Indian super-compact car market overtakes Japan

09:08, December 24, 2009      

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India has emerged the leader in small cars, overtaking Japan, as declining sales in Western markets coupled with robust growth in Asia redraws the global map of the auto industry faster than many expected.

It's well known that China will overtake the US as the world's largest car market this year. Less noticed is the fact that India will top Japan for the first time in sales of super-compact cars. It overtook Japan as the world's number one producer of basic cars in 2007.

Automakers like Ford, Nissan, Volkswagen, General Motors, and China's Shanghai Automotive Industry Corp are pouring hundreds of millions of dollars into the country, hoping to capture a piece of the growing market for tiny, inexpensive passenger vehicles. As they do so, they are quietly transforming India into an export hub for small car manufacturing.

"From a small car production hub perspective, India is right in the center of the radar," said Michael Boneham, head of Ford India, which plans to roll out its first India-made compact, the Figo, in the first quarter of next year.

More than 892,000 basic cars - the smallest category of passenger vehicle - will be sold in India this year, up 14 percent from last year and surpassing the 708,034 forecast for Japan, according to JD Power and Associates.

Unlike China, Russia and Brazil, where consumers buy a range of cars, from basic to luxury, Indians overwhelmingly prefer small, affordable cars.

Nearly half of all cars sold in India - like Maruti Suzuki's Swift, GM's Spark and Hyundai's Santro - fall into the basic category. These are cars so small they're almost nonexistent in the US market. Think of them as sub-sub-compacts.

Drive down the streets of a typical Indian megacity, where the bulk of car buyers live, and it's easy to see why. Millimeters count. Drivers squeeze through any remotely plausible opening on the clogged streets, grazing handcarts, bicycles, cars, pedestrians and livestock in the process.

And price matters. Executives say most Indians won't spend more than $8,000 on a car. To manufacture these low-margin vehicles profitably, carmakers must localize production to cut costs and ramp up volumes.

For now, they can't sell enough cars in India alone to make the numbers work. The market is too consolidated - Maruti Suzuki sells half of all cars in India - and too small.

India ranks 10th globally for total car and truck sales. JD Power expects Indian car and truck sales to hit 1.9 million this year, a far cry from China's 12.3 million.

Hungry for scale, carmakers must count on exports.

"The margins are slim to say the least," said John Parker, Ford's executive vice-president for Asia Pacific and Africa. "We see exports as an opportunity to expand the volume base. The key thing in this area of the marketplace is to create scale."

Ford Motor Co has invested $500 million in India and its factory in the south Indian city of Chennai can make up to 200,000 cars a year.

Even if sales more than double, to 60,000 vehicles next year as executives hope, they've got capacity to spare.

Parker said the company has not ruled out shifting production of the Fiesta and Focus from Europe to India.

Source: China Daily
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