The chances are that it was a car from Pitesti, the Logans mother plant, but it could have come from any one of seven other production sites in Russia, India, Iran (with two), Morocco, Brazil or Colombia.
Conceived as a low-cost car for emerging markets, the boxy-looking Logan has become one of Renaults most profitable vehicles. Whereas Renaults margins across its range are an anaemic 3%, the Logan earns at least twice as much. By 2010 Renault expects to be making more than a million Logans a year, despite its failure to find a partner in China to build them. No wonder most global manufacturers are jostling to get into the low-cost game.
But what exactly is a low-cost car Mark Bursa, the emerging-markets commentator of Just-auto, a car-industry website, argues that the term can include anything from Fiats rather upmarket Linea saloon and the Logan to legacy cheapies such as the ancient Lada Zighuli and the Maruti 800, a five-year-old VW Golf or Tatas innovative one-lakh car, the Nano. But used cars imported by poor countries from rich ones become expensive when weighed down with high duties and taxes to protect indigenous industries. And Mr Bursa acknowledges that cars such as the Lada and the Maruti, both based on 40-year-old designs, will not be rolling off the production lines for much longer. They are cheap because all the investment to make them was written off long ago, but they find it increasingly hard to comply with ever-tightening emissions laws and safety regulations. Fiats Mille, sold in Brazil, which evolved from the Uno of the early 1980s, has a clean flex-fuel engine, but the company accepts that there is little that can be done to make it safer in a crash and is working on a successor.
The genuinely low-cost cars of today are those, like the Logan, that were designed from the outset to come close to the standards of their manufacturers latest mainstream models but to be much cheaper to develop and make. The Nano is in a different category, of which more later.
Although Renault has earned considerable kudos for having made a success of the Logan, the real pioneer was Fiat with its Project 178, born at the beginning of the 1990s. With the collapse of the Soviet Union and the opening up of India and China, Fiat reckoned it could use its experience of the Brazilian market to develop a range of tough, inexpensive but modern cars that could be built and sold almost anywhere in the world. The results were the Palio hatchback, the Siena saloon, also known as the Albea, an estate car and a pick-up. The cars have been a success in Brazil and the Albea has also done well in Turkey, but neither made the expected impact in Russia or China. Fiat says that it has learnt valuable lessons which it has applied to the Linea and the all-new successor platform to the 178, due next year.
The lure of the Logan
However, it is the Logan that has come to be seen as the first low-cost world car. Like the Palio, the Logan uses a strengthened and stretched version of an existing small-car platform, but Renault had a more rounded strategy than Fiat did in the 1990s. It set out to build a car that could sell for $6,000 by keeping down development costs and taking almost everything that would go into the car from existing or earlier models.
Renault also made the Logan cheap to produce by keeping it simple (for example, its dashboard is a one-piece moulding). Most of the machinery at Pitesti is refurbished kit from Renaults factories in France. Research by Deutsche Bank in 2005 suggested that production costs of the Logan were less than half those of a standard European compact car. Mr Bursa reckons that as volume has increased, bringing greater economies of scale, the comparison may now be even more favourable.
In some ways even Renault has been surprised by the cars success. For example, it has had an enthusiastic reception in western Europe, where it is sold as a Dacia. Its spaciousness, rugged build and relative simplicity appeal to buyers who prefer a well-priced new vehicle to a secondhand one. A second, and even more welcome, surprise has been that the Logan has achieved its planned volume without having to be sold at a price anywhere near as low as the frugal $6,000 it was designed for. Renault claims the average selling price is nearer to $9,000, and in Europe almost $13,000 because buyers want extras such as air-conditioning, electric windows and anti-lock brakes.
How long Renault will be able to go on making such a handsome profit from the Logan is debatable. Its market is growing by leaps and bounds. According to RL Polk, a market-research firm, sales of cars below $14,000 will grow by 70% in the next nine years, compared with an increase of 30% for all vehicles. And Robert Bosch, a components supplier, forecasts that sales of cars priced at $10,000 or less will have grown to 10m by 2010, making up about 13% of the world market. But other makers are getting ready to crash Renaults party.
Toyotas eagerly awaited low-cost competitor, known as EFC (Entry Family Car), is expected to make its debut in 2010. Little is known about the EFC, but it is thought to have a target price of $6,500 and is likely to be built in both Brazil and India to start with. Toyotas boss, Katsuaki Watanabe, says he is using the EFC project to bring about a revolution in manufacturing efficiency at the already famously lean Japanese firm.
Around the same time Fiats successor to the Palio/Siena should also have surfaced. Meanwhile GM is using its South Korean subsidiary, Daewoo, to develop a car which it hopes will be even cheaper than the EFC. To meet the challenge, Renault is aiming to get its next-generation low-cost car ready by 2011, although the Logan is likely to continue in production for a while after that. According to Gerard Detourbet, the head of the Logan programme, the Logans successor will be bigger, better-looking and even cheaper. It may need to be.
What it will not be is competition to the Tata Nano. Ratan Tata, the boss of the Tata group and the driving force behind the Nano, says that he was amused to discover that when the Logan went on sale in India last year the price of the basic model was around 500,000 rupees (nearly $11,000). It was just another car, says Mr Tata sniffily. Nobody could say that of the Nano. Conceived by Mr Tata five years ago as a safer and more comfortable alternative to transporting a family of four on a small two-wheeler, a common sight on Indian roads, he was determined to price it half-way between a motorcycle and Indias cheapest new car, the venerable Maruti 800. Mr Tata later promised that the Nano would be a real car that could be bought for just one lakh (about $2,500)a commitment he triumphantly honoured when the little jellybean-shaped car was revealed at the Delhi motor show in January this year.
