A Low Cost Vehicle Concept For The U.S. Market

A LOW COST VEHICLE
CONCEPT FOR THE

U.S. MARKET
Benchmarking the Tata Nano and

Adapting it to the U.S. Market
Hussain Tajmahal
Shantanu Ranadive
Institute for Advanced Vehicle Systems

College of Engineering and Computer Science
University of Michigan-Dearborn
Copyright 2011 by the College of Engineering and Computer Science,

All rights reserved.
Printed in the United States of America by Sheridan Books.
Except as permitted under the United States Copyright Act of 1976, no part of this publication
may be reproduced or distributed in any form or by any means, or stored in a data base or
retrieval system, without the prior written permission of the University of Michigan-Dearborn.
ISBN: 978-0-933691-16-2
Permission to reprint may be obtained by contacting:

Director, Institute for Advanced Vehicle Systems
College of Engineering and Computer Science
2066 IAVS
4901 Evergreen Road
Dearborn, MI 48128-1491
Published by the College of Engineering and Computer Science,

A Low Cost Vehicle Concept for the U.S. Market
TABLE OF CONTENTS
PREFACE ................................................................................................................................................... iii
ABOUT THE AUTHORS ....................................................................................................................... iv
ACKNOWLEDGEMENTS ...................................................................................................................... v
ABSTRACT ..............................................................................................................................................vii
CHAPTER 1: INTRODUCTION ............................................................................................................ 1
CHAPTER 2: TATA NANO .................................................................................................................... 7
2.1 Introduction: Tata Nano .................................................................................................................. 9
2.2 Product Development: Tata Nano ........................................................................................... 11
2.2.1 Concept ................................................................................................................................ 11
2.2.2 Design Process .................................................................................................................... 12
2.3 No Benchmark Vehicles ............................................................................................................ 13
2.4 Manufacturing/Sourcing Strategy ........................................................................................... 15
CHAPTER 3: LCV DEVELOPMENT PROCESS ............................................................................... 17
CHAPTER 4: TARGET COSTING ...................................................................................................... 21
4.1 Traditional Costing Approach ..................................................................................................... 23
4.2 Target Costing Approach .............................................................................................................. 25
4.3 Target Cost for LCV ....................................................................................................................... 25
CHAPTER 5: BENCHMARKING ........................................................................................................ 29
5.1 Dimensions...................................................................................................................................... 32
5.2 Performance .................................................................................................................................... 34
5.3 Chassis Systems .............................................................................................................................. 36
5.4 Safety Systems ................................................................................................................................ 37
5.5 Additional Features ....................................................................................................................... 39
CHAPTER 6: LCV ATTRIBUTES AND DESIGN ............................................................................ 43
6.1 Customer Requirements................................................................................................................ 45
6.1.1 Quality Function Deployment Chart ................................................................................... 46
i
6.2 LCV Target Specification .............................................................................................................. 48

CHAPTER 7: MODIFICATIONS......................................................................................................... 51
7.1 Structure ......................................................................................................................................... 53
7.2 Powertrain ...................................................................................................................................... 60
7.3 Safety ............................................................................................................................................... 62
7.4 Chassis: Brakes, Steering, Wheels and Tires ............................................................................. 63
7.5 Interiors .......................................................................................................................................... 68
CHAPTER 8: LCV SALES POTENTIAL ............................................................................................. 75
8.1 Current Market Trends ................................................................................................................. 77
8.2 Sales Estimation ............................................................................................................................. 80
CHAPTER 9: DISCUSSION & CONCLUSION................................................................................ 83
9.1 LCV Manufacturing, Assembly and Marketing Strategies ..................................................... 85
9.2 Conclusion ...................................................................................................................................... 86
9.3 Future Work ................................................................................................................................... 87
REFERENCES .......................................................................................................................................... 89
ii
PREFACE
This book was written because of the interests and initiatives of Hussain Tajmahal and
Shantanu Ranadive to study the Tata Nano and answering the question -- "Can the Tata Nano
or a similar low cost vehicle be developed for the U.S. Market?" This work began as a term
project in AE 500, a required course in our masters program in Automotive Systems
Engineering. The course prepares the students to understand Systems Engineering and its
implementation in automotive product development.
Dr. Roger Shulze, the director of our Institute for Advanced Automotive Systems, encouraged
us in continuing the project and also provided some financial support. Through a number of
project meetings, we decided to study the Tata Nano in detail and other low cost vehicles sold
in the U.S. market and discussed if a vehicle could be produced at manufacturer's suggested
retail price (MSRP) of $8000.
The report describes the research approach and analyses conducted by assuming the MSRP of
$8000 to allocate target costs to various automotive systems in the low cost vehicle to meet the
key requirements for the U.S. market, namely the Federal Motor Vehicle Safety Standards. The
authors have described the engineering modifications that need to be incorporated to meet the
project goal.
The project has not only suggested a break-down of target pricing goals in developing a low
cost vehicle, but the experience gained by the authors and myself was very satisfying in
understanding the challenges ahead for the automotive industry.
Vivek D. Bhise
March 4, 2011
iii
ABOUT THE AUTHORS

