The $2,500 Car: What it Means for the U.S.

In my last post, I discussed two important aspects of globalization of the auto industry: The need to develop partnerships with suppliers and customers around the world, and the need for a global portfolio of products.

There is another effect of globalization: Increased competition. In the new major growth markets of China, India and Russia, every major automaker – Asian, American, German or otherwise – faces competition from local companies. And that competition will not be contained within geographic boundaries.

This reality was evident while I was at the Automotive News World Congress in Detroit last week, where there was plenty of coffee-break discussion of the new Nano – and I don’t mean the iPod. I’m talking about the just-released car from Tata Motors in India that is selling for the equivalent of about $2,500.

I described last year how the Nano is at least partly the result of a lean strategy that enabled Tata to produce the car rapidly and at low cost.

Inevitably, there was discussion at the conference of whether the Nano will be sold in the U.S. It won’t. It doesn’t meet U.S. safety standards, and most Americans would not be interested in a tiny car with one windshield wiper, manual windows and no air conditioning.

But U.S. automakers should not be breathing a sigh of relief, a point made during a conference presentation by Dr. Pawan Goenka, automotive sector president of Mahindra & Mahindra, an Indian manufacturer of pick-ups and SUVs, and a competitor of Tata Motors.

Goenka noted that foreign competitors are arriving already. His company will be exporting a small number of vehicles to the U.S. within the next year.

The bigger point, though, is one he made while talking about the Nano.

Whether one specific car – the Nano – will be sold in the U.S. is not the point, he said; the real issue is that if a company can make a $2,500 car in India profitably, “the day will come when they will sell $10,000 cars in the U.S.”

Do you feel the foreign competition breathing down your neck? You should.