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Letter to the editor

Reverse sticker shock: Get new car for $2,467

For cheap cars, automakers cut development and production costs.

By Nina Kim, Times Staff Writer
Published August 20, 2007

To find the really cheap cars, maybe it requires a plane ticket.

Try, for instance, India's Tata Motors, which is offering a model at the base price of $2,467.

In 2008, the automaker will launch its 33-horsepower, four-door subcompact car capable of 80 mph. The low-cost manufacturing, economical parts-sourcing and cheap engineering of India's emerging market would make Tata's car the cheapest in its class.

Stagnant growth in U.S., European and Japanese markets has led international automakers to look to emerging markets, like China and India, to design bare-bones, cost-effective modern cars that would still offer comfort, safety and reliability. But for skeptics, the price sounds too good to be true.

"They did that before with the Yugo and weren't very successful," said Rick Kitsmiller, general manager of Lokey Kia in Clearwater. "To sell something at that price, you'd be giving up comfort, safety and longevity."

The Yugo arrived in the United States in 1986 priced at $3,990 and quickly became the laughingstock of cars. It failed in Western markets because of poor quality, but automakers are driving down prices of the new generation of cheap cars not by compromising quality, but by slashing development and production costs.

In Europe, Renault-Nissan introduced its wildly popular, no-frills Logan sedan priced at just $7,200 in 2004. To cut costs, the French company manufactured the vehicle in Romania, reduced the total number of parts, eliminated sophisticated electronics and disposed of expensive prototypes. Following Tata's lead, Renault also has plans for a car priced under $3,000.

General Motors Corp., Chrysler and Hyundai Motor Co. are all also jumping on the bandwagon to design low-cost, no-frills cars. Suzuki Motors Corp. sells cars starting at $4,400 in India, while China's Geely sells a model for $3,900. Geely plans to export low-cost cars to the United States by 2010.

By 2012, the market for cars priced under $10,000 is expected to hit 6-million more than today - 18-million cars, or a fifth of world auto sales, according to Roland Berger Strategy Consultants.

Exporting to Western markets will bring costs up because of safety and emissions control requirements. Regardless, it appears this new generation low-cost car trend overseas will eventually affect U.S. markets.

[Last modified August 17, 2007, 20:29:14]