India squeezes prices to mount small-car challenge

Small CarBy Siddhartha Kumar  - India is set to emerge as a global small car hub with domestic and multinational automakers adapting to cost-conscious consumers in a way that is changing the small car paradigm and could well revolutionize the way cars are made globally.

The unveiling of the world's cheapest car, the 2,500-dollar Nano by India's Tata Motors earlier this year set the scramble among carmakers for a new domain of low-priced small cars in the Indian market.

Much earlier, the government geared its policies to promote India as a small car hub by giving tax breaks for manufacturing of such cars, which account for nearly three-fourths of its 1.4 million car market.

According to figures released by the Society of Indian Automobile Manufacturers (SIAM) for the Indian financial year ending March 31st, 16 per cent of the total 1.04 million small cars produced were exported.

The exports were led by South Korea's Hyundai and Japan's Suzuki, about 40 and 6 per cent of their 319,634 and 533,772 units produced respectively.

And although India is still not a major small car exporter, the numbers could see a surge with the developments in the recent months.

With cars like Nano being hailed as a major innovation in the auto industry and subsequent announcements by domestic two-wheeler leader Bajaj to compete by building a 3,000-dollar car with French auto-major Renault, India could vroom away as a major exporter and from its position as the third largest producer of small cars behind Japan and Brazil.

Several automakers that do not have a price-competitive small car platform to meet the global demand are looking at India as a base for designing and manufacturing new small cars.

There have also been announcements of new launches and plans to make India a global small-car hub for export to Africa, Latin America and Europe by some big names in business.

Toyota plans to make a small car in India and said it will build a 350-million-dollar plant to start producing 100,000 units by 2010. Another Japanese giant Honda, which is eyeing small car sales in emerging economies, is also working on a small car with plans to use India as a manufacturing hub.

Deputy Director General of Confederation of Indian Industry, Sarita Nagpal said Tata had defined a completely new need for making small cars: of a cheap and safe transport solution for two-wheeler customers who aspire to four-wheeled transport.

"India has developed a capability in manufacture of small cars and is better at cost control. Tata and Bajaj which have competence in low-capacity vehicles, fuel efficient engines and process engineering are expected to trigger innovation and cost control among other carmakers," she said.

South Korea's Hyundai company which was among the first to identify the country as a small car hub recently made a global premiere of its i. 10 in India and will double its production capacity to 600,000 units by end of 2008, aiming to export one-third of that figure.

Japan's Suzuki and its Indian subsidiary Maruti have an overall export target of 200,000 units from India by 2010. It plans to make India its sole manufacturing hub of world car A Star, designed in India, and aims to export 100,000 of 150,000 units produced to European countries from late 2008.

Ford Motor Co, whose sales dipped last year, also plans to build as inexpensive car in the next two years while General Motors has started making small cars including
7,200-dollar Spark. Other car makers like Fiat, Skoda and Volkswagen have also made announcements on small-car projects.

But challenges of rising wages, expensive raw material and inadequate infrastructure such as port capacity could wreck India's small-car dream, warns SIAM.

"The challenge certainly is whether economic environment is able to support competitive small car manufacturing," Dilip Chenoy, Director General, SIAM said.

"The government needs to respond to the aggressive steps taken by countries like China and Thailand and ensure that incentives announced earlier in the Automotive Mission Plan are implemented."

Studies by Delhi-based Centre for Science and Environment show that the small car could mean big problems - an influx of these cars could drive public transport and two-wheelers off the roads and greatly increase urban congestion and environmental degradation.

"Cities need mobility, not cars. We need to redesign public policies to promote mobility for all and scale up efficient public transport. We need to implement effective tax, road pricing and parking policies to restrain car use", the centre's Anumita Roychowdhury said.

"Indian policymakers should link the massive investments happening to make India a small-car hub to stringent fuel efficiency and emission standards. Or else these new cars with poor standards will cause a huge pollution overload being on the road for the next 15 years," she said. (dpa)

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