A LOW COST VEHICLE U.S. MARKET - University of Michigan-Dearborn

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, University of Michigan-Dearborn 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 University of Michigan-Dearborn 2066 IAVS 4901 Evergreen Road Dearborn, MI 48128-1491 Published by the College of Engineering and Computer Science, University of Michigan-Dearborn

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

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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


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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


iii

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


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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 Michigan-Dearborn. He received his bachelor’s 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 Michigan-Dearborn. 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.


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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.


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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 world’s least expensive car in production. It is developed using similar principles of the Henry Ford’s 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.


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CHAPTER 1: INTRODUCTION


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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.


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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 country’s 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 world’s 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 world’s least expensive car in production and is developed on similar principles of the Ford’s 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

FE

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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.


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CHAPTER 2:

TATA NANO


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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 world’s 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 (ex-showroom 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]

Specifications Vehicle Model Tata Nano

Price ($) 2500

Dimensions

Overall length (in) 122.01 Overall width (in) 58.98 Overall height (in) 63.50 Wheel base (in) 87.80 Wheel track (in) Front 52.2 Wheel track (in) Rear 51.8 Headroom (in) Front/Rear 36.6 Legroom (in) Front/Rear rear – 31.5 max & 24.41min


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Specifications Vehicle Model Tata Nano

Price ($) 2500

Body Type 5 - door Hatchback Construction Uni-body

Weight Curb (lbs) 1322.77

Type 2 cylinder Fuel Gasoline Horsepower @ rpm 34.52 @ 5250 Torque (lb-ft) 35.4 Nm @ 3000 Power/Weight Ratio (Hp per ton) 57.44 Displacement (liters) 0.624 Valve Train 4-Valve SoHC Fuel System Multi-Point Fuel Injection Emission class EURO III

Drivetrain Drive Configuration Rear wheel drive

Type 4 Forward + 1 reverse

Performance Max Speed 105 km/h 0 - 60 km/h 0-60 km/h (37 mph): 8 seconds

Steering Type Mechanical Rack and Pinion

Turning Dia - Curb to Curb (ft) 26.25

Front (in) 7.086 in dia. Drum brake Rear (in) 7.086 in dia. Drum brake

Front Independent, Lower Wishbone, MacPherson

Strut Type

Rear Independent, Semi Trailing arm with coil

spring and hydraulic shock absorbers

Wheels and tires

Wheel Rim : 4B x 12 - steel cover

Tires : Radial, Tubeless Tires Front - 135/70 R12

Rear - 155/65 R12 Spare - 135/70 R12

Fuel

Tank Capacity (gal) 3.962 (15 lts) EPA Mileage estimates (city/highway/combined)

56 MPG

3- point seat belt; Front Seat-belt pretensioners and force limiters

3 - point Seat belts, Driver and Front Passenger

3 seat belt rear; 3 - point Rear Passenger Lap belts Front and Rear crumple zones Door intrusion beam


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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 4-door 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


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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.


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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.)


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Table 2.2 Comparison of Specifications of Maruti Suzuki 800 [4] and Tata Nano [1]

Specifications Maruti Suzuki 800 Tata Nano

Price Rs. 1.97 lakh ($ 4477) Rs. 1.23 lakh ($ 2776.21) Curb Weight 1430 1323 lbs Engine Type 796cc, 37 bhp, 3-cylinder, front 624cc, 34 bhp,2-cylinder, rear

Steering Mechanical Rack and Pinion

Steering Mechanical Rack and Pinion Steering

Transmission Type Manual; Synchromesh on all

forward gears.

Manual; Synchromesh on all forward gears with overdrive. Sliding mesh

for reverse gear. Number of Gears 4 forward + 1 reverse 4 forward + 1 reverse

Suspension

Front: MacPherson Strut Type; coil spring

Rear: coil spring & gas filled shock absorbers

Front: Independent ; Lower wish bone; MacPherson Strut Type

Rear: Independent; Semi Trailing arm with coil spring & hydraulic shock

absorbers

Brakes Front :Disc Rear: Drum

Front & Rear : 180 mm drum brake

Wheelbase 2175 mm 2230 mm Seating Capacity 4 persons 4 persons

Fuel Tank Capacity 7 gallons 4 gallons Max. Speed 70 mph 65 mph

Fuel Economy 33.4 mpg 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.


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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 company’s 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’.


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CHAPTER 3:

LCV DEVELOPMENT PROCESS


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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 short-term 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 today’s 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


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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.


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CHAPTER 4:

TARGET COSTING


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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 product’s 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 competitor’s 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.


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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 product’s 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 competitor’s 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.


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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 sub-

systems of LCV.


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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

Company’s Profit (2.78% Factory Invoice) $ 200

Vehicle Target Cost (variable costs plus development costs) (VC)

$ 7000

% (VC) $ (USD)

BIW + Safety 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

Vehicle Assembly 23 1610


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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.


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CHAPTER 5: BENCHMARKING


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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.


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5.1 DIMENSIONS


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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.


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5.2 PERFORMANCE


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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.


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5.3 CHASSIS SYSTEMS


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5.4 SAFETY SYSTEMS


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5.5 ADDITIONAL FEATURES


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40


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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.


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CHAPTER 6:

LCV ATTRIBUTES AND DESIGN


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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.


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6.1.1 Quality Function Deployment (QFD) Chart


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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.


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6.2 LCV TARGET SPECIFICATIONS


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Table 6.3 LCV Target Specifications

Vehicle Characteristics TargetEngine Displacement (cc) 1000 Curb Weight (lbs) 2000 Tire size P175/70R14 Fuel economy (mpg) 40/45 Suspension Type 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 mph)

12 s

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 / Rear

Disc/Drum

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.


