The low-cost car is the hottest of hot automotive industry topics - but is open to the widest of interpretations, says a new report from the British industry website just-auto.com which quotes a Bosch forecast that vehicles priced below ?,000 could reach a 13% share of the global market - or about 10m vehicles - by 2010.
As the developed word stagnates in terms of car sales, emerging markets are driving growth. And producing cars that suit the needs of consumers in these markets is an imperative for the car industry. That means driving down costs to the consumer -- low purchase price and low running costs. And it means driving down costs for the manufacturer in order to maximise profitability. Getting this equation right is essential -- there's less room to manoeuvre with a low-cost car, and margins are inevitably slight.
The research concludes that there is no single 'low-cost segment' rather, low cost can be applied to a range of different sizes and types of cars - with different price points in the marketplace. The selling price of a Fiat Linea is approximately five times that of a Tata Nano - yet both are low-cost car programmes.
Renault's experience with Dacia suggests it is possible to make strong profits from a low-cost car; the Dacia Logan provides a 6% margin, compared to Renault's average of 3%.
The benefit to the bottom line for companies with a strong presence in the low-cost sectors is clear; manufacturers without low-cost programmes will be at a disadvantage in the long term, especially given production forecasts of up to 18m sub-?0,000 vehicles per year by 2012.
High per-unit profitability is only achievable if a large proportion of sales are for higher-specified versions of the car. It is estimated that Logan would not be profitable if cars were sold at the initial target price of ?,000. The fact that the ranges average price is closer to ?,000 is the main also a factor; they reportedly earned an average monthly wage of about 1,070 lei (£220) before tax; the local Mediafax news agency put the figure even lower, at the equivalent of £175).
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