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Ultra-low cost cars could take Britain by storm

A bright future is being predicted for the new generation of ultra-low cost cars.

Industry commentators at KPMG believe that this relatively new ‘ultra-economy’market segment, set to be headed by cars like the new Renault Logan, may surprise many people with just how successful it could be.

The arrival of these low-cost cars is timely as British car buyers’ affluence is giving rise to a new consumer trend called ‘rocketing’. This involves trading up to more expensive marques and models for the main car whilst clawing back some of the extra cost by down-grading the second – or even third – family car to a much lower cost car.

Mike Steventon, head of automotive at KPMG in the UK, said: "Previous attempts by the major car manufacturers to sell economy models have not been a huge success as people have seen stripped-out city cars as a poor alternative to a one year old supermini such as a Fiesta or Corsa, for example. In addition, attempts to create so-called low-cost ‘world cars’ such as the Fiat Palio have not been a conspicuous success as the promised cost savings proved to be illusory.

"However, it now appears that Renault may have cracked the problem with a solution that is creating waves throughout the industry. They have produced the Logan, a distinctly functional, medium-sized four-door saloon slightly larger than the old Ford Escort saloon. The styling is deliberately boxy and the interior is designed to look simple and functional without straying over the line into being primitive. Originally intended for less affluent markets, its potential in Western Europe is making several other manufacturers sit up and take notice."

The projected price for the car is £3,500.

This is the projected price for the completely bare version of the car aimed at markets like Russia. In Western Europe, the price goes up to £4,995 for a spacious family saloon.

Originally, Renault said that the Logan would not be made in a right-hand drive version, but they have now changed their mind and will introduce the car in the UK in 2007.

It is clear, says KPMG, that consumers now expect more from low-cost models than just a low price in return for small dimensions. According to sales data from the automotive consultancy Spyder Redspy, the market share of city cars in the UK has declined from 4.9% in 2000 to 3.7% nowy as they have found it increasingly difficult to compete with nearly-new superminis.

Early sales evidence from mainland Europe is that the Logan is taking sales from used cars, not from more expensive Renaults, providing early evidence of the emergence of something genuinely new in the European car market.

Volkswagen is now known to be working on a prototype called the 3-K; so-called because of its target manufacturing price of €3,000, which would subsequently translate into a Western European retail price of €7,500 – the same as the Logan.

VW boss Bernd Pischetsrieder has publicly said that VW should recapture the market for basic transport. In response, Peugeot has said it will keep the 206 in production as its low-cost car after the 207 has been launched.

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