Hussain Tajmahal is currently a graduate student in the Automotive Systems Engineering
program in the College of Engineering and Computer Science at the University of MichiganDearborn. He received his bachelors degree of engineering in Automotive Systems from
University of Mumbai, India. He is technically inclined in modeling automotive systems and is
specializing in CAE (Computer Aided Engineering) analysis while developing an innovative
architecture for engine cooling systems. He is passionate about Formula one racing, tennis, and
cricket.
Shantanu Ranadive is currently a graduate student in the Automotive Systems Engineering
program in the College of Engineering and Computer Science at the University of MichiganDearborn. He received his bachelor of engineering degree from University of Mumbai in
Automobile Engineering. He is interested in Hybrid and Electric vehicle technology and
working on implementing new concepts and technology for "green" vehicles, their overall
energy dependence and infrastructure development.
iv
ACKNOWLEDGEMENTS
The authors acknowledge the first hand information provided by professionals at Tata
Technologies, Novi, Michigan, USA for allowing first hand access to the vehicle, the Tata Nano
and providing industrial insights related to the development of the Tata Nano. The authors
further extend their gratitude to A2MAC1, an automotive benchmarking company in Ypsilanti,
Michigan, USA for providing online access to www.a2mac1.com during the initial course of
study.
The authors greatly acknowledge the encouragement, guidance and motivation provided by Dr.
Vivek Bhise, a professor in the Industrial and Manufacturing Systems Engineering Department
of the College of Engineering and Computer Science at the University of Michigan- Dearborn,
for pursuing this study. They appreciate his timely feedback on the progress of the study and
noted his valuable suggestions, which helped in compiling the entire study.
The authors greatly acknowledge the motivation by Dr. Roger Shulze, director of the Institute
for Advanced Vehicle Systems at the University of Michigan- Dearborn, for the study in terms
of his valuable input and for providing financial support during the course of the study.
The authors appreciate the administrative assistance by Deborah Stark-Knight, Administrative
Specialist at Institute for Advanced Vehicle Systems at the University of Michigan- Dearborn for
administrative services.
ABSTRACT
This book presents a development strategy for a Low Cost Vehicle (LCV) concept set at a target
MSRP of $8000 (USD) for the U.S. market. Tata Nano is currently the worlds least expensive car
in production. It is developed using similar principles of the Henry Fords Model T concept.
This project adopts a methodology similar to the one used in the development of the Tata Nano
and is considered as the starting point for the LCV development. It gives an overview of the
unique product development process of the Tata Nano and shows the possibility of applying
Systems Engineering principles. The major automotive systems were assigned specific cost
targets based on the set target cost of $8000 (USD) for the LCV. The specifications of the systems
were derived based on customer needs and the U.S. Federal Motor Vehicle Safety Standards
(FMVSS) using the Quality Function Deployment (QFD) technique and by comparing and
benchmarking current low cost vehicles sold in the U.S. for their specifications. System level
modifications necessary to comply with the FMVSS are considered. Adhering to the Systems
Engineering principles, sales volume, target customers, manufacturing and assembly factors are
discussed to realize the importance of the integration of all aspects of vehicle product
development to achieve the target cost.
vii
CHAPTER 1:
INTRODUCTION
1.1 INTRODUCTION
The economic recession of the past several years has severely affected the automotive industry
and automotive sales. One of the reasons that OEMs had difficulty in selling their products was
their relatively high selling prices. This increased unsold inventory and consequently led to
huge losses and the need to sell their products at significant discounts. This caused several
million dollar losses to the original equipment manufacturers (OEM) which in turn affected the
employees through lay-offs and reductions in pay and benefits. The automotive industry has
been constantly evolving in terms of technology, vehicle safety and extensive research has been
implemented to maximize customer safety and satisfaction. The technology comes with a price
which is borne by both the automotive companies and end users of their products. This points
out the fact that with added features such as maximum safety features, the overall cost of the
vehicle increases which is generally not tolerated by the customer. This creates an environment
of technological redundancy, where despite available technology the end user is not able to
utilize these technologies fully.
With the advent in technology and the need to meet more stringent federal safety and emissions
requirements, the task of designing and building automotive products has become more
challenging. The US Federal Motor Vehicle Safety standards provide performance requirements
to the automotive companies to design vehicles to satisfy the core objective of increased
occupant safety. It is up to the automotive companies and their suppliers decide how to meet
these requirements and to perform research and development of the systems and components
needed to meet these federal standards. This can lead to similar technologies being incorporated
to meet safety and emissions requirements.
Therefore, to increase competition, the OEMs need to create a distinct USP (Unique Selling
Point) target -- involving additional features, unexpected but delighting features (that create
"Wows"), and new infotainment features to attract the customers. These additional features
require a lot of extra development time, resources and ultimately have to be borne by the end
user in terms of additional cost. These additional features, though an advent in technology, in
reality seem to be redundant at times. On the contrary, if the USP is shifted to cost, then OEMs
would focus on satisfying the basic customer attributes and strictly follow the government
regulations and thus a low cost vehicle concept would emerge.
Figure 1 below represents the relationship between cost and additional features offered in
current automotives. The linear relationship suggests that the MSRP of the vehicle increases
with an increase in additional features.
FEATURES
COST
Figure 1 Relationship between Vehicle Cost and the Features Offered
The development plan behind every vehicle is based on some core objectives. The core
objectives can range from the maximum fuel efficient car to a high-performance car generating
500 hp of power. Depending on the customer requirements and current market needs, different
vehicles are launched in the automotive market in that region.
The core objective of this project is to develop a concept whose ultimate selling point (USP)
would be its cost, and hence a Low Cost Vehicle (LCV) concept was conceived.
As diverse as the world is, so is the automotive world. There are different government
regulations, emission standards and of course different customer requirements in different parts
of the world. Although there are many universal standards set for a current vehicle, it remains
up to the countrys discretion to adopt these standards.
The low cost concept was inspired after a comprehensive study of a Tata Nano (provided by the
Tata Technologies, Novi, Michigan), the worlds least expensive automobile currently in
production and sale only in India. After studying the Tata Nano, it was evident that with the
application of core Systems Engineering Principles the ultimate objective is achievable.
Thus, the objectives of research work presented in this book were: 1) to develop a low cost
vehicle concept and 2) to illustrate the methodology used to arrive at its cost structure.
A thorough study of the Tata Nano helped in understanding the potential of applying systems
engineering principles to achieve a specific target. The study of Tata Nano helped to create a
vantage point for the future vehicle development process. Understanding the global automotive
market and the use of resources by different regions across the world may help in increasing the
efficiency of the vehicle development cycle.
This book presents a development strategy for a Low Cost Vehicle (LCV) concept set at a target
MSRP of $8000 (USD) for the U.S. market. Tata Nano is currently the worlds least expensive
car in production and is developed on similar principles of the Fords Model T concept. This
project adopts a similar methodology behind the development of the Tata Nano and is
considered as the starting point for the LCV development. It gives an overview of the unique
4
product development process of the Tata Nano and shows the possibility of applying similar
methodologies, based on systems engineering principles, for future low cost vehicles which will
be suitable for the American market. The major automotive systems were assigned specific cost
targets based on
The target cost of the LCV was set at $8000 (USD). The specifications of the systems were
derived based on customer needs and the U.S. Federal Motor Vehicle Safety Standards (FMVSS)
using the Quality Function Deployment (QFD) technique and by comparing and benchmarking
current vehicles sold in the United States for their specifications. System level modifications
necessary to comply with the FMVSS are considered. Adhering to the Systems Engineering
principles, sales volume, target customers, manufacturing and assembly factors are discussed to
realize the importance of integration of all aspects of vehicle product development to achieve
the final target.
CHAPTER 2:
TATA NANO
2.1 INTRODUCTION: TATA NANO

Launched in summer 2008, Tata Nano has introduced a new chapter in automotive industry.
Starting with a clean sheet of paper, the concept of the Tata Nano is now the worlds least
expensive production car. The Tata Nano has put the basic automotive and systems engineering
applications to test and has proved successful. The motive behind the Nano was to provide a
more affordable and safer means of transport to a typical middle class Indian family as opposed
to a two-wheeler motorcycle. Currently, the base Tata Nano is sold for INR 123,361 (exshowroom Delhi, India), equivalent to $ 2776.21 ($1 = INR 44.435, 26th October, 2010) [1].
Figure 2.1 Tata Nano LX [1]
Table 2.1 Specifications of Tata Nano [1]

Vehicle Model
Tata Nano
Specifications
Dimensions
Price ($)
Overall length (in)
Overall width (in)
Overall height (in)
Wheel base (in)
Wheel track (in) Front
Wheel track (in) Rear
Headroom (in) Front/Rear
Legroom (in) Front/Rear
2500
122.01
58.98
63.50
87.80
52.2
51.8
36.6
rear 31.5 max & 24.41min
Vehicle Model
Tata Nano
Specifications
Body
Weight
Drivetrain
Performance
Steering
Price ($)
Type
Construction
Curb (lbs)
Type
Fuel
Horsepower @ rpm
Torque (lb-ft)
Power/Weight Ratio (Hp per ton)
Displacement (liters)
Valve Train
Fuel System
Emission class
Drive Configuration
Type
4 Forward + 1 reverse
Max Speed
0 - 60 km/h
105 km/h
0-60 km/h (37 mph): 8 seconds
Type
Turning Dia - Curb to Curb (ft)
Front (in)
Rear (in)
Front
Wheel Rim :
Fuel
Mechanical Rack and Pinion

26.25
7.086 in dia. Drum brake
7.086 in dia. Drum brake
Independent, Lower Wishbone, MacPherson
Strut Type
Independent, Semi Trailing arm with coil
spring and hydraulic shock absorbers
Rear
Wheels and
tires
2500
5 - door Hatchback
Uni-body
1322.77
2 cylinder
Gasoline
34.52 @ 5250
35.4 Nm @ 3000
57.44
0.624
4-Valve SoHC
Multi-Point Fuel Injection
EURO III
Rear wheel drive
Tires :
Tank Capacity (gal)
EPA Mileage estimates
(city/highway/combined)
3- point seat belt; Front Seat-belt
pretensioners and force limiters
3 seat belt rear; 3 - point
Front and Rear crumple zones
10
4B x 12 - steel cover
Radial, Tubeless Tires Front - 135/70 R12
Rear - 155/65 R12
Spare - 135/70 R12
3.962 (15 lts)
56 MPG
3 - point Seat belts, Driver and Front
Passenger
Rear Passenger Lap belts
Door intrusion beam
2.2 PRODUCT DEVELOPMENT: TATA NANO

2.2.1 Concept
Tata Nano was conceived by Chairman of Tata Motors, Mr. Ratan Tata when he decided to
move an average middle class Indian family from a 100cc, relatively unsafe motorcycle into a 4door complete car (see Figures 2.2 and 2.3).
Figure 2.2 Indian Family on a Motorcycle
I observed families riding on two-wheelers - the father driving the scooter, his young kid standing in
front of him, his wife seated behind him holding a little baby. It led me to wonder whether one could
conceive of a safe, affordable, all weather form of transport for such a family - Ratan Tata
11
Figure 2.3 A Complete Car Tata Nano
Mr. Ratan Tata had told a Financial Times correspondent on the sidelines of the Geneva Auto
Show that he was thinking of making a car that would cost about 2,000 [3]. Adjusted against
the then exchange rate of the rupee, that translated to Rs 1 lakh (1 lakh = 100,000). Mr. Tata says
he had never really defined the project in his head exclusively by its pricing. It was the media
that said it, says Mr. Tata. But we decided to accept the challenge. With that resolution, Mr.
Tata imprisoned himself and his engineers in a promise to fulfill which they would have to all
but rewrite the principles of automotive engineering.
2.2.2 Design Process

What set the Tata Nano apart is its extreme low cost. There was no such low cost vehicle ever
designed for production. This led to a back-to-basics approach where there are no available
benchmark vehicles to take cues from. This is a very important standpoint on which a car is
conceived today where automotive companies are in a cut-throat competition to launch their
vehicles ahead of their competitors. And considering an approach starting from a clean sheet of
paper definitely would add more time to the entire design process. This could be contradictory
when designing the least expensive car where any additional time equals additional R&D
expenses. In the case of the Tata Nano, the clean sheet approach helped in keeping the overall
design inexpensive as the resulting innovation helped in reducing other costs factors drastically
and hence the overall product, i.e. Tata Nano, was produced at a shockingly low cost.
12
Every design process has core objectives to be achieved for the product being developed. For
Tata Nano the main design factor was the cost and basic functionality. All design parameters
were cost-centric and functionality-centric. This does not imply that the Tata Nano was a mere
car with fewer specifications. The Nano R & D Team had laid down three main parameters as
the basis for which they formulated and designed the Nano. These three parameters were:
1. Acceptable Cost
2. Acceptable Performance
3. Regulatory Compliance (current as well as future) [3]
Customer requirements were always on the top of the list and engineers and the entire team
worked toward one goal to achieve maximum customer satisfaction and followed the three
design guidelines. The team followed a football team management approach which made the
member with the ball the leader [3]. This aided in keeping the team motivated in challenging
situations and helped the entire team to overcome internal differences, which ultimately helped
them to be focused on the final goal.
2.3 NO BENCHMARK VEHICLES

