They say competition creates better products and leads to innovation and enhanced creativity. But, what can competition do in case of products that are ultra-cheaply priced? Be it mobile handsets or even low cost affordable cars.
Either it will drive down the prices of the products further cheaper (which is hard to imagine in case of ultra-low cost products) or allow newer players to enter the fray of volume game led by business run on wafer-thin margins.
Remember the day when the Tatas had promised to sell its first one lakh Nano cars at Rs.1 lakh regardless of the fluctuating manufacturing costs?
However, subsequent to that promise, the manufacturing costs are surging at a faster pace. Add to that, costs related to the up gradation of engines in compliance with the recently introduced stringent Euro IV emission norms.
However, even as challenges related to cost controls remain, the automobile industry seems to be betting big on the opportunities in ultra-cheap cars. This can be gauged from the fact that newer players are looking to enter the fray of low cost, volume game in ultra-cheap cars.
Bajaj’s $2500 Fuel-efficient Car
Bajaj Auto has announced a car in association with Renault and Nissan that will cost $2500 for the common people’s car. The Indian bike manufacturer has collaborated with these manufacturers to leverage on their technology and expertise in manufacturing light vehicles and knowledge of Indian markets.
Even as the global automobile manufacturers are still to come on terms with the concept of manufacturing ultra-cheap cars, the race for this segment of car is picking pace in India in order to cater to the base-of-the-pyramid rising middle class affluent public.
Best thing about the new car is it is aimed to provide for a fuel economy of 30 km/litre as against a mileage of about 23 km/litre provided by Tatas Nano. Gradually, the mileage of cars is inching closer towards 2-wheeler like capacity of mileage economy.
Will Bajaj Survive its Promise?
It remains to be seen as to how well can the Bajaj conglomerate leverage its strength of developing cost competitive 2-wheelers, for manufacturing of affordable category cars.
Well, as of now I’m left wondering, whether Bajaj venture would be able to roll out their cars at a paltry Rs.1.1 lakh which is, in fact, is lower than the price of Rs.1.23 lakh offered by Tata’s Nano for its cheapest model !
Most probably, two years down the line, higher metal prices and inflationary pressures could likely eat away all the profits and escalate costs.
2-Wheeler Market Share up for Challenge?
Will the toy-like cuddly cars be able to snatch the market share from the 2-wheeler space? Well, that certainly seems to be their closest competitors in terms of product market.
With the entry of Bajaj into the fray of manufacturing affordable category cars, a new school of thought seems be gaining pace that the low-cost cars could well be up to tap the target market of 2-wheelers consumers.
In a statement by Bajaj Auto’s MD Rajiv Bajaj said,
“We have been focusing on developing a car (so) that the monthly cost of ownership is low enough to motivate two-wheeler buyers to upgrade into a car. Our aim is to deliver a mileage of 30 km per litre.”
Finally, That Lure to Buy… :)
Speaking about ultra-cheap cars reminds me of a cliché that goes with buyers shopping in malls. They say that a mall develops such an environment under a single roof that a consumer might get tempted to buy products that are not planned to be bought at a given juncture.
But the marketing, positioning and pricing strategies involved in mall marketing, tempts a buyer to spend that extra buck and buy a product which was originally unintended to spend money on.
Similarly, is the situation for the ultra-cheap car market for those middle class Indian public who don’t own a vehicle but can get a hand on a little over Rs.1 lakh range. The affordable category car has brought a dream vehicle in the reach of common public and with a perfect lure for itself.
Any guesses… Where is the market of ultra-cheap cars heading towards?