Tata Nano challenges Chinese suppliers

SHANGHAI -- Tata Motors of India is charging ahead with plans to produce the Nano, which would cost dealers $2,500, or about "yi wan ba" in Chinese yuan. 

So should Chinese automakers do the same? Can they do the same? No on both counts. India's labor laws aren't as strict as China's, and the car itself would lose a lot in safety.

However, China's domestic suppliers should start thinking about how low their costs can go while maintaining quality.

Nick Reilly, president of GM Asia Pacific, addressed the issue head-on when I interviewed him in January in Detroit. "If you don't accept some of the reductions and decontenting (in the Nano), but accept there are cars around for less than $3,000, what are you going to do?"

Coming up with answers to that question offers a big opportunity for suppliers in China. They shouldn't be shy about offering GM ideas to reduce costs. GM, for its part, should get suppliers in China involved early and often in the design process.

GM isn't looking to take an existing model such as the Spark and turn it into an yi wan ba car. But GM is asking its engineers at SAIC-GM-Wuling Automobile Co. to cut costs on the next generation Chevrolet Spark by as much as half. It will take the best ideas and incorporate them into a new vehicle designed from the ground up, say GM sources.

Engineers in other parts of the world where GM produces super-low-cost models, such as Brazil, have surely been issued the same challenge. So there is an element of competition involved.

Suppliers to the Nano got involved early in the design process to come up with cost-saving innovations. Robert Bosch GmbH removed 700 of the 1,000 functions of its engine-control module. During the design phase, Rico of India, which casts engine blocks and cylinder heads, advised Tata about the engine size. The Nano carries a two-cylinder 624cc engine.

One area that engineers at SAIC-GM-Wuling think is especially promising for cutting costs is the powertrain, especially the engine. It represents a big part of the cost of any car.

Winning contracts to supply GM's tiny model would bring benefits to China's entire supplier industry.

The volumes will surely be huge. Being part of a large-scale project would help China's domestic suppliers become more efficient.

Of course, foreign firms with operations in China will likely win many contracts to supply any Nano-challenger that GM might build. But Chinese domestic suppliers should fight hard to get a piece of the pie. They can do it.