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Renault's $6000 Sedan 18 July 05
Renault’s $6000 Logan
“The Logan is the McDonald's of cars … Reliable engineering without a lot of electronics, cheap to build and easy to maintain and repair.”
Kenneth Melville, head of Logan’s design team, in Business Week
In September, 2004, Renault launched the Logan, designed to provide reliable transportation for customers in emerging economies. It is built in a Romanian factory that Renault acquired in 1999 when it bought the assets of the Romanian auto manufacturer Dacia. The Logan holds 5 passengers and has significant cargo space. As designer Kenneth Melville told Business Week, the original design brief for the auto was a “value-for-money car with a lot of space and the stately look of a sedan.” Renault’s initial target markets were countries like Romania, Poland and Russia, where most people cannot afford a car with Western European pricing. The Logan sells for about $6000 in these countries, while cars like the Ford Focus or the Volkswagen Golf cost around $18,000.
Shortly after the launch in Eastern Europe, Renault was surprised to find that customers in Western Europe wanted the Logan as well. In June 2005, Renault made the Logan available in France, Germany, and Spain at a base price of $9300, half of the average price of competitive offerings.
The car appears to be a success. In mid-July, Renault announced that it had manufactured 100,000 vehicles at its Romanian factory, exceeding its own most optimistic estimates. The waiting time for a Logan in France is over three months.
This is the first step in a global rollout of the Logan. Over the next several years, Renault factories in Russia, Morocco, and Colombia will begin producing the Logan. By 2010 Renault expects to sell a million Logans a year. For comparison, the top selling vehicle in the US, Ford’s F-150 pickup truck, sold about 400,000 units in 2004.
The Logan’s design and production runs counter to many of the recent actions taken by auto companies in the US, Europe, and Japan.
Ø While most automotive factories highlight sophisticated robotics, the Logan’s production emphasizes manual labor and simple tooling. This allows Renault to get maximum advantage from low labor costs. In Romania, the average wage for an autoworker is $324 a month. In Western Europe, the average wage is $4700 a month.
Ø Simple tooling also enables Renault to produce the Logan in a number of factories across the world with relatively low capital investment.
Ø While many car models are incorporating technologically sophisticated design and features such as GPS and DVDs, the Logan’s design aims for maximum simplicity, resulting in lowest cost.
Deutsche Bank estimates that Renault can produce the Logan for $1089 per car; equivalent autos produced in Western Europe run about $2500.
“For me a car is only a means of transportation. The Logan is a genius idea.”
Michel Cuypers, French retiree and Logan customer, in Business Week
While new technologies have increased the value of autos in the US and Europe, sticker prices have been constant or increasing for several years. Cars like the Logan disrupt this stable pricing pattern and give customers a new kind of choice in the very low end of the market – a roomy sedan for less than $10,000. Judging from the enthusiastic response in Europe, people like this kind of option.
Renault Logan – cost-based innovation
The Logan’s major selling point is its low price. There appear to be many customers, like Mr. Cuypers quoted above, who feel that they are overserved by existing auto models – they need space but can do without power windows or antilock brakes. As with other price-based innovations, like Southwest Airlines or easyHotel, this price focus can be extremely effective in generating demand.
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