Tata Nano had no precedence or prior concepts. Thus, it was critical to come-up with
specifications for the vehicle. The nearest benchmark vehicle was a Maruti Suzuki 800 (see
Figure 2.4), then the least expensive car in India, which is almost twice the cost of the Tata
Nano. Table 2.2 below shows the base model comparison of the current available Maruti Suzuki
800 and the Tata Nano in India.
Figure 2.4 Maruti Suzuki 800 [4] and Tata Nano (L to R)

(Tata Nano is 21% more spacious and 8% smaller than the Maruti Suzuki 800.)
13
Table 2.2 Comparison of Specifications of Maruti Suzuki 800 [4] and Tata Nano [1]
Specifications
Maruti Suzuki 800
Tata Nano
Price
Curb Weight
Engine Type
Rs. 1.97 lakh ($ 4477)

1430
796cc, 37 bhp, 3-cylinder, front
Mechanical Rack and Pinion
Steering
Rs. 1.23 lakh ($ 2776.21)

1323 lbs
624cc, 34 bhp,2-cylinder, rear
Steering
Transmission Type
Manual; Synchromesh on all

forward gears.
Number of Gears
4 forward + 1 reverse
Suspension
Front: MacPherson Strut Type;

coil spring
Rear: coil spring & gas filled
shock absorbers
Brakes
Wheelbase
Seating Capacity
Fuel Tank Capacity
Max. Speed
Fuel Economy
Front :Disc
Rear: Drum
2175 mm
4 persons
7 gallons
70 mph
33.4 mpg
Mechanical Rack and Pinion Steering

Manual; Synchromesh on all forward
gears with overdrive. Sliding mesh
for reverse gear.
4 forward + 1 reverse
Front: Independent ; Lower wish
bone; MacPherson Strut Type
Rear: Independent; Semi Trailing arm
with coil spring & hydraulic shock
absorbers
Front & Rear : 180 mm drum brake
2230 mm
4 persons
4 gallons
65 mph
56 mpg
Engineers at Tata developed a high pressure die-cast engine which delivered an impressive 34
bhp from 624cc engine as compared to 37 bhp from a 796cc Maruti Suzuki engine. This lead to
filing of 10 patents in engine development and after the entire product development cycle 37+
patents were filed on the Tata Nano [3].
There were many technical innovations implemented on the Tata Nano other than the ones
described above.
1. Tata Nano is a tall small car; therefore in order to balance the high C.G of the car, a
higher rear suspension is employed. The rear suspension semi trailing arm with coil
spring and hydraulic shock absorber is similar to the ones employed in two-wheelers
sold in India.
2. Instrument panel comprising of speedometer and digital fuel indicator is similar to that
of the two wheelers, as shown in Figure 2.5 below.
3. Electrical wiring harness, lamps, etc. were also inspired by the two wheelers.
14
4. Strong seat anchor which is one of the safety features, and the window winding
mechanism, are derived from helicopter designs.
Figure 2.5 Instrument Panel of Tata Nano [5]
2.4 MANUFACTURING/ SOURCING STRATEGY

To achieve its ambitious cost reductions, Tata Motors had to get vendors to pare margins and
persuade them to produce components at lower costs. The vendors had to invest in new
processes and methods to reengineer their products to specifications that were rigidly guided
by cost, performance and regulatory compliance. Many of them would not make profits for
years. For example, P.K. Kataky, director of battery maker Exide, was reported as saying that
the companys margins would be thin and it would start making money only after two or three
years [3].
Suppliers chosen for Tata Nano manufacturing plant were mostly clustered in auto centers
across India. The challenge Tata faced was to pursue the suppliers to set-up and invest in new
vendor facilities on-site at the assembly location of Tata Nano. About 15-20 vendors would
finish their plants along with Tata Motors.
15
CHAPTER 3:
LCV DEVELOPMENT
PROCESS
17
At one Toyota board meeting, Toyota Chairman Eiji Toyoda asked, Should we continue building cars as
we have been doing? Can we survive in the 21st century with the type of R&D that we are doing? ...
There is no way that this [booming] situation will last much longer [6]. He was practicing Principle
1: Base your management decisions on a long-term philosophy, even at the expense of the shortterm financial goals [6].
The development process was conceptualized based on the above principles. It highlights the
constant need for change of the product development process with the needs and demands of
the market. The traditional sequential approach of handing over the job from department to
department is considered obsolete now. Integration of all departments, ideas and other factors,
from the concept phase to production, helped in building a complete car for todays market.
This method has proved to be exceptionally successful, for instance the Smart product development
process [7], and the results can be seen in the automotive boom and product variation since the
last decade. It is obsolete to consider the market needs to be a stagnant part in a product
development process. The market dynamics play the most vital role in the entire product
development process. This fact can be reinforced by the practice of developing more than one
concept, which is developed considering multiple factors, for a single product. Thus, the
concept best satisfying the prime product objectives is generally selected.
The prime objective of the LCV discussed here is to develop a vehicle for $8000 for the US
market. The objective can be broken down further as a vehicle satisfying stringent US safety and
emission standards, a vehicle comfortable for US consumers and with a strict budget of $8000.
Thus, the Systems Engineering approach to be followed here will be a combination of the
process similar to that discussed above and a process designed to meet the target cost, i.e.
Target Costing Approach.
The approach followed for the LCV development included the following steps (see Figure 3.1):
1. Study of current automotive market trends in the US
2. Benchmarked Tata Nano and its development methodology
3. Set the Target Cost for the LCV
4. Distribute costs to vehicle systems
5. Understand the basic LCV requirements (Customer attributes and Government
Regulations)
6. Design/Develop systems, subsystems and components with key focus on basic
functionality, requirements and target cost
7. Estimate sales potential for LCV
8. Manufacturing, assembly and marketing considerations
19
Figure 3.1 Low Cost Vehicle Concept Development Process [8]
Figure 3.1 shows a flow diagram of the development process for the Low Cost Vehicle concept.
The development process is based on the Systems Engineering principles which involve
integration of various aspects of product development such as the customer requirements,
market demand, government regulations, marketing conventions, sales potential,
manufacturing layouts, assembly options, material feasibility, etc. These aspects or
considerations are incorporated at a very early conceptual stage of development. The aspects
involve use of: historical data, statistics, market trends, reasonable assumptions and alternative
solutions were proposed to meet the one common objective of achieving a target cost for the
Low Cost Vehicle concept.
20
CHAPTER 4:
TARGET COSTING
21
4.1 TRADITIONAL COSTING APPROACH

Traditional methods are not forward-looking. They do not consider the need for the cost, what
drives the cost, or even if the process or product characteristic/function, is, in fact, necessary.
What results, too often, are over-engineered products which cause an increase in costs which
may not be required per the original customer needs. This points to the fact that customers are
the ultimate cost bearers for these over-engineered products.
It is understood that the cost is always the major factor for any product development process.
But, it is important to consider the role of cost while implementing different strategies for
product development. The following paragraph points out the role of considering cost at
different stages of the product development cycle.
If cost consideration is an afterthought, the costs are tallied up and used as the basis for
determining the products price [9]. The primary focus is on product performance, aesthetics or
technology. Companies may get by this approach in some markets and with some products in
the short term. If a competitors product, offering similar features, is sold at a lower cost, then
this will result in a failure of the product (developed as per above statement) in long term.
Also, if cost is one of the design factors, the product cost is estimated based on accumulated
facts and manufacturing estimates. This creates a limit to the minimum cost achievable. For
example, if a current product X1is universally available at $10, the designer will be compelled to
think that a similar product X2 can be manufactured ultimately to cost $10. This limits the
ability of the designer to come up with innovative ideas which would actually result in a
cheaper product with or without improving the product performance. Furthermore, it may
sometimes result in an over-shooting of the cost estimates. Thus the designer has to perform
design iterations to reduce the cost further at a much later-stage of development, resulting in an
extended development cycle and additional development costs.
23
Figure 4.1 US and Japan product development cycle [10]
Figure 4.1 shows the difference between a more traditional approach followed by the Western
management and a Target Costing approach preferred by Japanese Management. The Japanese
approach is highly beneficial because it works to control costs actively before or during product
development. Under the traditional approach a company waited until much later in a products
life cycle, by which time a significant part of the costs had become fixed. Consequently, the
company had little ability to change or control costs. [10]
Traditionally, a Cost Plus approach was widely-preferred by the manufacturers, which is in
sharp contrast with the target cost approach [11]. The traditional approach uses the existing
component and further improvements/developments are carried out to meet the functional
specifications. Therefore, the additional costs incurred due to the improvements are added to
the cost of the existing component. There is an overall increment in developing the new
component. This additional cost in components, multiples at a sub-system level, then at a
systems level and hence in the final cost of a new product (e.g. an automobile), is much higher
or is close to the competitors price range. Thus, there is no significant change as far as the cost
of the product is concerned and therefore is not preferred at a conceptual stage for the
development of the Low Cost Vehicle.
24
4.2 TARGET COSTING APPROACH

