Low-Cost Cars are Growth Hotspot

It's the hottest of hot topics -- but it's open to the widest of interpretations, says research by just-auto.com.

Bromsgrove, UK (PRWEB) April 22, 2008 -- It's the hottest of hot topics - but it's open to the widest of interpretations says research by just-auto.com.

What, exactly, is a low-cost car? The Dacia Logan? Fiat Palio? Toyota Aygo? Tata Nano? Maruti 800? Lada Zhiguli? Or a five-year-old VW Golf?

The answer is all of them. Low-cost cars are the agents of growth in the global car market. Low-cost vehicles priced below EUR7,000 could reach a 13% share of the world 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 concluded that there is no single 'low-cost segment' -- rather low-cost is a philosophy that 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 programmes.

Renault's experience with Logan suggests it is possible to make strong profits from a low-cost car. Logan offers 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 are at a disadvantage in the long term, especially given production forecasts of up to 18m sub-EUR10,000 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 EUR5,000. The fact that average price is closer to EUR8,000 is the main reason for the high profitability.

The research also concluded that it is extremely difficult to make a single car to suit all emerging market regions worldwide.

To order your copy of the 'Low-cost cars: opportunities and challenges' report visit: http://www.just-auto.com/lowcostcars

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