Expensive cars -- Chronicle of a Death Foretold

Tata Motors and Renault have both pioneered very cheap cars; the business strategy is initially based on Eastern European and South Asian economics, a constraint that is disciplining these car-makers to be cost-obsessed. These cars are built to have some reliability and not be ugly, but otherwise be stripped down versions of what we today consider a car.

What is that exactly?

Cars have become sort of space ships; no casual mechanic can understand how they work in their entirety. But a car built from scratch to be simple -- to have far fewer parts and simpler parts -- is a spectacular game-changer for this market. It's as powerful and simple as Wal-Mart's supply chain.

To some degree, cars are status symbols, and middle-class professionals are more likely to buy diapers and CDs at Wal-Mart than to drive a car that screams "cheap." But this doesn't mean they won't. In today's economics, with failed business models for major automakers, reduced disposable income for consumers, and the knowledge that fuel economy will continue to become a priority, small, cheap, reliable, simple cars will come to dominate. To put a figure on it, I predict the $7000 car in Canada by 2014; it will have around 50 hp and hold four passengers and some cargo. It will be noisy on the highway and be devoid of anything digital. It will be repairable by people who can understand how lawnmowers work.

These cars will displace $30,000 and $50,000 cars just as netbooks displaced notebooks and Ryanair displaced BA. Why? It's about distinguishing between features and the essential element of a technology.

The essential element of a car (apart from the status symbol) is that it is used to take people or cargo places that are too far to walk. Perhaps that's so simple that we have forgotten it. But Ryanair understood that the essential element of airlines is that they deliver destinations; a plane ticket is not a gourmet sandwich, nor leather, nor pretty skirts nor stereo headsets, it is Greece, Barcelona or Paris. Equally, netbooks provide the essential elements of surfing the web, writing prose, creating presentations and storing numerical data.

A BMW is a method of getting people or cargo further than one can walk ... PLUS, tens of thousands of dollars worth of surplus features. Certainly, in an era where compensatory consumption is vital, not just to egos but perhaps also to one's career and position among peers, these features were a true investment; like buying expensive season's tickets at the Air Canada Centre. But are we still in that era?

There are numerous supply and regulatory issues to be worked out; it could take five years before we see these cars in Canada. But when we do, I am certain it will form one of the most significant shifts in personal automobiles since the assembly line brought cars within reach of assembly line workers.

Good Business Week article (2007).