According to [10] Target Costing can be defined as a cost management tool for reducing the
overall cost of a product over its entire lifecycle with the help of production, engineering, R&D,
marketing and accounting departments. Thus, target cost can only be achieved by following
the Systems Engineering interdisciplinary approach towards product development. Target
Costing techniques have become increasingly popular in recent years for use in product
development [11]. The final cost of the vehicle can be affected by the different systems
engineering approaches selected at an early development phase.
According to Monden[12], a target-costing system has two objectives:
1. Reduce the cost of new products so that the level of required profit could be
guaranteed, simultaneously satisfying the levels of quality, development time and
price demanded by the market
2. Motivate all the employees to achieve the target profit during the new product
development, turning target-costing into an activity of profit administration for the
whole company, using the creativity of employees from several departments to draw
up alternative plans that allow higher cost reductions.
4.3 TARGET COST FOR THE LCV

The Low Cost Vehicle development attempts to reach a compromising and a possibly optimum
approach to reach the set target cost by combining the benefits of target costing and a
traditional approach. The limitation of applying the target costing approach is that there are
significant non-recurring costs at the beginning of the development process because the product
has to be conceptualized, designed and manufactured from scratch. The traditional approach of
optimizing existing product/process saves time and non-recurring costs but the additional
improvements leads to significant additional costs of the final product. The Low Cost Vehicle
has a set target cost and is utilizes features and designs from the least expensive car in the world
Tata Nano to develop a Low Cost Vehicle for the US market. Therefore, the approach of
developing the LCV would comprise developments and improvements to the Tata Nano while
keeping the target cost for each system and the total vehicle in mind.
The approach followed to set the target cost for the Low Cost Vehicle (LCV) is as follows:
1. Defining the target segments small car / sub-compact car segment
2. Identification of the competition benchmarking of the low cost vehicle in US
market
3. Positioning of the product within the target segments LCV target cost set to 20%
less than the nearest competitor
4. Fine-tuning the product design and pricing cost allocation of systems and subsystems of LCV.
25
The current price difference between the two least-expensive vehicles, the Nissan Versa 1.6 Base
Sedan ($9990) and the Hyundai Accent Blue 3-door ($9985) currently sold in US is around 0.2%.
To gain a significant competitive edge and to set a challenging target, the Low Cost Vehicle in
discussion is set to be 20% less than the MSRP of the least expensive car currently sold in the US
as of September 2010. The target cost is not based on a cost evaluation method but rather based
on the Target Cost Approach. The target cost of the Low cost vehicle is set to $8000 (USD). The
target cost allocation for the systems and subsystems of the low cost vehicle is based according
to cost distribution data provided by [13].
Table 4.1 LCV Target Cost Breakdown

MSRP
$ 8000
Dealer Margin (10% MSRP) [14]
$ 800
Factory Invoice
$ 7200
Companys Profit (2.78% Factory Invoice)
$ 200
Vehicle Target Cost (variable costs plus

development costs) (VC)
$ 7000
% (VC)
$ (USD)
23.2
1621
Engine
16
1120
Interior
15
1050
Transmission+Final Dr
6.24
437
Suspension
3.94
276
Brakes
2.24
157
Steering
1.31
92
Exhaust
0.95
67
Fuel Systems
0.45
32
Wheels & Tires
6.16
430
Chassis Electrical
0.62
43
Accesssories and Tools
0.14
10
Fluids
0.79
55
23
1610
BIW + Safety
Vehicle Assembly
26
Note: 1. The frame (Monocoque structure), bumpers and fenders are included as a part of the BIW
system.
2. The safety system is divided into BIW and interior system.
3. The proposed LCV is a RWD and hence final drive is adjusted with the transmission system.
4. Fluids include all the fluids filled in the vehicle such as engine oil, coolant, power steering fluid,
brake fluid, transmission oil, refrigerant, gasoline and windshield washer fluids.
The manufacturing costs are estimated to be 50% of the total MSRP of the vehicle[14]. The other
50% includes waranty, R&D and Engineering costs, depreciation and amortization, sale
distribution, market advertisements, dealer support, corporate overhead, retirement and health
benefits and gross profit. The above Table 4.1 shows the target costs for each system, to be then
integrated to meet the total target cost of the low cost vehicle. The cost allocation of the systems
shown in the Table 4.1 is the fraction of the total development costs (DC) set for the vehicle
rather than a percentage of the total variable manufacturing costs. Total variable manufacturing
costs include material costs and the labor costs and is about 50% of the MSRP [13-14]. The
vehicle target costs (VC) includes manufacturing costs, divison costs and corporate costs.
Divison costs include engineering, testing and manufacturing costs [14]. Corporate costs include
full salary plus benefits of corporate executives, research and development, cost of money,
capital equipment including facilities and corporate advertisting [14]. The cost distribution in
Table 4.1 include from the concept phase to the final product sale. Thus, these costs include
from engineering costs to the final market costs. To meet the target cost for a particular system,
basic and core systems engineering principles have to be applied. That is to say, all concerned
departments including engineers, sales, marketing, production and finance have to work
together to reduce the overall process costs. The final system thereby developed at the target
cost is not only the outcome of design changes by engineers but includes significant
contributions from the rest of the team.
27
CHAPTER 5:
BENCHMARKING
29
Benchmarking here is referred to as a comparison tool to analyze the current competing

vehicles in the US market based on their cost and performance. The least expensive vehicles in
terms of the cost are selected as benchmarks. The selected vehicles are the Hyundai Accent Blue
($9985) [15], Nissan Versa ($9990) [16], Chevrolet Aveo ($11965) [17] and the Honda Fit ($14900)
[18]. The cost of these vehicles is the starting price of their base models, i.e. base MSRP
(excluding freight charges, tax, title, license, dealer fees and optional equipment) [15-18].
The Honda Fit was selected because it is best in-class in terms of performance, styling and
sales volume. The LCV concept is not based merely on the cost; the performance of the LCV
should also be comparable for the given market. Therefore, the Honda Fit is included in the
benchmarking process to provide a pinnacle view point to the LCV being conceptualized.
As discussed in Chapter 1, the Tata Nano is considered as an inspiration for the Low Cost
Vehicle concept development. Being the cheapest vehicle in the world, Tata Nano is also
compared (benchmarked) along with the vehicles mentioned above.
Figure 5.1 Cost Comparison
These benchmarked vehicles are compared for the interior and exterior dimensions, technical
specifications, fuel economy and emissions standards, safety provisions and features offered as
shown below.
31
5.1 DIMENSIONS
32
Figure 5.2 Major Dimensions Comparison
The above Figure 5.2 gives an overview of the comparison of exterior dimensions and the curb
weight of the benchmarked vehicles including the Tata Nano. It should be noted that the Tata
Nano is not intended for the US market and is being sold in a different automotive sector of the
world (India). Hence the design specifications are suited to the desired market and demand. It
is observed that vehicles selected from the US market are competitive benchmarks of each other.
33
5.2 PERFORMANCE
34
Figure 5.3 Performance Comparison
From Figure 5.3, it is evident that the Tata Nano sold in India is not comparable to the vehicles
sold in US in terms of the performance and emission standards. The LCV concept in discussion
here attempts to build up from the Tata Nano to satisfy the US driving and emission standards.
Hence, modifications on the Tata Nano can be performed to develop a future LCV.
35
5.3 CHASSIS SYSTEMS
36
5.4 SAFETY SYSTEMS
37
5.5 ADDITIONAL FEATURES
38
39
40
The Tables 5.4 and 5.5 highlight the importance of selecting the Honda Fit as one of the
benchmarked vehicles. Vehicles selected here other than the Honda Fit have limited features
and the minimum of safety systems as required by the US safety standards. The Honda Fit
specifically exceeds in this category which is reflected in its overall cost. One of the reasons that
can be interpreted for the comparable higher cost of the Honda Fit is the provision of the extra
features and safety systems as standard in the base model. The other vehicles do not provide
some of these features in their base model and this is reflected in their lower prices. Some of the
base models in consideration here can include some optional features at an additional cost.
Some specific features, for example ABS, are standard features in the Honda Fit and are
optional in the base model Nissan Versa at an additional cost. The base models of the Chevrolet
Aveo and the Hyundai Accent does not have the provision to include ABS at all in the vehicle
even if the user/customer is willing to pay the price.
Although, the relationship between cost and features seems obvious, it is important to know the answers
to the questions, What are the minimum features to be provided? How important is the provided feature
to the customer? How much is he/she willing to pay for the provided features? These questions are
usually answered by benchmarking the nearest competitors vehicles and/or through customer surveys.
41
CHAPTER 6:
LCV ATTRIBUTES AND
DESIGN
43
A product is developed to meet a set of attributes derived from various sources such as
customer demand, market needs and/or evaluating the competition. An LCV concept is
designed as a complete automobile for the United States and hence the generic attributes such
as safety, driveability, durability, fuel economy and overall low vehicle cost have to be met
during the product development.
In this chapter, minimum required LCV specifications are derived. The preliminary
specifications are derived from the customer requirements. The approach toward developing an
LCV is to prioritize the functional requirements for a vehicle to be legally driven in United
States.
6.1 CUSTOMER REQUIREMENTS

