Would You Buy a New Car for $3,000?

In Eastern Europe and India automakers are already selling cars for $7,000, which is far below the lowest priced car in the U.S. Cars such as the Renault Logan and Hyundai Santro are selling very well. The plant that produces the Logan is running 24 hours a day just to keep up with demand.

The next hurdle is to be able to sell cars that start at $3,000 in these countries. Carlos Ghosn, the Renault-Nissan Chief Executive has announced his goal of being able to sell a car for $2,500.

What has caused this change from the current ever increasing auto prices? Well automakers are trying to seek out new markets, since large markets such as the US and Europe have had stagnant sales growth. Automakers are trying to gain market share in the lower income countries, such as India. Most people in these countries can only afford a motorcycle, so in order to be able to afford a car, means that it has to be inexpensive. But inexpensive does not mean an unsafe car or a stripped-down version of a model that is sold in other parts of the world.

Low-cost cars are “the single most important trend in the automotive industry today,” says Vikas Tibrewala, the Paris-based executive director of the Monitor Group consultancy.

Renault launched the Logan in Europe in 2004 for $7,200 and it was an immediate success, selling 450,000 cars in 51 countries. This has caused the other major automakers to develop their own line of inexpensive cars. It is expected that this trend of lower-priced cars will affect all cars from subcompacts to SUVs.

Many people may remember the Yugo or early Hyundai’s, which were cheap alternatives to higher priced autos. Those early cars were plagued with quality problems, so much that Yugo eventually fled the US market. Well the main difference this time is that these new “cheap” cars are built well and will actually last. Although the profit margins are extremely small on these cars, the method for making a profit on them is to sell them in large volumes. Which is what many of the automakers are hoping to be able to do when their models are released.

If these cars are successful they could forever change the current auto industry, much like the Model T did in the early 1900’s. As cars becoming increasingly more expensive each year, this could be the change that could once again make cars more attainable for the average citizen. Think of these cars as the H&M or Jetblue of the auto industry. H&M has forever changed the fashion industry, just as Jetblue and Southwest have changed what we expect from the travel industry.

So the next question is, if these cars did one day reach it to the U.S. would anyone here actually buy them? China’s Geely currently sells a car for $3,900 and plans to begin selling them in the U.S. by 2010.

Full Story: Business Week