It's easy to make a $2500 car if 1) your definition of "car" is little more than a souped-up golf cart, 2) you do it in a country with low taxes and cheap labor, 3) you don't have to spend $2000 of every sale on pensions of retired workers, 4) you keep the car itself simple and put all your engineering efforts into making it cheap to manufacture, 5) you don't change models every three years just for the sake of fashion, and 6) you have a will to make such a car -- i.e. customers who want to buy such a thing.
Also, Europeans benefit from small cars because their cities have a lot of teeny European roads. The Chinese, from what I've seen (Shanghai), don't have tiny 400-year-old roads; they bulldoze whole city blocks and rebuild everything new. They have modern American-sized roads, hence American-sized cars. I don't know where India fits in this comparison.
Honey, I Shrunk The Car
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What this new generation does get is small as a way to reduce its carbon car-print. The irony is that as millions of small cars clog the planet, they'll only add to global warming. GM chairman Rick Wagoner recently warned that the world is already consuming 1,000 barrels of oil per second, and demand is on track to rise 70 percent more by 2030. By 2015, 100 million households in the developing world will be able to afford cars priced between the Nano and the $6,000 Renault Logan, predicts the Boston Consulting Group. "Even if they are very clean cars, collectively it will lead to emissions that will only add to local pollution," says Indian climatologist Rajendra K. Pachauri. He's chairman of the Intergovernmental Panel on Climate Change—which shared the Nobel Peace Prize with Al Gore last year—and he's critical of the climate consequences of the Nano. "Before we unleash this kind of animal on the streets of India, we ought to explore the public-transportation options." Others hope the rise of the small car in emerging economies will accelerate alternative-fuel vehicles elsewhere. "We'll be driving $40,000 electric vehicles or hydrogen-powered cars while people in India and China are using the remaining gasoline," says Wolkonowicz.
Until Tata chairman Ratan Tata rolled out his "people's car" in New Delhi on Jan. 10, nobody believed anyone could produce a $2,500 car. At first glance, the Nano doesn't look like much: no radio or AC, a top speed of about 60 miles per hour and a motorcycle-like engine. But its spartan simplicity has captured the world's attention. To save weight and money, there are no tubes in the tires. To ease assembly, body panels are glued instead of welded. "We look closely at anything we regard as a breakthrough," says GM product-planning VP John Smith, with diagrams of the Nano spread out in his Detroit office.
Now the race is on. Chrysler is looking at developing a sporty sprite called the Dodge Hornet with China's Chery Automobile. GM vice chairman Bob Lutz says his company could engineer a Nano competitor with its Chinese partner Wuling. And GM is working on a new car that would rival Renault's $6,000 Logan, says Smith. GM recently canceled plans for a new line of big V-8 engines and is pouring that money into developing small cars.
One key country hasn't bought into small-is-cool: China. SUV sales there rose 51 percent last year, big Buicks are all the rage, and small cars go begging. Tata predicted a Chinese automaker would be first to match the Nano's price, but analysts doubt it. "In China, image is more important than function," says analyst Michael Dunne of J.D. Power. "Nobody wants to be seen on the bottom of the totem pole."
The biggest roadblock facing small cars is fear about safety. U.S. statistics on highway fatalities show the smallest cars have death rates 2.5 times higher than the biggest. In Europe, small cars, which are driven mostly at slower speeds in cities, have lower death rates, but are in more crashes than big cars. "It comes down to physics," says Adrian Lund, president of the Insurance Institute for Highway Safety. "If you're in a smaller vehicle out there, you're at greater risk." To overcome small-car phobia, automakers are working to burnish their safety bona fides. In every U.S. showroom for the Smart car, for example, you'll find the car's protective steel skeleton on display.
The more features automakers can stuff into small cars—safety, style or stereos—the better for the bottom line. This is the formula Japan and Europe have used to develop a lucrative small-car market. Typically, an automaker earns about a 5 percent profit on a car. That comes to about $125 on a Nano or $1,250 on a Mini Cooper. The problem comes in convincing drivers in America that they should pay more for less. "Space and weight equal value for most buyers," says McAlinden. "It's a dollar-per-pound concept."
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