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Cars for Developing Markets

At last week's Shanghai Auto Show, the GM CEO got an up-close view of the latest trend in the auto business -- cheap cars for developing markets. Oh make no mistake; this is not a trend that Wagoner is just stumbling upon. He's known about it for some time, and in some ways, General Motors is testing out the idea of selling "mini" cars -- with presumably a rather low price point. We'll talk more about that in a bit.

Renault Logan
AP
Renault Logan

But first, the cheap car wave taking hold in developing markets. It started in the last couple of years with Renault's Logan, a small sedan made in Romania that is sold in Europe for roughly $7,500. The Logan is so popular that Renault's plant in Romania can't make the vehicle fast enough. Having seen the Logan when in Europe, I have to tell you, the car doesn't blow you away. But it's also not a Yugo. It's a decent car giving owners reliability at a reasonable price.

And Renault CEO Carlos Ghosn knows he's hit a winning formula. While Eastern Europe, especially the former Soviet bloc countries, is still not as economically developed as Western Europe, there is huge demand in those countries for an affordable car.

This is the same reason that Tata Motors, out of India, has developed a $2,500 car that it plans to sell in late 2008. With the Indian automaker just taking off, Tata hopes to cash in on a burgeoning middle class that wants affordable wheels.

So where are the Big Three in the small/cheap car boom? Well, GM is considering building a mini car that the company unveiled at the New York Auto Show. But it's still unclear what the price point would be, or if the car would be sold in developing markets. My gut says GM gets in to the race soon, using cars it builds off of lines at one of its plants in Asia. And it would be a smart move. The developing market is a lucrative one if you get the formula down. Just ask Renault.

Questions? Comments? BehindTheWheel@cnbc.com

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