Customer requirements are translated into functional specifications by implementation of the
Quality Function Deployment (CFD) Chart. The traditional approach to collect the customer
requirements through a generic survey has not been put into practice here. Instead what is
needed in a functional automobile has been the major input while formulating the functional
specifications of the Low Cost Vehicle concept. The customer is not neglected here; core focus is
channelized to the basic requirements of the customer for a functional, safe vehicle.
Furthermore, the biggest customer requirement of a cost-effective and low cost automobile is to
be met here. The basic requirements of the automobile have been further classified into different
sub-systems in order to calculate functional specifications based on the need. The technical/
functional specifications so derived are categorized as per attributes of the customer.
QFD resulted in a target quality index for the Low Cost Vehicle concept based on the
benchmarked vehicle the Tata Nano and other low cost vehicles currently in the US such as
the Nissan Versa, Hyundai Accent and Honda Fit. Honda Fit is included in the comparison to
take into account the top-of-the-line features offered in the similar segment of vehicles.
45
6.1.1 Quality Function Deployment (QFD) Chart
46
Figure 6.1 LCV target quality index
Figure 6.1 shows the requirement to be met by the potential low cost vehicle for the US market.
The Y-axis represents the quality index, where 5 is most preferred rating and 1 being the least
preferred, of the functional requirement and the X axis represents the functional requirements
listed in the columns in Table 6.1. The analysis is based on the comparative data of the current
vehicles in the US and the benchmarked Tata Nano. As seen in the above Figure 6.1, the quality
index of the Tata Nano is comparatively lower than those of the other benchmarked vehicles.
The idea is to derive the LCV/ target quality index. Therefore, the derived specifications for the
LCV concept attain a competitive quality rating on the quality index chart.
Table 6.2 provides comparison of LCV target specifications with the benchmarked vehicles.
47
6.2 LCV TARGET SPECIFICATIONS
48
Table 6.3 LCV Target Specifications
Vehicle Characteristics
Engine Displacement (cc)
Curb Weight (lbs)
Tire size
Fuel economy (mpg)
Suspension Type
Target
1000
2000
P175/70R14
40/45
Front: Independent, Lower
Wishbone, Macpherson Strut
Type
Rear: Independent, Semi
Trailing arm with coil spring and
hydraulic shock absorbers
Max torque @ rpm (lb-ft)
100
Engine power (hp)
100
Acceleration (0 60
12 s
mph)
Type of Engine (Fuel)
Gasoline
Type of Transmission
Automatic
Seating capacity
4
Boot space (cu. ft)
14.68
Provision for A/C
Yes
Vehicle dimensions (in)
140 x 62 x 63.5
Type of brakes: Front /
Disc/Drum
Rear
Wheel base (in)
90.55
Wheel track (in)
55/55
Steering type
Power Rack & Pinion
Turning circle dia (ft)
30
No. of doors
4+1
Fuel tank capacity (gal)
8
Table 6.3 shows preliminary low cost vehicle specifications (targets) derived from the QFD
chart. The specifications are not physically calculated but estimated from the comparative data
of the vehicles under consideration, basic customer requirements and the benchmarked vehicle
the Tata Nano. The derived specifications are different than those of the Tata Nano. Thus, the
Low Cost Vehicle concept would incorporate modifications for improved safety, drivability,
emissions, fuel economy and comfort.
49
CHAPTER 7:
MODIFICATIONS
51
The LCV is developed using the Tata Nano as the base vehicle. The proposed modifications are
the developments on the Tata Nano which are required to meet the basic US customer needs
and are necessary to satisfy the regulations for the US.
The LCV is divided into major systems of the automobile. The specific major modifications
necessary to meet the ultimate goal are illustrated in this chapter.
7.1 STRUCTURE
Figure 7.1 Tata Nano - Body-In-White [22]

Body-In-White (BIW)
Modifications
Increase the overall vehicle length by 18 inches (457mm) and width by 4.13
inches (105mm) keeping the height same as Nano.
Reason for Modification

Customer requirements (QFD)
Comment
To accommodate 95th percentile manikin as per the ergonomic requirements
53
Front End Structure
Figure 7.2 Tata Nano - Front End Structure [22]
Modifications
Additional reinforcements added to meet frontal impact. Additional
reinforcement in front of the longitudinal rails. Front End longitudinal members
designed to collapse (absorb energy) in the event of frontal impact.
Figure 7.2.1 Front End Reinforcements [22]

Front End Shock Absorber can be inserted to reduce the force of impact.
Figure 7.2.2 Front End Shock Absorber [22]

Upper and Lower cross member made of Al Alloy can be added to the frontal
support frame if the frontal impact protection cannot be met.
54
Figure 7.2.3 Upper cross member made of Al Alloy [22]

Similarly, lower cross member of steel with additional crumple structure can be
added to the frontal support frame if needed.
Figure 7.2.4 Lower cross member of steel [22]

FMVSS 208 [23]
Comment
Increased front end protection for the small car
Roof
Figure 7.3 Tata Nano Roof [22]
Modifications
Structural reinforcements incorporated to the roof panel. Cross-members added
prevent deformation of the roof as required by the rollover protection standard.
55
Additional reinforcements are introduced to comply with rollover protection,

where necessary.
Fig 7.3.1 Roof Reinforcements [22]

FMVSS 208, 216 [23]
Windshield - Front / Rear
Fig 7.4. Tata Nano Windshield Front and Rear [22]
Modifications
Tata Nano uses similar laminated glass for the front windshield. The windshield
mounting would satisfy the windshield mounting standard and will not
penetrate more than 6mm in event of frontal crash.
Tata Nano uses toughened glass for rear windshield. Vehicles sold in US use
similar tempered glass.

FMVSS 205, 212, 219 [23]
Comment
Specifications similar to the windshields in current sub-compact cars.
56
Rear End Structure
Figure 7.5 Tata Nano Rear End Structure [22]
Modifications
Rear cross member and rear shock absorber can be used for additional rear crash
protection. As the Tata Nano engine is in the rear, the vehicle must be able to
withstand rear impact without high forces being transferred into the passenger
compartment.
Figure 7.5.1 Rear End Reinforcements [22]

FMVSS 208, 301 [23]
57
Side Impact Protection
Figure 7.6 Tata Nano Side View [22]
Figure 7.6.1 Tata Nano Door Panel [22]

Modifications
Need for more reinforcements and door intrusion beams to door side (Driver/Passenger
and Front/Rear).
58
Figure 7.6.2 Door Intrusion Beams

In addition to structural reinforcements, interior PP or PU protection for inner
panel can be used for cushioning the impact. This is inserted between the sheet
metal door panels or mounted on inner panel.
Figure 7.6.3 PP or PU Foam [22]

FMVSS 208, 214 [23]
Hatch/ Hood
Figure 7.7 Tata Nano Hood [22]
Modifications
Additional reinforcement for inner panel if required

FMVSS 208, 301 [23]
59
7.2 POWERTRAIN
Engine
Fig 7.8 Tata Nano Engine [22]
Modifications
As per the vehicle power requirements calculations, a bigger engine of about 70
Hp and 110 Nm is necessary to achieve a top speed of 80mph and acceleration
from 0-60mph in 12 secs.

It is required to achieve the vehicle operating speed and performance for freeway
driving and to satisfy the LCV target specifications.
Comment
Approximate weight of the engine is 77 kg for a similar 69 Hp engine used in Fiat
500.
60
Transmission
Fig 7.9 Tata Nano Transmission [22]
Modifications
Larger 5 speed transaxle to couple with a bigger engine.

Customer requirement (QFD) and Drivetrain requirements.
Comment
There can be an optional availability of an automatic transmission at an
additional cost to the customer.
Exhaust
Fig 7.10 Tata Nano Exhaust [22]
Modifications
Catalytic converter used to comply with current US emission standards. Larger
muffler needed for the modified engine.
61

To regulate engine emissions as per the EPA (Environmental Protection Agency)
standards.
7.3 SAFETY
Airbags
Modifications
Driver, passenger and side curtain airbags are required to be installed in the
vehicle.
Airbag control unit, airbag sensors, to be installed for airbag deployment.

