750cc-1.0L engine goes against the grain of this self-sustaining company. Moreover, its prime engine components supplier Sunbeam Auto (India) would be heavily pressured by its other clients such as Maruti Cars not to sell car-sized engine parts (pistons, engine blocks, etc) to Hero.

TVS Motor sits at the apex of the TVS Group business divisions, furnishing India with scooters, motorcycles and auto-rickshaw trikes. Its present industrial shape derived from a 1982 JV with Suzuki Motorcycle, ending in 2001. TVS prides itself as being a notional scooter innovator: automatics, 'unisex', and couples' bikes with 'body-balance' technology. However, its sales success has notably diminished in the face of strong competition across all its segments, and whilst growth is expected across 2012 its market-share is expected to contract. As with other 'multi-sector' 2 & 3 wheeler operators, whilst a ULCC concept could very probably be generated in-house, the basic procurement barriers TVS would face vs automotive VMs, highlights an improbability of ultimate ULCC production. The only caveat to this being that the introduction of the far more modern King 3-wheeler has not stirred customer demand, yet its basic shell and package might well be adapted to a 4-wheeled model for market research purposes – much like the Bajaj BE60.

LML (Lohia Machinery Ltd) started 2-wheeler assembly in 1990 as part of a JV with Piaggio to re-manufacture the classic Vespa scooter. Its declining popularity saw LML end that agreement in 1999 in favour of a new venture with S.Korea's Daelim Motor Company with updated scooters. However, financial over-stretch scuppered growth with today the company restricted to exporting versions of the classic Vespa to western markets under the LML name. Given its financial and operational constraints and its lack of contemporary Indian, Asian or EM regional brand recognition any ULCC project is far-fetched

HMSI (Honda Motorcycle & Scooter India) was set up in 1999 in recognition of the Hero-Honda's split and to introduce more modern 2-wheelers to India. Its focus on well received class leading products in the 50cc, 100cc and 150cc segments, domestic market success and organisational shape to effectively deliver the sales of 'Japan designed' products, and its corporate remit to its Japanese parent means that there is little chance that HMSI would even explore the ULCC idea.

S&T Motor (Hyosung Group) is a S.Korean manufacturer established in 1978. It initially produced licensed versions of Suzuki machines, then moved on via an R&D centre in Japan to create proprietary designs. Recent years have seen the company's product expansion into larger capacity fashion & sporting motorcycles for domestic and export sales to select Triad markets and India. S&T. Engine sizes span 50cc, 100cc, 125cc, 150cc, 250cc, 450cc and 650cc. As part of the Hyosung cheabol sister companies operate across: textiles, industrial materials, chemicals, opticals, power systems, civil engineering & construction, electronics and IT It also acts as a Tier 2 supplier to the domestic and foreign automotive industry, but essentially in lower order specific items: tire cord, steel cord, bead wire, seat belt yarns, airbag yarns & cushions, and interior cabin material. So a broad conglomerate capability, but unlike other previous chaebols (most obvious Hyundai & Samsung) it does not have deep reach into automotive supply, yet also being a specific thin-thread of the S.Korean auto-sector. However, its R&D centre in Japan, with prime motorcycle engineering skills and possible connection to Japan's micro-car manufacturers, could theoretically develop a ULCC. However, such an initiative would need to pesumably be affirmed as part of S.Korea's national economic agenda, But since this so futuristic IT orientated, having allowed Hyundia-Kia to grow globally and Samsung Motor to go to Renault-Nissan and Ssangyong to go to Mahindra (which itself is negating the ULCC idea) it appears that for S&T to try and undertake a ULCC without government sanction or support looks highly unlikely.

Brasil & Movimento is a relative newcomer, set up in Brazil in 2000 and originally fabricating bicycles it quickly moved into affordable 2-wheelers spanning the 90cc – 250cc engine sizes and various styles from basic moped to city scooter to simple urban commuter to mixed-road moto to scrambler, thus offering a cheap product in all prime model types. Presently, B&M is the 3rd best selling brand, and as such given its combined youth and success will be undertaking normative internal value-chain efficiency seeking, with prime mid-term focus on sector re-alignment given Brazil's current industrial regeneration efforts and regional Mercosaur export markets. Ideas of producing a ULCC in a vehicle dominated by entrenched players (VW, FIAT, GM, Ford), a political policy of generated 'value-added', examples of previously failed low cost cars and political rebuttal of cheap Chinese cars, means that for B&M the ULCC is hardly credible.

Tomos originated in the former Yugoslavia (Slovakia) in 1955, licensing Puch products from Austria, adapting those machines into increasingly stand-alone models. The 1991 fragmentation of Yugoslavia saw Tomos acquired by Hidria. Later a US facility was purchased in Spartenburg South Carolina for assembly, and the Slovak HQ factory served BMW with parts. Slovakia's 2004 admittance to the EU assisted general trade and trading, with a raft of new 2-wheeler products introduced. Whilst the company has historically assembled other goods including cars and out-board motors, motorcycles have been core. These a range of low cc mopeds, scooters and motorcycles with styling character adaptions over standard skeleton frames. Aside form the standard range it offers a utility bike for delivery tasks, and an electric powered scooter. Outside Slovenia prime assembly and sales site for a small range of mopeds, scooter and entry sport-bike.
As regards capabilities and interests in developing a ULCC, the prospect appears remote given the low cc engines used, the depletion of a once large engineering function (decades ago) and the likelihood of a re-grown Zastava (and similar others) developing low cost cars for CEE, CIS and elsewhere.

