Saturday, January 16, 2010

Structural Changes, Customization and Environment laws

drove up $2,500 Nano car to over $8,000

in U.S. Auto market.

written by Ifeyinka

I was thrilled and excited when I read about the news that Tata Motors, the manufacturer of $2,500 Nano car, would make available the sale of Nano car in the U.S automobile market. I know many people felt the same way, and they would have probably fantasized about buying the cost effective Nano car by searching for or making enquiries from the nearest Auto dealers in their vicinity.

These were my own fantasies when I read the news. For a $2,500 Nano car, I can afford to buy a new Nano car every two years. I will spend little or no money at the auto mechanics and spare part stores for one year because the car would come with at least one or two year warranty. For the future, I fantasized about buying three additional Nano cars; one for my "would be soul mate", the other two would be kept in the car garage for my younger siblings when they are about to go to college. I can achieve these quests for under $11,000. The good news about $2,500 Nano entrance to U.S market lost its relevance when I discovered that it would be sold for not less than $8,000. This is because the car has to be reengineered to meet America’s road safety regulations and environmental standards.

Tata Motors has to make structural changes to the original version of the Nano car in order to be marketable in U.S. The changes include adding airbags, restrengthening the roof and increasing the length of the front bumper to meet U.S. requirements which limits the damage in a 5-mph crash. Tata Technologies Ltd would also have to change the Spartan interior, with flat bucket seats, three knobs, a horizontal switch and a steering wheel in order to adhere to U.S safety standards.

Nano’s two-cylinder, 623cc engine would have to be reconstructed to meet stricter U.S. environmental standards. The cylinder is required to be changed because the U.S carbon monoxide emissions standards.

Normally, Tata Motors understands that it would have to customize the accessories of Nano cars to meet the taste, needs, and preference of U.S. consumers, but the cost of implementing changes to meet U.S. road safety regulations and environmental standards are unincorporated costs. These unincorporated costs have driven up a $2500 market ready car to over $8,000. The total costs of meeting the U.S. safety regulations and environmental standards would make a car that cost $2,500 in India sell in U.S. for over $8,000. This is ridiculous because the price increase is over 220%. This is one of the main reasons why U.S. industries can not compete favorably with industries in China, India and other emerging economies.

In as much as I do not want to accuse the American government of adopting a protectionist trade approach under the disguise of consumers’ safety and environmental laws, I want to be sure that all these safety and environment requirements are not put in place by economic bureaucrats to protect Michigan Auto makers. If it is true, this would be in contrary to the free trade approach that America preaches to (or forces on the throat of) other countries.

According to, an automotive Web site, the cheapest car in U.S. is Hyundai Accent, which has a price tag of $9,970. There is no reason why we can not manufacture a car for less that $4,000 that would be equipped with gas efficiency, safety and environment friendly features.

I hope key policymakers and lawmakers are able to find a level ground to protect the interests of both U.S. consumers’ and domestic industries.

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