What Will it Take for Renault/Nissan to Beat the Tata Nano on Price?

There's been much ado in the international automotive press the past couple of days about Renault/Nissan's plan to collaborate with an Indian motorcycle OEM to "launch an ultra low-cost car in India in 2012 that will cost less than Tata Motor's Nano". According to the above-linked Reuter's article, "the design, manufacturing and sourcing for the car would be done by Bajaj, with Renault and Nissan handling marketing in India and overseas". But what will it take from a design, sourcing and production standpoint for the Nissan JV to best Tata, which currently delivers a car that costs less than trendy Italian scooters (and some of my wife's handbag/wardrobe combinations)? I'd argue five key things:

1) An unprecedented level of supplier collaboration in the design phase. As I previously quoted another expert about the Nano, "rather than the typical model, where a company creates the tech specs for parts and then asks suppliers for their bids, Tata Motors simply provided the output they expected and allowed suppliers to get creative with their designs, materials and prices". Nissan will need to learn from Tata's previous experience in this regard, driving collaboration vs. just competition with its supply base.

2) Creativity and a willingness to flaunt norms. In a past column about Tata's efforts in this area, I quoted the NYT by noting that " 'to save $10, Tata engineers redesigned the suspension to eliminate actuators in the headlights, the levelers that adjust the angle of the beam depending on how the car is loaded.' And in 'lieu of the solid steel beam that typically connects steering wheels to axles, one supplier, Sona Koyo Steering Systems, used a hollow tube ... Tata [also] chose wheel bearings that are strong enough to drive the car up to 45 miles an hour, but they will wear quickly above that speed, reducing the car's life span.' " In other words, Nissan will need to toss away convention when it comes to many if not all of the key components and assemblies that will ultimately make their way into production vehicles.

3) Close linkages between supply management and supply chain management. To further engineer cost out of the production process before it works its way in, Nissan and its JV partners will need to work very closely with suppliers to maximize their use of lean throughout every stage of the supply chain (from raw material inventory to WIP to finished parts). While a lean environment with more frequent deliveries from suppliers may drive up unit cost, it will ultimately result in a lower total cost if managed correctly.

4) Reducing their suppliers' risk to enable them to sharpen their pencils as much as possible. For example, by taking commodity price risk (e.g., resin, copper, steel) out of the equation for its suppliers by acting as an aggregator or simply pegging commodity prices as underlying contract elements to local indices, Nissan will enable its suppliers to get as aggressive as possible on pricing.

5) A commitment to continued cost reduction without damaging supplier relationships. To maintain (or even lower) price points in the future, Nissan's partners will need to continually find ways to engage their supply base in cost take-out, allowing all parties to share in the ideas and savings. While these efforts might certainly take the form of lean supplier development and related programs, they will also need to focus on driving continuous innovation in everything from the manufacturing and supply chain mundane (e.g., production and logistics) to the exciting (part materials substitution and redesign).

Will Nissan and its partners be able to pull off the feat of a car that bests the Nano's price tag? It's a hugely ambitious goal. Still, by having the good fortune of being able to take advantage of lessons learned from others in the low-cost automotive equation, they've got a fighting shot. But it will certainly challenge their R&D, procurement and supply chain operations to achieve breakthrough results to pull it off.

Jason Busch

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