A fascinating group of news stories discusses the goal many auto companies have of building the next generation of really cheap cars for the 3rd world mass market.

Singing and Dancing into the Future

Businessweek reports -

Renault-Nissan Chief Executive Carlos Ghosn is betting that for autos, the magic number is under $3,000. At a plant-opening ceremony in India Apr. 4, he was already talking up the industry’s next challenge: a future model that would sport a sticker price as low as $2,500—about 40% less than the least expensive subcompact currently on the market. Renault-Nissan is the first global automaker to take up the gauntlet thrown down in 2003 by India’s Tata Motors, which plans to launch a $2,500 car next year.

India is target #1 on all fronts — design, manufacturing, marketing, and, of course, the ultimate consumer. Instead of looking outside for economic growth, this is a story of internally sourced, created, and most importantly executed growth.

One aspect of the story is a classic Innovator’s Dilemma problem — incumbent producers not just ignored but actually ridiculed the new low end market. Businessweek continues -

When Tata made its vow to build a $2,500 car, many Western auto executives ridiculed the project, dubbing it a four-wheel bicycle. They aren’t laughing anymore. Tata’s model is a real car with four doors, a 33-horsepower engine, and a top speed of around 80 mph. The automaker claims it will even pass a crash test. And while the car probably won’t win any beauty contests, it’s no ugly duckling either, according to the handful of industry insiders who have been given a glimpse. The rest is top secret, but Tata engineers are already testing a prototype as the clock ticks toward a late 2008 launch. The key is India’s low-cost engineers and their prodigious ability to trim needless spending to the bone, a skill developed by years of selling to the bottom of the pyramid. “You have to cut costs on everything—seats, materials, components—the whole package,” says Tata Group Chairman Ratan N. Tata.

Of course, in most of the cases chronicled in Innovator’s Dilemma, the new, low end market entrant eventually absorbs the upstream market through incremental features… In this case, however, there is at least 1 large hump that Tata et. al. will have to cross before their $2500 car can become a reality in the US -

Forbes quotes consultants at Roland Berger as estimating that it would cost as much as $4,000 on top of Tata’s $2,500 price to engineer the car to meet U.S. safety and emission regulations, transport, pay tariffs, market it, pay lawyers and other warranties.

As many an economist has noted, never underestimate the power of the regulatory apparatus when it comes to locking existing fat cats in their place.