Other privately held motorcycle companies exist, which could feasibly attempt to engineer and produce a ULCC, are listed. But for those singular or amalgamated reasons previously given, it appears unlikely that any large successful volume company, or indeed premium niche company, would seek to explore outside its comfort zone:

India's Royal Enfield, Korea's KYMCO & SYM, the UK's Triumph & Norton, Italy's Cageva & MV Augusta, Brazil's ITALIKA & AJP Motos and China's Chongquing Hi-Bird.

The only remotely plausible firm of these that could be possibly associated with a ULCC would be Royal Enfield for reasons of national location and rugged brand persona.

Indeed, the engine from the company's long-lived and so widely available Bullet model has become a power unit of choice amongst 'bottom-tier' Indians when building their own 'home-made' (Heath Robinson-like) powered transport.

But the company was effectively re-launched only a few years ago and presently seeks to recapture past glories with military links by positioning itself as the true 'Indian Legend' of the Asian sub-continent; so as to try and stave-off America's Harley-Davidson. Very probably then trying to disassociate itself from the rural poor.


'Eco-Cars' -

Another separate lightly populated group of progressive companies are those which seek to deliver new types of vehicles under the general banner of 'eco-cars'.

In this instance, it is not the 'green credentials' of this group that draws major interest, though an environmental plus, but the fact that the core philosophies of their business models is to be radically alternative, Re-inventing the process to ensure a much reduced assembly cost of the proprietary vehicle.

[NB though some variants may install high-cost technologies].

So, generically low (ex-factory) cost vehicles (possibly of the ULCC genre) are sought to be attainable via a pragmatic business approach – which whilst typically with greater western resources available. Such an approach necessary amongst both those established active or dormant 'alternative car' developers, those young companies still maturing or any new start-up. In the niche production eco-car space, all players face the same current to mid-term squeezed funding environment.

TH!NK Global perhaps best exemplifies a once active but presently dormant 'alternative car' developer, very much in the micro-car genre (and akin to France's Ligier but less well appointed), but specifically offering itself as a distinct EV provider. TH!NK Global at first appears an odd entity, its fortunes much reliant upon external eco-vehicle funding from international governments and or VMs. This EV fascination evolving through decades of phased 'risk-on, risk off' investment relative to the financing and political climate. The most recent perfect storm being the decade-long, pre-2008 simultaneous inflation of the credit-bubble and eco-consciousness.


THINK Global is now owned by Electric Mobility Systems SA based in France, and investment-auto-motives suspects is awaiting the newly seated President Hollande to ensure that a portion of a new round of ECB-IMF QE liquidity is appropriated for new era eco-development, funding via a mix of central government and re-capitalised banks going to 'best-fit' companies; amongst which EMS SA hopes to gain. Thus the company will no doubt be be resuscitated once again in the mid-term to re-offer its two 2-seater models 'City' and 'Open' (ie open-top) from Valmet (if new terms can be agreed) or another new assembler. And no doubt TH!NK will re-publicise its efforts to expand into the 4-seater market with a successor to the Ox concept. Various sources state that French registration of the City car were 11 units in 2010 and 110 units in 2011, so pre-cursing what shouldb be stronger French sales demand in 2012/13 onward.

TH!NK Global then has been, and continues to be a useful ecologically directed business vehicle in its own right, adopted by different parents relative to national macro-funding conditions; TH!NK's phased 'up and down' commercial fortunes ironically mimicking the AC-DC graph.

Gordon Murray Design was created in recognition of a changing socio-economic and geo-economic world, the prime agenda to deconstruct and reconstruct the vehicle industry norm, to extend the micro-car intellectual envelope; in its design, production and retailing formats. For those outside of auto-circles, parallels to Murray as the the 'automotive Dyson' have been drawn. The national agenda hope is that with such initiatives the UK may take to a pre-eminent intellectual role in the auto-arena of the 21st century. Whilst Britain already holds 'pole position' regards vehicle development within Formula 1 and other 'high-value' motor-sport categories – thanks to Murray and his counterparts - it was also recognised that there had been an increasing disconnect regards the far broader picture of global urban mobility. With small car interests Murray was urged to set-up a company to help deliver the UK's trade and industrial ambition, both in the domestic domain and upon foreign shores.

To an even greater extent than the much acclaimed TATA Nano, GMD (and its financial backers) have sought to 'reverse engineer' the standard business model and stretch the norms of niche vehicle practice. Its core product the T-series (T25 ICE & T27 EV variants) provides an unorthodox 3-seater usage and travelling experience, which whilst primarily seeking to solve the central challenge of Triad and Megacity eco-personal transport, may be adapted to provide a ULCC product with a closer 'bottom-tier' correlate than shown thus far by TATA Nano.