FMVSS 208 [23]
Seat Belts
Modifications
Front seat belt pre-tensioners have to be installed in the existing front driver and
passenger seat belts.
Rear Seat Belts - 3-point seat belt required for rear passengers as Tata Nano has
only lap belts in rear.

FMVSS 208, 209, 210 [23]
62
7.4 CHASSIS: BRAKES, STEERING, WHEELS AND TIRE

Brakes
Figure 7.11 Tata Nano Drum Brakes (Front and Rear) [22]
Modifications
Employ disc brakes in the front.
Employ larger diameter drum brakes at the rear.

FMVSS 135, 106, 116 [23]
With increase in the vehicle speed, and weight, as per the US driving cycle, the
front brakes are required to be changed to disc brakes at the front and a larger
drum brakes for a shorter stopping distance to ensure safe driving conditions.
Modifications
Include Anti-lock braking system in the vehicle
Include wheels speed sensors
Figure 7.12 ABS Module [22]

63

For future safety regulations, an ABS module, with wheel speed sensors for ABS
and traction control, needs to be installed.
Steering System (Mechanical Rack and Pinion)
Figure 7.13 Tata Nano Steering Linkage [22]
Modifications
Power steering mechanism employed, for better drivability and comfort.
Increase the length of the tie-rods to accommodate for the increase in wheel
track.
Incorporate adjustable steering column.
Include ignition switch assembly which complies with theft protection standard.
Figure 7.13.1 Tata Nano Steering Shaft Assembly,

Ignition System Assembly [22]
64

Power steering mechanism is necessary to ensure drivability with increase in
vehicle weight and to obtain the minimum turning circle diameter required for
normal US driving conditions.
Customer requirements obtained by Quality Function Deployment (QFD).
FMVSS 203, 204, 114 [23]
Wheels and Tires
Figure 7.14 Tata Nano - Front Wheel and Tire [22]
Figure 7.15 Tata Nano - Rear Wheel and Tire [22]
Modifications
Wider 14 in wheels and tires for high speed stability and improved vehicle
dynamics performance.
Spare tire to be supplied for temporary use and in case of emergency.
Install the tire pressure monitoring system. Incorporate into the vehicle using
ABS sensors and ECU to detect the speed variation in case of tire pressure loss.
Display indicator to warn the driver.
65

For increased vehicle safety wider wheels and tires should be used.
FMVSS 110, 129, 139, 138 [23]
Suspension Front and Rear
Figure 7.16 Tata Nano Rear Suspension [22]
Figure 7.17 Tata Nano Shock Absorbers Front Strut Assembly [22]
Modifications
Modify the front and rear suspension to accommodate the weight increase and
dimension changes. Optimize the damping and suspension geometry for more
comfortable ride and handling at the designed speed.

Customer requirement - safe and comfortable vehicle feel.
66
Fuel System
Figure 7.18 Tata Nano Fuel System, Filling System, Filler Pipe [22]
Modifications
Larger 8 gallon fuel tank for about 250 miles range is required. Fuel tank built
and located as per fuel system integrity requirement. Modification of fuel filler
system is required with evaporative system and ventilation.

Customer requirement for an acceptable vehicle range
FMVSS 301 [23]
67
7.5 INTERIORS
Dashboard and Instrument Cluster
Figure 7.19 Tata Nano Dashboard [22]
Figure 7.20 Tata Nano Instrument Cluster [22]
Modifications
Dashboard - Passenger Airbag to be integrated into the Dashboard. Improve the
design and trim material quality for US market.
Figure 7.21 Tata Nano Dashboard using better quality trim material [5]
68
Instrument Cluster - Some indicators such as Gear position indicator, Tire

pressure monitoring, Seat belt warning, Passenger Airbag indicator, Door Open
indicator must be included in addition to current tell-tales

Dashboard - FMVSS 201, 208, 302, [23]
Instrument Cluster - FMVSS 101, 302 [23]
Customer requirements, ergonomic standards.
Center Console
Figure 7.22 Tata Nano Center Console [22]
Modifications
Increase the height in proportion to the driver's H - point for ease of
operation/access.
Material and trim of center console slightly improved for better feel and
durability.

Ergonomic standards, Customer requirements.
FMVSS 201, 302 [23]
69
Interior Insulation
Figure 7.23 Tata Nano Front Firewall Insulation and Floor carpet [22]
Modifications
Provide thicker insulation in front firewall and in the passenger compartment
required to meet the NVH requirements.

For better NVH properties.
Comment
Heat insulation not required on the front firewall as the engine is in the rear.
Thicker insulation minimum of 12 mm preferred.
Roof liner
Modifications
Thick insulation for better texture and feel.
Cushion to protect against accidental head-bumps and during roll over
protection.

FMVSS 208, 302, [23]
70
Driver and Front Passenger Seat
Figure 7.24 Tata Nano Front Seats [22]
Modifications
Side airbag integrated into seat.
Incorporate longitudinal, backrest swivel and height adjustment in seat.
Increase the overall seat width and seat cushion length for comfortable seating as
per the US customer ergonomics requirement.

FMVSS 202, 201, 207, 302 [23]
Customer requirements (QFD).
Rear Passenger Seat
Figure 7.25 Tata Nano Rear Seat [22]
71
Modifications
Increase the overall seat width, seat cushion length and backrest height for
comfortable seating as per the US customer ergonomics requirement.

FMVSS 202, 201, 207, 302 [23]
Accessories
Modifications
Accessories such as 12V DC outlet, Audio/CD Player, Audio Auxiliary, etc can be
provided at an additional cost to the customer.

Comment
Can be provided as optional feature in higher-end models.
HVAC
Figure 7.26 Tata Nano Air Conditioner [22]
Modifications
Air Conditioner - Can be provided as an option.
72
Heater System - Needs to be integrated into the vehicle dashboard. Includes

heater, evaporator, air vents, window defrosters, heater pipes, etc.
Can be provided as an option.

Comment
Top end Tata Nano model has air conditioner but does not have provision for
heating system.
Door Trim
Figure 7.27 Tata Nano Door Panel and Trim [22]
Modifications
Design of door handles and controls as per US ergonomic requirements.
Incorporation of power window and door control as an option.

Customer requirements (QFD) and ergonomic standards.
FMVSS 201, 302 [23]
73
Door Stopper
Modifications
Door stopper to prevent the doors from opening completely when not required.
(during parking near other vehicles)
Figure 7.28 Typical 2 stop door stopper [22]

Ease of entry/exit.
Safety.
Comment
Tata Nano does not have a door stopper, the door opens fully. Inconvenient
during parking in tight spaces.
74
CHAPTER 8:
LCV SALES POTENTIAL
75
The modifications discussed in Chapter 7 are applied to the Tata Nano in order to realize the
potential of a similar Low Cost Vehicle concept and to satisfy the vehicle attributes of the US
market. This chapter discusses the potential sales for the developed Low Cost Vehicle concept
in the United States. The driving factor for the development of the LCV concept is its price
which would be its ultimate selling point (USP). This would create a new low cost benchmark
for other competitors and would motivate them to develop vehicles competing at a similar low
cost, thus exploring a completely new segment for ultra-low cost vehicles.
An early estimation for the sales potential at the concept stage is required to have a preliminary
idea about the total sales volume of the final production vehicle. Judging from the sales volume,
a corresponding infrastructure, in terms of manufacturing plant, assembly plant, etc. for the
vehicle can be developed to realize the cost benefits for the predicted sales. This is especially
crucial for a low cost vehicle because if sales are ignored at the concept stage, it will be difficult
to predict the sales profit for such a low cost vehicle.
8.1 CURRENT MARKET TRENDS

An average sub-compact economical vehicle currently ranges from $12k-$16k. There are several
economical vehicles available, the least expensive being the Hyundai Accent Blue at $9970
currently being sold in USA (see Figure 8.1). Table 8.1 shows the most economical cars currently
being sold in USA [15-21].
Table 8.1 Economical Vehicle Prices in Current U.S. Market
Vehicle
Hyundai Accent 3 Door Blue
Nissan Versa 1.6 Base Sedan
Chevrolet Aveo Sedan
Kia Rio
Toyota Yaris
Ford Fiesta
Honda Fit
MSRP
(USD) $
9985
9990
11965
12295
12605
13320
14900
Despite the low prices of these vehicles, their sales volumes have not been very promising [2425]. This might be due to the relative difference between the cheapest vehicle and the more
reasonably priced, which includes more features. Nevertheless, the concept of a small car has
77
been somewhat accepted by the US customer and is validated by the sales incremental increase
from 14.5% in 2007 to 15.7% in 2008 [25]. This suggests the potential of more sales for the small
car market in the future. Figure 8.1 shows the currently-available low cost vehicles in the United
States.
Figure 8.1 (a) Hyundai Accent Blue ($9985) (Left) and Chevrolet Aveo Sedan ($11965) (Right)
Figure 8.1 (b) Nissan Versa ($9990)

