Doron Levin Fortune Magazine

A strategy of going after up-and-coming auto markets is paying off.

The late Henry Ford II famously quipped “big cars big profits, small cars small profits.”

The Ford chief executive didn’t live long enough to see consumers in emerging markets buy cars in great numbers. The Renault Nissan alliance is seizing the opportunity of increasing car ownership in countries like Russia and India, and is proving that sales of small, low-price cars can yield solid profit.

The Renault Nissan alliance is convinced that first-time buyers don’t want just less expensive versions of cars aimed at French or Japanese consumers, with fewer features. Instead, the alliance is developing new low-cost models; next year it will introduce two new models under the Datsun brand, built in Chennai for Indian consumers.

“Indians want a real car, not something that is a compromise or makes them feel like they have to ride in something cheap,” said Gerard Detourbet, a former math professor who switched to automaking in the 1970s. He leads the alliance’s initiative to develop low-cost car models for emerging economies.

An important alliance tactic has been to re-engineer basic components such as gearboxes to be simpler and less costly. Another is to find smaller automotive suppliers who can manufacture reliably and at lower costs that reflect less corporate overhead than the large parts makers.

“Indian consumers want air conditioners in their cars, naturally, just like people all over the world,” said Detourbet. “But it may be that the air conditioner in a car we build will have a single switch. On or off. No variable speeds. No zones.”

Detourbet, 68, explained that models like the Tata Nano fared poorly in India because consumers felt they offered too little and conveyed a message that was insultingly downmarket. The Nano, introduced in 2008, was highly touted for its low price, as little as $2,000, several thousand dollars below a Mexican-built VW Beetle. The Nano, however, has sold poorly.

Renault acquired Romanian carmaker Dacia in 1999, the same year it invested in Nissan in order to rescue the Japanese automaker from a near brush with bankruptcy. The utilitarian Logan, built by Renault under the Dacia brand, became a hit in eastern Europe and later gained popularity among Western European consumers.

Subsequent Dacia models like the compact Duster crossover have been exceptionally popular across the continent, evolving into one of the alliance’s big money makers. The alliance is using a small platform, dubbed CMF, as the basis for all variations of its emerging economy models.

Lately, the slowing of the recovery from the global financial crisis, compounded by diplomatic tension with Russia, has depressed carbuying. Older Datsun models on sale in India have fared poorly. (Renault in 2012 bought a controlling stake in Russia’s biggest automaker, Avtovaz.)

Short-term macroeconomic difficulties in emerging economies haven’t discouraged Detourbet or his boss, Carlos Ghosn, chief executive of both alliance members.

“Tensions have affected the market,” Ghosn acknowledged during the Paris Auto Show earlier this month. “They haven’t changed the strategy.”

Detourbet isn’t revealing much about the two new Datsuns scheduled to hit the Indian market next year. This much is a safe bet: They won’t be costly by U.S. standards. And they won’t insult status-conscious Indian carbuyers, at least not carelessly.