Got 5,000 Euros? Need A New Car?

Drivers across Europe are clamoring for Renault's ultracheap, no-frills Logan

A strange thing happened when French auto maker Renault last fall rolled out the no-frills Logan, a midsize sedan was designed to sell for as little as 5,000 euros ($6,000) in emerging markets like Poland. Western buyers clamored for the car. So this June, Renault began delivering the roomy, unpretentious five-seater to France, Germany, and Spain. The pricier West European version includes a passenger-side airbag and a three-year warranty but still sells for a base price of $9,300 -- about half that of the Ford Focus ($17,250) and the Volkswagen Golf ($18,264).

Building cheap cars for the West wasn't what Chairman Louis Schweitzer had in mind when he spent $592 million in 1999 to acquire and retool ailing Romanian auto maker Dacia. He aimed to produce a low-cost vehicle targeted at developing countries, home to 80% of consumers who have never owned a car. But he may well have stumbled onto a rich vein of demand in the West for utilitarian cars, part of the discount mania that has spread across Europe. Renault's tony Champs Elysées dealership has sold 40 Logans since the car's June 9 debut. The waiting list stretches into November. "For me a car is only a means of transportation. The Logan is a genius idea," says Michel Cuypers, a 62-year-old retiree who ordered a pearl-grey Logan with a radio, power steering, and metallic paint -- all extras -- for $10,648.

No matter where the Logan sells, Renault has engineered a small miracle by making a car that is modern but stripped of costly design elements and superfluous technology. Deutsche Bank (DB ) pegs production costs for the Logan at $1,089 per car, less than half the $2,468 estimate for an equivalent Western auto. "The Logan is the McDonald's of cars," says Kenneth Melville, the Scot who headed the Logan design team. "The concept was simple: Reliable engineering without a lot of electronics, cheap to build and easy to maintain and repair."

To keep costs low, Renault adapted the platform used for its other small cars -- the Clio, the Modus, and the Nissan Micra. Melville's team then slashed the number of components by more than 50%. The dashboard is one continuous injection-molded part, vs. up to 30 pieces for a top-of-the-line Renault. The rear-view mirrors are symmetrical, so they can be used on both the left and right side of the car. Renault also opted for a flat windshield: Curves result in more defects and higher costs.


The simple design means assembly at the Romanian plant is done almost entirely without robots. That lets Renault capitalize on the country's low labor costs. Gross pay for a Dacia line worker is $324 per month, vs. an average $4,723 a month for auto workers in Western Europe. Now, Renault is ramping up production of the Logan from Russia to Morocco. "The investment in manufacturing is relatively low, so you can have factories that don't have to produce huge volumes to finance themselves," says Christoph Stürmer, senior analyst at researcher Global Insight in Frankfurt.

Renault expects sales of the sedan to climb from about 175,000 this year to 1 million by 2010, supplemented by the rollout of station wagon and pickup versions. By then, the Logan could add some $341 million to Renault's bottom line, according to Deutsche Bank auto analyst Gaetan Toulemonde. The company posted a profit of $4.26 billion on revenues of $49 billion last year.

Other companies are working on cheap cars, too. Volkswagen is considering building a $3,650 car for China. India's Tata Motors is expected to debut a $2,000 car before 2008. But for now, the Logan is the one turning heads.

By Gail Edmondson in Pitesti, Romania, with Constance Faivre d'Arcier in Paris

    Before it's here, it's on the Bloomberg Terminal.