Table 8.2 shows the changes in automotive sales trends in passenger cars and SUVs in three size
categories. It shows the sales increment (market share increase) of the compact cars and SUVs
and highlights the changing trend from big cars to compact/sub-compact cars.
78
Table 8.2 Changes in Market Trends [26]
Category
Compact SUV
Compact Car
Large Car
Midsized Car
Midsized SUV
Larger SUV
2003 -2008
Change
61.65%
35.71%
26.75%
-3.80%
-12.58%
-20.41%
Market
Share
The above Table 8.2 shows that because of the customer preferences to environmentallyfriendly and fuel economy vehicles, the sales figures of the SUV seem to have declined over the
period. At the same time, the market share of compact and sub-compact cars representing the
more fuel-efficient and cost-effective automobiles have increased. Based on these statistics, the
sales potential of a reliable yet low cost vehicle can be predicted to be competitive with other
compact and subcompact cars in the market.
Table 8.3 shows the sales volumes of selected compact and subcompact cars (based on relevant
dimensions, weight and/or the base MSRP).
Table 8.3 Sales Volumes for the Selected Compact/Sub-compact Cars for 2006- 2008 [27]
Model
Mini Cooper*
Smart Fortwo*
Ford Focus
Chevrolet Aveo*
Chevrolet Cobalt
Pontiac Vibe
Honda Civic
Honda Civic*
Honda Fit*
Hyundai Accent*
Hyundai Elantra*
Kia Rio*
Mazda3*
Mitsubishi Lancer*
Nissan Versa
Nissan Sentra
Suzuki SX4*
Model
Toyota Corolla/
Toyota Matrix
2008
54,077
24,622
195,823
55,360
188,045
46,551
305,509
33,780
79,794
50,431
94,720
36,532
109,957
27,861
85,182
99,797
29,483
2008
252,877
79
2007
42,045
0
173,213
67,028
200,620
37,170
292,192
38,903
56,432
36,055
85,724
33,370
120,291
31,376
79,443
106,522
15,209
2007
348,016
2006
39,171
0
177,006
58,244
211,449
45,221
272,899
43,739
27,934
34,735
98,853
28,388
94,437
23,167
22,044
117,922
3,453
2006
335,054
Toyota Corolla*
Toyota Yaris*
Total Sales
98,130
23,374
52,334
102,382
84,799
70,308
1,970,913 1,871,782 1,756,358
*Import Vehicles: vehicle not manufactured in United States of America
8.2 SALES ESTIMATION

The sales potential methodology of the Low Cost Vehicle is developed based on the available
historical statistical data. Figure 8.2 shows a regression-fit to the data presented in Table 8.3. The
curve in Figure 8.2 can be used to extrapolate future sales potential of similar segment cars.
Figure 8.2 Estimated Sales of Compact/Subcompact Vehicles
Using the above estimates, the sales of the Low Cost Vehicles in three different segments can be
predicted as follows:
New LCVs: The corresponding sales potential for the Low Cost Vehicle is estimated to
be a mere 2% of the total sales of the selected sub-compact and compact cars listed in
Table 8.3.
.
0.02
1970913
39418
(1)
80
Used Cars Replacements by LCVs: The government safety and emission standards are
constantly being updated with as new technology becomes available over time.
However, there are serious risks involved with the sale of an old used car in terms of
occupant protection and environmental conservation. Thus, an LCV satisfying all
government regulations and standards, could break into this market to increase its total
sales. The estimated sale for the LCV under this market is assumed to be 5% of total
used vehicles of year 2009. [28]
.
0.05
1528125
76406 (2)
Other Market Replacements by LCVs: Other markets such as fleet market and urban
city dwellers can also be included in the group of potential customers for the LCV based
on the LCV price and size. The sale for the LCV in this market is assumed to be 25000
per year.
.
25000
(3)
Considering these market options, the total annual sales of the LCV can be predicted and/or
estimated.
.
.
(4)
140,824
The predicted sales represent the market for the LCV concept generated. It highlights the fact
that LCV intends to open a new market for itself. The sales numbers either obtained or
estimated are derived after following a conservative approach while analyzing changing market
trends.
81
CHAPTER 9:
DISCUSSION &
CONCLUSION
83
9.1 LCV MANUFACTURING, ASSEMBLY AND MARKETING

STRATEGIES
The target cost of the Low Cost Vehicle concept can be materialized not only by cost-effective
and functional design modifications but also by cost reductions due to improvements in
purchasing, manufacturing, assembly, marketing and sales operations. Thus, to achieve one
common objective in all processes from the concept phase to marketing of the product, there has
to be a common motive of satisfying the ultimate objective of meeting the target cost set for the
LCV. Hence, LCV can only be realized by the combined efforts of all the departments of the
company. Systems Engineering principles must be applied at every step from concept
development to production and sales.
To achieve the target cost set for the Low Cost Vehicle, it is crucial to optimize the design make it as functional as possible, improve manufacturing process what works rather than
using complex and highly-precise processes, assembly plant layout optimize assembly
processes, possible reduction of dealer margin and/or apply new sale techniques. These
considerations if taken into account at an early conceptual stage of product development will
lead to the most cost effective, functional design. This approach can be initiated by any
department (Engineering, Production, Finance, Sales and so forth) in order to meet the target
cost of Low Cost Vehicle.
Manufacturing process and material selection for a component or a system in general is one of
the key factors affecting the overall cost of the product. If the manufacturing process for a
component/system is selected early on in the development cycle, it pays ahead in time to
generate a realistic estimation for the complete product. The manufacturing process can be a
decision-making parameter for selection of one or more concepts from the cost perspective.
According to Table 4.1, the vehicle assembly comprises of 23% of the overall cost distribution of
the vehicle. If vehicle assembly is optimized, overall cost of the vehicle can be reduced. The
vehicle assembly is dependent on the HPV (Hours per vehicle) of each vehicle.
HPV
A
A
H
P
(5)
HPV is dependent upon the type of the vehicle, complexity in assembly, plant layout, location
and labor productivity. The measure of productivity of the assembly plant depends on the HPV
of the vehicle assembled. Therefore to reduce HPV, as per the equation, the assembly hours on
the vehicle have to be reduced or more have to be produced for the given man-hours.
85
It is proposed that integrated system units to be supplied directly by the suppliers and
assembled at the assembly plant can reduce the HPV. The integrated system unit might avoid
complex assembly operations and could be quicker to install and assemble, thereby reducing
the HPV. By implementing Just-in-Time principles to both assembly operations as well as part
delivery by the suppliers, it reduces inventory costs, requires less space for assembly, and
further help to avoid defective inventory build-up. This points out the importance of integration
of the suppliers in the vehicle assembly process.
According to [14], the dealer margin is 15% to 22% of the cost of the vehicle to the dealer or 14%
to 18% of the vehicle MSRP. This percentage can be reduced to make the vehicle more
affordable to the customer. The dealer margin can be reduced if the dealer does not have to
invest in keeping extra inventory of the product. This would avoid larger dealer occupied area,
inventory maintenance cost and excessive utilization of resources. Following the approach
similar to Kanban (Pull Approach), the dealers can call for additional inventory depending on
the customer order.
The current low cost vehicles as discussed above in Table 8.2 sold in the US are imported from
outside the United States for cheaper manufacturing costs, cheap labor and cheap real estate.
These factors add up to reduce the overall cost of the vehicle. It is proposed to investigate the
real time costs of importing the completely built units (CBU) or to import completely knocked
down units (CKD) and to set-up the manufacturing facilities in a region with minimal
operational costs to achieve the target LCV cost.
9.2 CONCLUSION
The LCV concept described in this report illustrates the approach of starting with the review of
the Tata Nano design and integrating knowledge from the QFD and customer needs to modify
the vehicle to meet the current federal regulations given the goal to create an $8000 vehicle. The
next major challenge is to develop a detailed engineering plan with necessary implementation
of the Nano philosophy to meet the target cost structure.
The authors perceive that the LCV concept is achievable only by following a concurrent systems
engineering approach. Furthermore, since cost is a major design factor, it is necessary for all the
departments to work as one team right from the concept stage to achieve the LCV target cost.
The development of the systems, subsystems and components should focus strictly on the basic
functionality rather than additional auxiliary add-on features provision. These add-ons may
increase the utilization of resources in terms of time and capital investment to develop the
system, subsystem and/or component.
86
9.3 FUTURE WORK

