• Jun 4th 2010 at 3:28PM
  • 15
Some of the most famous cars in the history of the auto industry were some of the cheapest ones. The Ford Model T, the Volkswagen Beetle, the Citroen 2CV and the BMC Mini were so successful mainly because they were so affordable.
Now the industry is trying to replicate that success by designing low cost cars for booming developing markets, like India. But they're discovering that building cheap cars is not nearly as easy as it sounds. And it all has to do with customer expectations.

In the past it was easy to build a cheap car for developing markets. All you had to do was take the tooling for an entry-level car that was being phased out of the market in a modern country and ship it to some backwater in the third world. Since the car was already developed and the tooling was already paid for, an automaker could build it cheaply with local labor. That's how it was done for the better part of the 20th Century.

But then came the internet. All of a sudden, car buyers in developing nations became fully aware of the outdated designs being foisted upon them. They could easily Google up the latest American, European and Japanese models, pore through the technical specifications, download the photographs and watch videos of them all in action. With their rising standards of living, they were no longer content to buy the clunky cars available in their home markets. They wanted what we have.

John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.

Of course, the big car companies were slow to catch on because they couldn't figure out how to satisfy this demand. They just figured they'd have to wait until income levels rose to the point where people could finally afford the latest technology. That's why, when Tata unveiled the Nano, it stunned the automotive establishment. No one expected to see a car that could be sold for $2,500. And they were even more surprised to see how Tata had gone about designing the car.

The key to lower-cost designs is integrating electronic functions and using fewer components.
Whereas the old-line automakers always tried to take cost out of a car by removing features and using cheaper materials, Tata's engineers approached it the opposite way. They were used to designing motor bikes and scooters. So for them the Nano was all about adding features and using better materials. But because they approached it with their low-cost-motorbike mentality, they came up with a clever design that almost anyone could afford.

And yet, they didn't go far enough. Even though the Nano was a big step up for the people buying it, it didn't have creature comforts like air conditioning, or safety features like airbags, anti-lock brakes or stability control.

This is when the light bulb came one and the big automotive suppliers saw their opportunity. They began working feverishly to redesign components to dramatically cut the cost of their technology, but doing it in a way that still met customer expectations. In fact this is one of the greatest engineering challenges going on in the industry today.

A good example of this is the anti-lock brake control module that the German supplier Continental developed for low-cost cars. It is nearly half the size, one third the weight and substantially cheaper than the version it sells in developed countries.

Conti's engineers found that the key to coming up with lower-cost designs was integrating electronic functions and using fewer components. The motherboard in Continental's ABS controller for emerging markets is considerably smaller thanks to this approach.

It will all come down to clever design.
In some cases they found that the key to lowering cost is to simply offer a lower-level of performance that is perfectly acceptable in third world countries. For example, Continental sells a 77 GHz radar camera that automakers use for adaptive cruise control and blind spot detection that is good for speeds up to 200 kilometers an hour (128 mph). But since these low-cost cars are never going to be driven at speeds like that, Continental came up with a 24 GHz radar camera that doesn't offer quite the same capability but is far more affordable.

This same approach is now being used by many suppliers who are designing airbag modules, electronic stability control, automatic transmissions, miniature turbochargers, power steering and creature comforts like air conditioning.

The point is, developing countries like China, India, Brazil and Russia are going to drive growth in the auto industry for decades to come. Whichever companies can figure out how to provide those customers with the vehicles and features they want at a price they can afford are going to come out the winners. It will all come down to clever design, because coming up with low-cost cars is not as easy as it sounds.

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    • 1 Second Ago
      • 5 Years Ago
      U S auto prices are too high. If developing more cost effective products for 3rd world markets helps us get that new car smell cheaper..well all right.
      • 5 Years Ago
      Cars in the third world are more of luxury items. Even having a small cheap car is a status symbol.
      • 5 Years Ago
      There is a whole different set of rules in the third world, compared to the west. You can't just wonder why 3rd world slums don't have ford tauruses parked up and down the streets.

      Plus, in the west... cars have not gone down in price, on average. Electronics, and all sorts of things get cheaper as technology and economies of scale improve.

      Cars do not. Cars get more expensive. Thanks to overbearing amounts of government regulation and overhead, that push the costs higher, faster than technology and business improvements can bring costs down. Unions are taking more than their fair share of the wealth out of the auto industry, as well.

      Those things aren't directly related to the third world issues... but the more western cars cost, the more out of reach they are for anywhere with lower standards of living. Just a fact of economics... and if you dig into economics further, you always find politics.
        • 5 Years Ago

        I get the sense you're trying to make comments on something you don't know that much about.
        For one, the term "3rd world" went out of style with the Cold War. And the "west" is a really nebulous term. We're not just talking about the "west," but all nations that are considered to have well-developed diversified economies with service industries.

        In any case, do you have any idea why a for Taurus wouldn't make sense in a Brazilian "slum" (to use your own words). For one, a Taurus is a midsized car in the US, but would be considered a large car in Brazil that's really unfit for most inner-city roads. The gas mileage would be horrendous. And you'd pay almost double for one due to Brazil's importation laws on automobiles.

        To geo's comment, you can buy a brand new Ford Fusion in Brazil today, but you'll pay nearly $50,000 for it. If a Fusion was actually as cheap in Brazil as it is in the US, of course more people would drive them there. So you see the complexity in the rules in this part of the world aren't dependent on just making a cheap vehicle... you really have to know your market.

