Engelbert Wimmer, head of PA's international automotive team, is quoted several times in this Handelsblatt story.
Summary
The market for cars priced below € 2,000 belongs solely to the Indian car maker Tata. Cars that you can repair beside the road with a hammer are not suitable for brands such as BMW or Mercedes, an expert says. Instead the German car manufacturers are hoping for a financially strong customer base in the emerging markets.
For the time being, the German car manufacturers have no intention of penetrating the segment of the so-called Ultra-Low-Cost-Cars (ULCC). Instead, Volkswagen is planning to sell cars that are three times as expensive to the growing lower middleclass in emerging countries.
“The German car manufacturers have to approach these markets in a different way“, automotive industry expert Engelbert Wimmer from PA Consulting Group says. “They should not be present in the lowest price category. But when the middle-class segment is being redefined, then it is important that they are there."
Cars that you can repair with a hammer are not suitable for brands such as BMW or Mercedes. An example is Renault. The French car manufacturer sells the 'Logan' on the Russian market. It's a low-price car from the Romanian daughter company Dacia, which uses Renault’s own brand name. While the Logan is popular, a consequence is that Renault has difficulties selling its higher-priced car models.
Observers estimate that earnings in the ULCC segment are limited. “A car model such as Tata generates little more than € 100 profit, and that is not worthwhile for the German car makers”, Wimmer says.
German car manufacturers have increasing success with the more classical car models. According to the industrial association VDA, the export of German passenger cars to India has doubled during 2007. VDA estimates an even bigger potential for diesel-powered vehicles in particular.
The German parts suppliers also directly benefit from the trend towards ULCC. Bosch, Continental and BASF make parts for Tata’s Nano model. Bosch says that it supplies about 10% of the Nano's components - fuel injection, brake systems and electronics. Bosch's Indian daughter company is listed on the stock exchange, it has 16,500 employees on the subcontinent, and generated revenues of € 815 million last year. Up to 2010 the Germans plan to invest half a billion Euros. Bosch will also increase the focus on more environmental-friendly technologies.
