1. What is the key to the Logan’s low price?
2. Do you think Tata will be able to save the Nano? What steps should the company take?
3. Assess Carlos Ghosn’s plans to revive the Datsun nameplate. Can a car that sells for $3,000 generate a profit for the parent company?
4. Low-cost cars such as the Nano and Datsun lack the multilayered safety and quality features required by regulators in high-income markets. Is it appropriate to create “bare-bones” cars with fewer safety features for emerging markets?
The Logan is a case study in driving down costs. Drivers turn on the ignition with an “old-fashioned,” manual key; there is no cruise control. The windshield glass is nearly flat, which makes it less expensive to produce. The left and right outside mirrors are identical; the ashtrays are exactly the same as the ones used in another Renault model, the Espace. Similarly, Logan shares an engine and gearbox with Renault’s Clio subcompact; for these and other components, high manufacturing volumes translate into economies of scale. Production of the first Logan models began in Romania in 2004. The choice of an assembly site was dictated by simple economics: France’s high labor rates and payroll taxes would have translated into an additional €1,000 ($1,400) cost per vehicle. The Logan was launched in India in April 2007 with a sticker price of about $10,000; the vehicle was manufactured by a joint venture between Renault and Mahindra & Mahindra (M&M), one of India’s best-known industrial conglomerates. After a dispute between the partners, the joint venture was dissolved. Mahindra & Mahindra now produces Logans under a licensing agreement.
In 2008 a hatchback model, the Sandero, was introduced. This was followed in 2009 by the Duster sport-utility vehicle; the Lodgy debuted in 2012. In 2012, Renault sold a record 2.55 million vehicles; 25 percent were low-cost models. Sales are about evenly split between the Logan and entry-level Renault models. As it turned out, the geographic of sales indicated that Renault’s strategy was in trouble: Although the Logan was targeted at emerging markets, it was a big hit with consumers in affluent European countries. How did this happen? Enterprising independent distributors bought Logans that were manufactured in Romania and exported them to France and other countries in Western Europe. This coincided with a shift in consumer attitudes; in light of the financial crisis, it was not surprising that many young Europeans were of the opinion that cutting back on spending was a sensible thing to do. Indeed, surveys showed that a high proportion of twenty-something Europeans were “interested” or “very interested” in buying a lowcost car.
Nano
Even as Renault continued to refine its low-cost-car strategy, some in the industry were asking a tantalizing question: Could the auto companies come up with the optimal value proposition—small, no-frills, four-door cars that are safe to drive, stylish enough to appeal to the aspirations of first-time buyers, and yet sell for half the price of a Logan (or less)? Under the best of circumstances, creating such a vehicle would test the prowess of the world’s best automotive engineers. However, the challenge was especially daunting in a business environment characterized by record prices for steel, resin, and other commodities and components. As the general manager for a sourcing and procuring company noted, “There are so many legacy costs built into a design, and trying to engineer those out is difficult. It’s better to start with a clean sheet of paper and engineer low costs in.”
Top executives at India’s Tata Motors believed their company was up to the task, and the Nano is the evidence. The Nano’s instrument panel is clustered in the middle of the dashboard so that Tata can offer both right- and left-hand-drive versions for export. Tata’s target market is consumers in emerging markets who currently travel by scooter. Some environmentalists have warned about the negative impact of hundreds of thousands of new vehicles on India’s already congested roads. However, as chairman Ratan Tata noted, low-income families should be given access to the freedom that a car provides. “Should they be denied the right to independent transport?” he asked.
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