Game-Changing Reality of Ultra-Low-Cost Cars for Automotive OEMs and Suppliers

As the economies of many emerging countries continue to develop, so too are the purchasing power and expectations of the growing middle class. It is a good bet that many people, who will be able to afford them for the first time, will want to own cars – especially cars designed and manufactured for the lower-end market. A.T. Kearney predicts that by 2020 the low-cost car (LCC) market will reach 17.5 million units sold each year with greater than 50% (~10.5 million units) sold in India and the rest of Asia.

Global sales forecast for Ultra-Low-Cost Cars

The rush of OEMs and suppliers
Currently, around ten vehicle models priced below $6000US are available in these emerging markets. Tata Motors is leading the ULCC manufacturers in India with the launch of the Nano for 100,000 rupees (US $2500, € 1700).

Many OEMs and suppliers are jumping into this emerging market segment, caught up in the race for first-mover advantage. They also see the ULCC market as a real opportunity for the near future and plan to leverage their market experiences, product innovations, and cost structures to move aggressively into higher priced vehicle segments.

Risks for all
The reality is that risks abound — for the OEMs and suppliers that have entered the fray and for those that have decided not to participate in this segment.

All need to be concerned about protecting and preserving their current brand, market position, and profit margins. Real risks will emerge when any of the following scenarios occur:

  • Your competitor generates know-how that gives them an early-mover competitive advantage in the larger market
  • In the next two to five years, both safety and emission standards are met and ULCCs are exported and distributed to mature markets
  • OEMs adopt a new set of target prices based on ULCC product innovations and expect competing suppliers to comply
  • You enter the ULCC market but begin to cannibalize your portfolio, and profit margins erode

Clearly, considerable risk looms on the horizon, along with this market potential. Both OEMs and suppliers need an ULCC strategy:

  • Can you clearly identify your competitors – today’s and tomorrow’s?
  • Do you understand each competitor’s capabilities, product plans, partnerships, and target costs?
  • What is your window of opportunity before emerging-market competitors re-engineer and adapt their products, posing a threat for mature markets?

Additional Publications

A Nano Car in Every Driveway How to Succeed in the Ultra-Low-Cost Car Market
India's Tata Motors surprised the world with the unveiling of its Nano, the ultimate ultra-low-cost car, priced at $2,500. These small, smaller and smallest cars promise to create rich opportunities—and risky challenges—for global automakers.

Mega Market for Ultra-Low-Cost Cars
Success in the ultra-low-cost car sector requires more than a solid end product. It will require reviewing and adapting the entire business model.

Recent Media Headlights

Pile them high
13 November 2008 — The Economist
A.T. Kearney analysis forecasts global demand for low cost cars.

Ultra-Low-Cost Cars Pose Opportunities, Risks, Study Shows
28 August 2008 — WardsAuto.com
Dan Oxyer, A.T. Kearney partner, discusses the risks and rewards of entering the ultra-low-cost car market.

In India, a $2,500 Pace Car
12 October 2007 — The New York Times
A. T. Kearney estimates that a car with a $3,000 list price could attract 300 million buyers in India by 2020.