How do cheap car manufactures make money?

If you’ve ever compared the models that both Volkswagen and Skoda can offer you, you most likely found that by choosing the latter, you’d save a bit of money on what is effectively the same car. Really, they obviously won’t tell you this and would possibly rather I didn’t tell you but tough, they’re probably too busy cheating on emissions tests at the moment to care anyway.

One example of a pair of such cars is the Skoda Fabia and the Volkswagen Polo; both have a top speed of around 100MPH, both have around 60 horsepower and they even share the same underpinnings. You’d therefore presume that the two cost more or less the same but there is in fact a £1395 (US $17,62.21) difference in price; the starting price for a new Polo is £14,235 (US $18,359.34), while you’d need £12,840 (US $16,560.16) for the latest Fabia. Granted, the price difference is not catastrophic, but it’s still considerable if you have a budget of around £15,000.

Of course, if you want to make a truly cheap car, it couldn’t be almost identical to a mainstream model, it’s underpinnings would inevitably be made of asbestos and kitchen foil and it couldn’t possibly share any similarities to what a conventional car manufacturer would’ve used in its history. Or would it?

You see, as we age even just a few years, a large proportion of our cells are replaced meaning that eventually you are an almost completely new person, the generations of car models also go through something rather similar; replacing parts and improving the models with each generation and facelift, but what happens to the remaining dregs of outdated parts and designs that took masses of time and money to research and develop? Are they now utterly redundant? Or are they be used as the automotive equivalent of a boxing day lunch? (It goes without saying you wouldn’t actually do this with your old skin tissue and organs, if you do you definitely need help.)

This is where Dacia comes in, specifically the Dacia Sandero; at £6995 (USD $8998.52) it is the cheapest new car on sale in the United Kingdom. For that price you get three cylinders, four wheels and five doors and that’s about it. You don’t get a spare wheel as standard, you don’t get an alarm, and you don’t get body coloured front and rear bumpers. The only way I can imagine for the Sandero to be any cheaper would be if a three (or zero) door version were to be designed, or if they removed the indicators and simply had the driver use hand signals.

To create this Christmas turkey curry of a car, Dacia had based the Sandero on a platform that has been used in many Renaults and Nissans since 2002, despite the fact that this design has already had a “successor” that was first produced in 2013. The particular platform Dacia use in the Sandero however, is a tweaked version of what was used in a couple of Ladas; that laughable manufacturer from what was once the Soviet Union.

Not too surprisingly Lada never made good quality cars, but what is surprising is that they’re actually still at it and selling their models in twenty-nine different countries. Furthermore, they actually can sell you a new car for less than a new Sandero; the average Russian would have to work for just under four months (saving all of their money) to buy the unremarkable Lada Granta Sedan.

The Granta costs the equivalent of £3756.11 (USD $4884.01), which means that if you have $30,000 lying around, you can either treat yourself to a three-day hospital visit in
The United States of America or you can buy six brand new Grantas and still have enough money left ($695.94) to buy six 15 minute visits to a private doctor and a box of 12 antibiotics.

But if the £6995 (USD $8998.52) Sandero appears to be about as sparse as a car can be, how can a something that costs £3,238.89 (USD $4,214.26) less be anything more than a brake pad? Well, in 2013 thousands of Grantas were recalled due to braking system faults so there is a chance it won’t be a very good brake pad, no need to worry though, because in 2012 ARCAP (the Russian equivalent of  Euro NCAP) awarded the Granta with a two star safety rating.

At least you won’t be needing to use those brakes too much, because 0-62MPH takes 12.2 seconds and the top speed is only just over 103MPH (or 167KMH). To be completely fair though, when you consider the price the performance isn’t actually that bad, especially as the most basic Hyundai i10; which costs roughly three times as much as the Granta, takes 14.7 seconds to get from 0-62MPH, this is stone age performance from a modern car, in fact I think the stone age didn’t even last that long.

Now let’s cut to the answer of the   clickbait-y title; How do cheap car manufactures make money? Or why do some manufactures make dirt cheap cars while others won’t sell you anything unless you pledge your first and last born child, an arm and a leg (hopefully you’ll be buying an automatic) and your soul?

The answer? Maybe the budget manufactures don’t make an awful lot of money, neither Skoda, Dacia or Lada are completely independent companies, they are all either mostly or entirely owned by much larger manufactures, after all, without this borrowing parts and designs would be much more difficult. Perhaps this phenomena isn’t limited to the auto industry, budget airlines such as Transavia, Germanwings and Vueling are also owned by larger companies.

When we look at a list of the 15 most valuable car companies, we don’t see a single one that could be described as a budget manufacturer, if anything roughly half of them could be described as premium manufactures.

The point of selling these models then, is not to rival the luxury and prestige cars but to give a bit more income from something entirely different, but at the end of the day even if the customer cares as little as possible about cars, they may want to buy used for even less or go for the second cheapest option so as to avoid regret or being judged. When you think of it like that that, cheapest models of the cheapest manufactures are a rather niche area of interest.

 

 

Sources; Volkswagen UK, Skoda UK, Dacia, Wikipedia, Lada Russia, Expatistan, HealthCare.gov, Wikipedia,

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