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A Nano Car in Every Driveway? How to Succeed in the Ultra-Low-Cos
 

Henry Ford’s historic promise in 1908 to “build a car for the great multitude” resulted in the production of more than 15 m
of $2,500?

To fulfill his promise “to build a car small enough for the individual to run and care for, [of] the simplest designs that mod
(ULCC) market have the same agenda in their attempt to build a car with a price tag of $2,500 to $5,000, which is lower

But this is not a history lesson that can be easily repeated. Today, all indicators point to an automotive industry in reces
high fuel costs and low consumer confidence. Undoubtedly, a new and improved automotive operating model will emer
the entire industry.

Over the longer term, the emerging ultra-low-cost car market promises to create rich opportunities—and risky challenge
importantly, to change their traditional operating paradigms.

Preserve and Protect or Participate and Prosper? D

It is indisputable that the competitive landscape has been altered dramatically and permanently (seeo sidebar: The Mark
w
sector (see figure 1). General Motors, which produces the mini-car, Spark, in India, expects to introduce another low-co
announced in August that it would market three models in China. nl
o
a
d
th
e
ful
l
P
D
F
h
er
e

M
o
r
It is equally indisputable that using traditional design, manufacturing and distribution approaches toe achieve ultra-low-co
product launch missteps and market economics.

The dynamic and powerful ultra-low-cost car market is forcing manufacturers and suppliers to decide between two strat
between manufacturers and their new component standards and lower target prices. A new set of low-cost competitors
E
The other choice for manufacturers and suppliers is to participate to capture share in the fastest growing segment of the
x
Apply a Clean-Sheet Approach e
c
Early movers on both the manufacturer and supplier sides have demonstrated that nothing less than a clean-sheet app
guidelines. u
t
Cooperate with suppliers. Tata began the development process with 600 closely integrated suppliers; only 100 remain.
design experience to craft innovative low-cost components.
i
v
Reduce the number and complexity of parts. By focusing on the essentials and encouraging creativity in making compo
e
lug nuts to reduce cost.

Invent rather than adapt. Tata encouraged its design and manufacturing suppliers to be innovative—to
A redesign parts fo
manufacturing operations, such as welding, engineers opted for cheaper manual processes rather than automated one
g
Standardize at every stage of the value chain. Similar to Henry Ford’s apocryphally attributed “any-color-so-long-as-it’s-
e
The Nano’s distribution model reflects its innovative heritage, too. The company plans to mobilize n
large numbers of third
d and then delivere
sent to a number of strategically positioned satellite mini-factories, where the Nano will be assembled
a
As demonstrated with the Nano, the clean-sheet approach offers another significant advantage: innovation in product d
their way into low-cost cars while efficiency measures and cost improvements are transferred into A.
more expensive vehi
T.
As powerful a tool as the clean-sheet approach is, however, it does not assure success in the marketplace. A product d
K
do so.
e
ar the inevitable que
Success will be volume dependent, with margins held to the low single-digit range. And that presents
sidebar: A ULCC on Europe’s Roads? Probably. On North America’s Roads? Probably Not). n
ey
The Strategy: What Works? What Doesn’t? ’s
b
Tata’s model is a case study in what to do right and stands in vivid contrast to less effective strategies. Some manufact
us
market, it does so at a cost: The cars often do not meet specific customer needs and are at a competitive disadvantage
in
Other car manufacturers streamline existing models to fit low-cost prerequisites or redesign selectes parts to meet specifi
s
Finally, some manufacturers design a “new” car within a design-to-cost framework, but reuse a significant number of ex
jo
innovative thinking.
ur
n
In addition to Tata’s clean-sheet approach, we believe success in the ultra-low-cost car segment requires the following
al
of
fe
at
ur
 e
d
ar
tic
le
s,
re
se
ar
ch
re
p
or
ts
a
n
Create entrance and growth strategies. So far, most entrance and growth strategies have been similar
d as a multitude of
to expand their production footprints beyond India, with Thailand as one of the early target locations.
m Southeast Asia wi
A consistent design strategy is emerging based on a clean-sheet approach rather than pulling froma reusable vehicle arc
n
Entry into this market segment will not come without risk, however. It will require shifting paradigms
a from the traditional
g
What’s more, all strategies and tactics focus on avoiding cannibalization of current market portfolios, deploying already
e
with minimum capital outlays.
m
Establish targets and make trade-off decisions. Manufacturers will focus their development efforts earound design-to-cos
nt
• Engineering. Should it be X or Y? Redesign or reuse components? Define new technical specifications for materials
in
• Manufacturing. Where and what type of site? What production processes? What degree of automation?
si
• Sourcing.How much local content versus how much imported?
g
• Pricing. Lower price and higher volume? Higher prices for export units? What is the best approach to pricing and bun
ht
Align across functions and collaborate with suppliers. To deliver a car priced between $2,500 and s.
$3,500 and to meet lo