To prove the feasibility of the LCV concept, future research should be directed in many areas.
Clearly, there is a need for extended research for detailed designing of the proposed
modifications to meet the target cost. This design process would lead to a unique combination
of applications of Systems Engineering principles and innovative techniques for product design,
alternative manufacturing processes, marketing strategies and overall product development
cycle.
87
REFERENCES
1. Tata Motors, Tata Nano,
http://tatanano.inservices.tatamotors.com/tatamotors/index.php, Oct. 2010.
2. Tata Technologies, Better Innovation press release, Tata Nano A comfortable, safe,
all-weather car, high on fuel efficiency & low on emissions for $2500, 2010.
3. Business World, "The Making of a Modern Classic,"
http://www.businessworld.in/index.php/Automobiles/The-Making-Of-A-ModernClassic.html, Aug 2010.
4. Maruti Suzuki India Ltd, Maruti 800, http://www.maruti800.com/, Oct. 2010.
5. Autocar, http://www.autocar.co.uk/car-news/new-cars/tata-nano-europa-fulldetails/,
Oct 2010.
6. Liker, Jeffery K., The Toyota Way, Tata McGraw-Hill Edition 2004.
7. Siekman, Philip, The Smart Car is Looking More So, Fortune magazine, April 15 2002.
8. Hussain Tajmahal, Shantanu Ranadive, Development of Low Cost Vehicle Concept for
United States using Systems Engineering Principles, SAE Technical Paper 2011-01-1019.
9. WBS Group, Target Costing, The Supply Chain Mechanics.
10. Feil, P., Yook, K., and I. Kim, Japanese Target Costing: A Historical Perspective,
International Journal of Strategic Cost Management, Spring 2004.
11. Aboyade, O.J., "The Shift from a Component-based to as Systems Engineering Approach
for Electrical and Electronic Product Engineering at International Truck and Engine
Corporation," SAE Technical Paper 2002-01-3084, 2002.
12. Monden, Y., Cost Reduction Systems: Target Costing and Kaizen Costing,
Productivity Press, Oregon. 1995.
13. Cuenca, R.M., Gaines, L.L., and A.D. Vyas, Evaluation of Electric Vehicle Production
and Operating Costs, Center for Transportation Research, Energy Systems Division,
Argonne National Laboratory, 9700 South Cass Avenue, Argonne, Illinois 60439,
ANL/ESD-41: 6-11, Nov. 1999.
89
14. Delucchi, M., Burke, A., Lipman, T., and M. Miller, Electric and Gasoline Vehicle
Lifecycle Cost and Energy-Use Model, Institute of Transportation Studies, UC Davis,
04-01-2000.
15. Hyundai USA, Hyundai Accent 3-door, http://www.hyundaiusa.com/accent-3-door,
Oct. 2010.
16. Nissan USA, Nissan Versa 1.6 Base Sedan, http://www.nissanusa.com/versa, Oct.
2010.
17. Chevrolet, Chevrolet Aveo Sedan,
http://www.chevrolet.com/vehicles/2011/aveosedan/overview.do, Oct. 2010
18. Honda, Honda Fit, http://automobiles.honda.com/fit, Oct. 2010.
19. Kia Motors, Kia Rio, http://www.kia.com/#/rio/explore/360-views-and-colors-exterior,
Oct. 2010.
20. Toyota, Toyota Yaris, http://www.toyota.com/yaris, Oct. 2010.
21. Ford Vehicles, Ford Fiesta, http://www.fordvehicles.com/cars/fiesta, Oct. 2010.
22. www.a2mac1.com
23. Federal Motor Vehicle Safety Standards, Title 49 Transportation, Chapter 5, part 571,
http://www.access.gpo.gov/nara/cfr/waisidx_07/49cfr571_07.html .
24. Wards Automotive Yearbook 2008.
25. Wards Automotive Yearbook 2009.
26. Edmunds, http://www.edmunds.com/, Sept. 2010.
27. Wards Motor Vehicle Facts & Figures 2009.
28. Automotive News Data Center, http://www.autonews.com/ , Nov 2010
29. Ansari, Shahid L. and Jan E. Bell, Target Costing, Irwin Professional Publishing, 1997.
30. Clark, Kim B. and Takahira Fujimoto, Product Development Performance,
Uncorrected Proof, Harvard Business School Press 1991.
90
OFFICERS OF THE UNIVERSITY

SENIOR OFFICERS
Daniel E. Little, Ph.D., Chancellor
Kate Davy, Ph. D., Provost and Vice Chancellor for Academic Affairs
Robert Gassel, B.B.A., Interim Vice Chancellor for Business Affairs
Stanley E. Henderson, M.A., Vice Chancellor for Enrollment Management
and Student Life
Edward J. Bagale, M.B.A., Vice Chancellor for Government Relations
Thomas A. Baird, M.Ed., Vice Chancellor for Institutional Advancement
ACADEMIC DEANS
Kathryn Anderson-Levitt, Ph.D., College of Arts, Sciences, and Letters
Paul N. Zionts, Ph.D., School of Education
Subrata Sengupta, Ph.D., College of Engineering and Computer Science
Kim Schatzel, Ph.D., School of Business
REGENTS OF THE UNIVERSITY
Julia Donovan Darlow, Ann Arbor
Laurence B. Deitch, Bingham Farms
Denise Ilitch, Bingham Farms
Olivia P. Maynard, Goodrich
Andrea Fischer Newman, Ann Arbor
Andrew C. Richner, Grosse Pointe Park
S. Martin Taylor, Grosse Pointe Farms
Katherine E. White, Ann Arbor
Mary Sue Coleman, ex officio
CITIZENS ADVISORY COMMITTEE
Brian M. Connolly
Stephen Economy
Mark T. Gaffney
Paul C. Hillegonds
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Hassan Jaber
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91
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The University of Michigan is committed to a policy of equal opportunity for all persons and
does not discriminate on the basis of race, color, national origin, age, marital status, sex, sexual
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A LOW COST VEHICLE

CONCEPT FOR THE

Benchmarking the Tata Nano and

Institute for Advanced Vehicle Systems

Copyright 2011 by the College of Engineering and Computer Science,

Printed in the United States of America by Sheridan Books.

Permission to reprint may be obtained by contacting:

Published by the College of Engineering and Computer Science,

A Low Cost Vehicle Concept for the U.S. Market

6.2 LCV Target Specification .............................................................................................................. 48

A Low Cost Vehicle Concept for the U.S. Market

ABOUT THE AUTHORS

A Low Cost Vehicle Concept for the U.S. Market

A Low Cost Vehicle Concept for the U.S. Market

A Low Cost Vehicle Concept for the U.S. Market

A Low Cost Vehicle Concept for the U.S. Market

Figure 1 Relationship between Vehicle Cost and the Features Offered

A Low Cost Vehicle Concept for the U.S. Market

A Low Cost Vehicle Concept for the U.S. Market

A Low Cost Vehicle Concept for the U.S. Market

2.1 INTRODUCTION: TATA NANO

Figure 2.1 Tata Nano LX [1]

Table 2.1 Specifications of Tata Nano [1]

Mechanical Rack and Pinion

A Low Cost Vehicle Concept for the U.S. Market

2.2 PRODUCT DEVELOPMENT: TATA NANO

Figure 2.2 Indian Family on a Motorcycle

Figure 2.3 A Complete Car Tata Nano

2.2.2 Design Process

A Low Cost Vehicle Concept for the U.S. Market

2.3 NO BENCHMARK VEHICLES

Figure 2.4 Maruti Suzuki 800 [4] and Tata Nano (L to R)

Maruti Suzuki 800

Rs. 1.97 lakh ($ 4477)

Rs. 1.23 lakh ($ 2776.21)

Manual; Synchromesh on all

Front: MacPherson Strut Type;

Mechanical Rack and Pinion Steering

A Low Cost Vehicle Concept for the U.S. Market

Figure 2.5 Instrument Panel of Tata Nano [5]

2.4 MANUFACTURING/ SOURCING STRATEGY

A Low Cost Vehicle Concept for the U.S. Market

A Low Cost Vehicle Concept for the U.S. Market

Figure 3.1 Low Cost Vehicle Concept Development Process [8]

A Low Cost Vehicle Concept for the U.S. Market

A Low Cost Vehicle Concept for the U.S. Market

4.1 TRADITIONAL COSTING APPROACH

Figure 4.1 US and Japan product development cycle [10]

A Low Cost Vehicle Concept for the U.S. Market

4.2 TARGET COSTING APPROACH

4.3 TARGET COST FOR THE LCV

Table 4.1 LCV Target Cost Breakdown

Dealer Margin (10% MSRP) [14]

Companys Profit (2.78% Factory Invoice)

Vehicle Target Cost (variable costs plus

Wheels & Tires

Accesssories and Tools

A Low Cost Vehicle Concept for the U.S. Market

A Low Cost Vehicle Concept for the U.S. Market

A Low Cost Vehicle Concept for the U.S. Market

Benchmarking here is referred to as a comparison tool to analyze the current competing

Figure 5.1 Cost Comparison

A Low Cost Vehicle Concept for the U.S. Market