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CHAPTER 7: MODIFICATIONS


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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


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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.


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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]

Reason for Modification 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.


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Additional reinforcements are introduced to comply with rollover protection, where necessary.

Fig 7.3.1 Roof Reinforcements [22]

Reason for Modification

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.

Reason for Modification FMVSS 205, 212, 219 [23]

Comment Specifications similar to the windshields in current sub-compact cars.


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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]


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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).


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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

Reason for Modification FMVSS 208, 301 [23]


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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.

Reason for Modification 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.


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Transmission

Fig 7.9 Tata Nano – Transmission [22]

Modifications

Larger 5 speed transaxle to couple with a bigger engine.

Reason for Modification 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.


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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.

Reason for Modification 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.

Reason for Modification FMVSS 208, 209, 210 [23]


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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.

Reason for Modification 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]


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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]


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Reason for Modification 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.


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Reason for Modification 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.

Reason for Modification Customer requirement - safe and comfortable vehicle feel.


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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.

Reason for Modification Customer requirement for an acceptable vehicle range FMVSS 301 [23]


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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]


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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

Reason for Modification 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.

Reason for Modification Ergonomic standards, Customer requirements. FMVSS 201, 302 [23]


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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.

Reason for Modification 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.

Reason for Modification FMVSS 208, 302, [23] Customer requirements (QFD)


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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.

Reason for Modification FMVSS 202, 201, 207, 302 [23] Customer requirements (QFD).

Rear Passenger Seat

Figure 7.25 Tata Nano – Rear Seat [22]


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Modifications Increase the overall seat width, seat cushion length and backrest height for comfortable seating as per the US customer ergonomics requirement.

Reason for Modification FMVSS 202, 201, 207, 302 [23] Customer requirements (QFD)

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.


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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.

Reason for Modification Customer requirements (QFD) and ergonomic standards. FMVSS 201, 302 [23]


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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.


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CHAPTER 8:

LCV SALES POTENTIAL


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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 MSRP

(USD) $

Hyundai Accent 3 Door Blue 9985

Nissan Versa 1.6 Base Sedan 9990

Chevrolet Aveo Sedan 11965

Kia Rio 12295

Toyota Yaris 12605

Ford Fiesta 13320

Honda Fit 14900

Despite the low prices of these vehicles, their sales volumes have not been very promising [24-25]. 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


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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.


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Table 8.2 Changes in Market Trends [26]

Category 2003 -2008 Market Share Change

Compact SUV 61.65% Compact Car 35.71% Large Car 26.75% Midsized Car -3.80% Midsized SUV -12.58% Larger SUV -20.41%

The above Table 8.2 shows that because of the customer preferences to environmentally-friendly 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 2008 2007 2006 Mini Cooper* 54,077 42,045 39,171 Smart Fortwo* 24,622 0 0 Ford Focus 195,823 173,213 177,006 Chevrolet Aveo* 55,360 67,028 58,244 Chevrolet Cobalt 188,045 200,620 211,449 Pontiac Vibe 46,551 37,170 45,221 Honda Civic 305,509 292,192 272,899 Honda Civic* 33,780 38,903 43,739 Honda Fit* 79,794 56,432 27,934 Hyundai Accent* 50,431 36,055 34,735 Hyundai Elantra* 94,720 85,724 98,853 Kia Rio* 36,532 33,370 28,388 Mazda3* 109,957 120,291 94,437 Mitsubishi Lancer* 27,861 31,376 23,167 Nissan Versa 85,182 79,443 22,044 Nissan Sentra 99,797 106,522 117,922 Suzuki SX4* 29,483 15,209 3,453

Model 2008 2007 2006 Toyota Corolla/ Toyota Matrix

252,877 348,016 335,054


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Toyota Corolla* 98,130 23,374 52,334 Toyota Yaris* 102,382 84,799 70,308

Total Sales 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. . 1 0.02 1970913 39418 (1)


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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] . 2 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. . 3 25000 (3)

Considering these market options, the total annual sales of the LCV can be predicted and/or estimated. . . 1 . 2 . 3 (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.


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CHAPTER 9: DISCUSSION & CONCLUSION


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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 HA 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.


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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.


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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.


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REFERENCES

1. Tata Motors, “Tata Nano”,

http://tatanano.inservices.tatamotors.com/tatamotors/index.php, Oct. 2010.

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Classic.html, Aug 2010.

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and Operating Costs,” Center for Transportation Research, Energy Systems Division,

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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 Arthur M. Horwitz Hassan Jaber Maria Leonhauser Gail Mee Patricia E. Mooradian Timothy O’Brien Jon Pepper Shirley Stancato


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NONDISCRIMINATION POLICY STATEMENT

The University of Michigan, as an equal opportunity/affirmative action employer, complies with all applicable federal and state laws regarding nondiscrimination and affirmative action. 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 orientation, gender identity, gender expression, disability, religion, height, weight or veteran status in employment, educational programs and activities, and admissions. Inquiries or complaints may be addressed to the Senior Director for Institutional Equity and Title IX/Section 504/ADA Coordinator, Office for Institutional Equity, 2072 Administrative Services Building, Ann Arbor, Michigan 48109-1432, 734-763-0235, TTY 734-647-1388. University of Michigan-Dearborn inquiries or complaints may be addressed to the Dearborn Institutional Equity Officer, Office of Human Resources, 1020 Administration Building, 4901 Evergreen Road, Dearborn, MI 48128-2406, 313-593-5320 or 593-5190, TTY 313-593-5430, Fax 313-593-3568.

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A LOW COST VEHICLE U.S. MARKET - University of Michigan-Dearborn