        Secondly, I don't know where you get off criticizing government safety regulations. Fifteen years ago, $25.000 would have bought you quite a nice Toyota Camry, and the cheapest things on the road would have costs about $10000 - 12.000. The SAME is true today, except new cars are a million times safer than in the mid-'90s, and that level of safety has been incorporated into consumer expectations. I don't see how anyone is losing out here... and if you think car prices have really risen that dramatically in recent years, show me some data.
        • 5 Years Ago
        To Boxerfanatic:

        Unions taking more than their fair share! Sure. But let's not forget about grossly overpaid executives who've been making bad decisions for decades, and being paid outrageous bonuses for their mistakes.
        • 5 Years Ago
        Economics and politics may seem to be found in the same soup of conspiracy, but it's more like a catch basin of overflowing reaction to current problems that we really shouldn't have. Take auto cost v performance for example.The market now wants safety, efficiency and environmental damage control on top of the zoom, comfort and pizzaz it has come to love. The legislators, listenning to their constituents (and their peers), sponsor a "band wagon" bill to address one or more of these issues and claim authorship. As they see it gain momentum rolling down the political hill, the media decides to jump on before it is too crowded with their peers or going too fast for them to catch up with credibility. If the wagon hasn't fallen apart along the uneven terrain and obstacles of pork barrels and cow trails by the time it reaches the final executive signature, it becomes a mandate for the auto industry. They, the manufacturers, are not going to approach the market with the new revisions of their car saying "the devil [legislature] made me do it." That would be like blaming it on the customer (market) himself. No. They will not only build the newly required improvements into the car, but also into the ad campaign as if it is an exclusive on their new car and their idea.

        There is no evil or conspiracy here, maybe some reactionary egos, greed for cudos or general competition at all levels, but the overall effect results in most of what the "market" (the economic side) wants. If we, the market can name our performance requirements with headings of safety, efficiency or environmental damage control the legislators (the political side) will see the opportunity to get it done so long as it doesn't look like favoritism, irrationality or unrealistic expense.

        Rather than complain about the additional weight, the complication of controls or the cost of additions why aren't we, the market, demanding the ommission of obsolete equipment along with the weight and expense that they carry? Why are we assuming that improvement is only accomplished by adding more and more new things to the old?
        Reduction in size and cost does not have to come only through miniaturization or compromise. A recent engine technology for regular gasoline and other bio fuels is approaching availability as I write this reply. It utilizes the existing factory tooling and processes. It omits the fan, radiator, water pump, catalytic converter and over half of the fuel tank. Now there's some serious weight reduction. The heat, emissions and over half of the fuel requirement is gone too. That might compensate for some of the complaint of additional government-required weight and cost additions to date. Don't fall back into that expectation that horsepower and cruising distance must be sacrificed. All that fun stuff is retained or improved! Is there a drawback? Yes: we won't be able to lift the hood and admire the immense size of the engine and comment about how beautifully it fills the engine compartment. We'll have to satiate our macho appetite with the torque alone. (Look out!)

        Finally, for a little while at least, we can get the economics and the politics into the same celebratory soup together along with a dash of complementary media and unions too. O-o-o-o, this is gonna be good! Anyone interested?
        • 5 Years Ago
        With their rising standards of living, they were no longer content to buy the clunky cars available in their home markets. They wanted what we have.

        then they can pay what we do.

        btw: many cars from the last decade would be more than fine now as new cars, in 3rd world or even 1st world roads. Heritage and Classic versions of cars would do well as new basic vehicles. many people would rather buy a last gen new camry than a current Corolla.
        • 5 Years Ago
        james, didnt say anything about safety regs. just saying that a 10 yr camry design built new would probably cost the same as a corolla now.

        take away the tooling and design costs and battle a new design and you have a much cheaper vehicle.

        look at the ranger. compared to 10 yrs ago, they give away base versions left and right. compared to the competition, it sells well and is competitive.

        ford did the F150 heritage at one point. successfully. chevy did the malibu classic at one point for the rental lots.

        there are advantages
      • 5 Years Ago
      The problem with using older tooling is not the fixed cost like engineering, tooling, etc, but the variable cost like labor, material (steel, plastic), etc.

      No matter how free is your tool and design, you will still never get the cost of a Camry down to a motorcycle. Of course, you will never get the quality of a motorcycle up to a Camry as well.

      Life is cheap in 3rd world and they just want a ride saver than riding a scooter in the rain. As soon as their lives worth more and they can pay for a better car, they will demand a better car.
      • 5 Years Ago
      What are product liability laws like in these countries? If I were an big manufacturer, that would keep me up at night. You scrimp a little, sell ten million cars in developing countries then find out you have a major safety defect... yikes.
      • 5 Years Ago
      Using the original Mini is an odd example for small car success. It was successful in sales, but BMC didn't make money on it for a long time. They claimed it economies of scale helped with profit, but it all started with an error in setting the price to be competitive.
      • 5 Years Ago
      I think I would rather have a last-gen (GERMAN/JAPANESE/AMERICAN) than some modern-looking econobox where all the corners cut were in the drivetrain, quality, safety, and other factors. Same reason a used $12,000 Accord would probably be way nicer than a brand new $12,000 Kia.
      • 5 Years Ago
      Developing nations? I remember when the first Gran Turismo came out and wanted to know why I'd never seen a Mitsubishi FTO in America!
      • 5 Years Ago
      Every country basically needs entry-level, low-cost vehicles, as there is always a lower economic class of citizens. But another thing that would really help is for all citizens to rail against the governments who continually increase 'safety' mandates, making affordable personal transportation (eventually) unobtainable. Things like stability control, tire pressure sensors, brake overrides, and capture devices for driving metrics are really unneeded given the already low rates of collisions today. And they all add expense and weight to any vehicle that can possibly be made.
      • 5 Years Ago
      in my homeland,you can still buy a brand new nissan sentra 1992 model,built in mexico,same car sold in the states 18 years ago,but pricewise it's still out of reach for the majority ,people do want it but not everyone can afford it.
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