• Forming new organizations dedicated to the creation of an ultra-low-cost car

2
• Redesigning processes and policies so the entire team works toward common goals
• Revamping incentive structures to manage conflicts and balance trade-off decisions
0
• Expanding supplier-selection criteria to include innovation and product diversification 1
0
• Partnering with suppliers early in the design, manufacturing, engineering and assembly processes

Protect and preserve market position and profits. Success in this market will require manufacturers and suppliers to em
preserve their current brands, market positions and profit margins. Real risks will emerge if any of the following scenario

• In the next two to five years, safety and emission standards are met and ultra-low-cost cars are exported and distribut
• Manufacturers adopt a new set of target prices from ultra-low-cost car product innovations and expect competing supp
• A manufacturer or supplier enters the market but cannibalizes its existing portfolio
• The competition generates “know-how” that gives them an early-mover advantage in the market

Regardless of which scenario plays out, or if they all do, the risks will be considerable. The mantra will be to identify com
competitors re-engineer or adapt their products and pose a credible threat in mature markets.

Benchmark the competition. Benchmarking and competitive tear-downs (cost analyses of competitors’ products) must g
employ a systematic approach to conduct the tear-down, capture insights and inject knowledge at appropriate stages in

A Measure of Cooperation, Creativity and Innovation

We believe success in the ultra-low-cost car market can be achieved and will be measured by cooperation, creativity an
may not be available on every continent, the innovative ideas and techniques generated for this market will have a long

Consulting Authors
Dan Oxyer is a partner based in the Southfield office. He can be reached at dan.oxyer@atkearney.com
Graeme Deans is a partner based in the Toronto office. He can be reached at graeme.deans@atkearney.com
Shiv Shivaraman is a principal based in the Southfield office. He can be reached at shiv.shivaraman@atkearney.co
Sudipta Ghosh is a manager based in the Southfield office. He can be reached at sudipta.ghosh@atkearney.com
Ruediger Pleines is a manager based in the Munich office. He can be reached at ruediger.pleines@atkearney.com


SIDEBAR

The Market for Ultra-Low-Cost Cars

In emerging markets, there are at least 10 models already selling for less than $6,000. India and the rest of Asia (exclud
countries in 2020 with 1.4 billion and 1.3 billion people respectively, their receptiveness to low-cost vehicles differs. The
low-cost car markets, accounting for perhaps 60 percent of the estimated global market potential. This is not to say that
 2
0
0
9


A ULCC on Europe’s Roads? Probably. On North America’s Roads? Probably Not.

It’s an obvious question: Will the ULCC segment target consumers in the world’s two most affluent markets, Europe and
regulatory compliance and distribution could drive the sale price up 60 to 90 percent.

Three overarching factors will shape the ultra-low-cost car’s future in both markets:

Emission standards. Western Europe, Japan and North America established emissions standards more than a decad
emissions standards. 

Safety regulations. North America and Europe have similar government-developed safety regulations with respect to s
American governments continue to establish higher standards, there will be compliance issues.

Distribution. Bringing an ULCC to the North American or European market will result in a significant price increase
destination fees, and taxes bumping the final cost up even further. Applying the same percentage increases to an ultra-

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