A legend before its lifetime
The Nano is not just very cheap; to be so cheap it also has to be very clever. Mr Tata, who remained closely involved with the enthusiastic young development team during the cars gestation, says there were three possible ways they could have gone: work down from a car design, work up from a scooter or start with a clean sheet of paper. By going for the third option, Tata has created a new template for developing ultra-low-cost cars that others will almost certainly have to follow.
The Nano team, led by Girish Wagh, says that one of the keys to success was that they were ready to try different ideas and accept that some of them might not work. The team even asked whether there was a need for doors and whether plastic instead of steel could be used for the bodywork. According to Mr Tata, the answers were respectively yes and no. The overall outcome was a culture defined by frugality and a willingness to challenge convention, dubbed Gandhian engineering.
The Nanos body was completely redesigned twice and the engine three times. A critical decision was to simplify assembly by mounting the engine, exhaust system and gearbox in a single module in the space behind the rear seats. Indeed most of the car is broken down into modules that can easily be assembled from kits. Mr Tata hopes to create entrepreneurs across the country that would assemble the car. Costs were shaved by keeping everything light and simple. The car has only one windscreen wiper; its wheels are held on by three bolts, not four; the steering column is hollow; instead of long-life headlight bulbs designed to last ten years, cheaper bulbs are fitted that can be easily replaced. Even the number of tools needed to make the car was cut down.
Suppliers were urged to adopt the same frugal engineering. Some concluded that the cost goals were just too onerous and walked away. Others, such as Lumax Industries, an Indian automotive lighting specialist, were pleased to be involved from the outset of the project. According to Deepak Jain, the chairman of Lumax, the opportunity to work on this car gave our engineers the chance to showcase their skill. Because most other car products are designed abroad, we just have to manufacture components to a specific blueprint. In this project we designed light fixtures that meet all regulatory needs, fit the car and are low-cost. Perhaps more surprisingly, Robert Bosch, the worlds biggest components company, agreed to supply a stripped-down version of its Motronic engine-management system.
The immediate prospects for the Nano have been somewhat clouded by two developments. First, the steep climb in prices of raw materials, especially steel and polypropylene (used to make plastic), after the car was unveiled in January raised fears that Tata might lose up to $90 on every basic $2,500 Nano it sold. An analysis by A.T. Kearney, a consulting firm, suggested that the cost of producing the little car had risen by about $165. But those fears have eased a little in the past month or so as commodity prices have fallen back in response to a drop in global demand.
The one-lakh bind
The second, and more serious, setback has been the decision to abandon the factory built specially for the Nano in Singur, West Bengal. Violent protests by farmers over the states forced purchase of their land for the 1,000-acre site, at prices they said were below market value, left Tata with an invidious choice: negotiate directly with the farmers and buy them off, or walk away. On October 7th Mr Tata confirmed that production of the Nano, and the 10,000 jobs that went with it, would be moved to a new site in Gujarat where, crucially, the state government already owned the land. Tata is thinking of shifting some of the initial production to its existing factories in Pune or Pantnagar, but even so the Nanos launch will now be delayed until early 2009. Once under way, however, production at the new factory will quickly climb to 250,000 a year and can be expanded to 500,000 a year.
Mr Tata is clearly distressed by what has happened. He says that bringing the $400m Nano investment to West Bengal was a leap of faith intended to bring the car industry back to a state that had been starved of investment because of its history of left-wing politics. Impressed by the states business-friendly chief minister, Buddhadeb Bhattacharjee, Mr Tata hoped other firms would follow his lead in coming to West Bengal. Now they are more likely to stay away.
It should be possible to move all the machine tooling from Singur, albeit at considerable expense and disruption for Tata, as well as for the suppliers who were setting up nearby. Mr Tata concedes that we will limp initially, and at a higher cost. Ravi Kant, managing director of Tata Motors, hopes that any additional costs from dearer raw materials and the exodus from Singur will be compensated for by most customers opting for the higher-margin, pricier de luxe Nano that comes with air-conditioning, electric windows and little alloy wheels.
In the longer term, the Nanos success will depend on how people react to the car and whether Mr Tata is right that there is a big gap between what he calls the low end of the car market and the high end of the two-wheel market.
A handful of sneak reports on what the Nano is like to drive are already circulating on the web. They suggest that the goal of making a proper car has been achieved. Although noisy, the tiny 32bhp engine provides enough puff to reach the claimed maximum speed of about 60mph. Despite the tall roof and the weight carried over the rear wheels, the Nano handles quite predictably and is particularly nimble at city speeds. Given its tiny size it is astonishingly spacious inside and comfortably seats five people. The interior plastics and the fittings look cheap, but then the car is cheap.
However, the overall feeling of flimsiness is harder to shrug off. Still, Mr Tata says the Nano has been engineered to pass a variety of crash tests.
The potential market could be huge. Sales of two-wheelers in India are running at about 7m a year. Although it will be more expensive to buy and run than a motorcycle, the Nano offers a new way for people on relatively low incomes to become car-owners. A.T. Kearney forecasts that sales of cars in India and the rest of Asia (but excluding China) priced at $3,100-7,800 will reach 10.5m by 2020. Mr Tata thinks that the Nano could quite quickly sell between 500,000 and 1m a year in India alone.
For now, most of the top brass at the global car firms are just watching and waiting to see whether Tata can pull it off. The one exception is Carlos Ghosn. Renault has formed a joint venture with Bajaj, the Pune-based maker of motorcycles and auto-rickshaws, to develop a car with a cost base of about $2,500, which will make it slightly more expensive than the Nano. Mr Tata says the prospect of a near-rival from Renault-
Bajaj only adds to his confidence: Carlos was the only one in the industry who said the Nano could be done, he says. He was my secret motivator.
The Economist Newspaper Limited 2008