The GMD website presents the rational of the vehicle, stating that it... “represents a major breakthrough...optimised through design for strength, performance, weight, cost, safety, usability, tooling, quality, energy efficiency, recyclable and ease of assembly”. Hence not a step-forward but a leap-forward. Yet its radical occupant packaging also creates 'usage anomolies' when compared to the norm; most evident the opening of a front windscreen-canopy structure for entry/egress, and a central driving position which negates the sociable and so standard 'side by side' seating arrangement. Yet the car is intendedly different for very good reasons of its own, suited as is as either a suburban families 2nd family 'runabout' vehicle, or for inner-city dwellers, suitable for a 1-child family, or typically lower income single parents with 1 or 2 children. The key is that in a different ULCC guise needing bigger cabin space, thanks to the low CapEx 'i-stream' business model*, the present 3-seat layout could be re-engineered and produced as a 4-seat model. GMD brilliantly illustrates the UK's auto-intelligentsia.

{NB 'i-stream' micro-factory model created by the combined capabilities of its technical partners, Hennecke and IPE].

To this end it prescribes a different kind of 21st century Triad region auto-company, one which is as much IPR 'value-added' focused as the mass-market producer is APR 'credit-terms' driven.


To End -

Although finite statistics are still hard to obtain using varying sources, it appears that the worldwide production of all vehicle types has rallied strongly since the global ripples of the 2008 financial crisis. 2010 seeing a 20% increase in production from approximately 61.7m units to 77.8m units in 2011. Within these figures passenger carrying cars (and similar class types) represented saw 57m units produced in 2010, 59m in 2011 and an expected 62m units in 2012.

In 2010. with the Triad region at its low ebb, it is estimated that 51% of all vehicles sold (Cars, X-Overs, SUVs, LCVs, MCVs and HGVs) were done so in EM regions.

General expert opinion is that by 2014 approximately one-third of that consumer and enterprise demand will stem from BRIC countries, with secondary growth in the CIVETS nations and others such as Iran.

The changing face of the auto-industry is now apparent, perhaps the most telling previous watersheds when India's TATA bought JLR and China's Geely acquired Volvo (though the Youngman interest in SAAB seemingly less credible), with the likes of SAIC, FAW and Avtovaz capturing ever greater industrial learning from their JV partners to in turn create ever better vehicles under their own mid-line and entry-level brands.

These major firms then represent the towering monolithic trees in the well established forest that is standard vehicle production; but as shown a few new green shoots also have become established, with promise of others where the light of pre-emptive forecasting and enterprise will reaches on the forest floor.

The 1990s and early 2000s births of the once many EV companies provide the ULCC backdrop, where it is not so much the over-hyped battery & e-motor set which provided the 'alternative car' advancement as the 'light-car' structural engineering that quietly took place simultaneously.

These years heralded still ongoing exploration which seek to effectively construct from first principles the core eco-car / ULCC business models. Those re-jigged 'business platforms' ranging from a change in basic manufacturing location and vehicle systems through to creation of a near virtual car company – a commercialised extension of the old-fashioned engineering consultant.

Between these two physical and ethereal extremes, is the middle-ground of creating the 'business bud' consisting of near finalised business template solutions to be offered to external parties. Whether to VM manufacturers, niche players, automotive orientated holding companies, possible new entrants and national governments. Seeking to effectively license the IPR of the whole or parts thereof, across: developmental R&D, vehicle solution, manufacturing solution, general or tailored general business case solution, retailing solutions, and essentially sitting at the hub of the spokes as a 3rd party client integrator:

That small leading edge of the automotive sector is a small but crucial part of the general revitalisation of broader geo-economic systems, including: wholesale financing systems, consumer financing systems and through-life support systems. Seeking to both re-invent and evolve the automotive business much as Henry Ford and Alfred P Sloane did a century ago.

Standard & Poor's recently reported that 2015 may see a corporate financing crisis, which follows the previous banking crisis and present EU sovereign debt crisis. Over the next 4 years global industry faces a $43-46 trillion re-financing requirement sought from presently under-capitalised credit markets; the present funding gap being approximately $13-16 trillion. If avoided through injected capital (ie QE) and staggering of CapEx projects, then all good.

If however the Cassandra predictions evolve to be true, only those with sizeable balance sheets will survive and prosper; effectively a re-run of 2008/9.

Thus those vehicle producers possibly unable to raise required finance for business as usual activities may be forced to seek alternative business models, manufacturing processes and typically vehicle types.

The structural macro-economic changes that have and continue to take place between 2008 to 2012 and beyond will undoubtedly affect the micro-level auto-sector practices for all producers, big and small. Those that can grasp the challenges and form their own opportunities will forge a new path in the conventional low cost car and the emergent ultra low cost car when feasible.


Post Script -

The apparent Hindi / Indian word “jugaad” has been promoted in the western press and around conference of late, deployed to try and capture the spirit of the low cost car philosophy. But the word derives from the corrupt 'political fixing of things', and the ULCC ideology no doubt a big issue ripe for political corruption in itself. So one should be “on-guard” regards “jugaad”.

India should instead create its own new word, with positive connotation for the ULCC ideal.

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.