Indian super-compact car market overtakes Japan

MUMBAI: 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 Industries 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 J.D. Power and Associates.


Nissan Motor Co. plans to shift production of its Micra cars for the European market from the U.K. to Chennai, which it also aims to use as an export hub for Africa and the Middle East. The company plans to roll out its first made-in-India compact in May, part of a seven-year, $920 million India investment it made with partner Renault.

Volkswagen AG has invested Euro 580 million ($847 million) in India, and this month started production of its first India compact at a factory that can make up to 110,000 cars a year.

General Motors Co. opened a second, $300 million factory in India in September 2008, boosting annual capacity to 225,000 vehicles. This month, it teamed up with China's SAIC to launch an India joint venture, with fresh investment of up to $350 million.

The Indian government has encouraged small car production with tax incentives, and, unlike China, it allows foreign companies to fully own their Indian subsidiaries.

That control over production and revenues is part of what convinced South Korea's Hyundai Motor Co., the largest car exporter in India, to shift small car production to India 11 years ago, said H.S. Lheem, shortly before he stepped down as chief executive of Hyundai Motor India.

Nowadays, India is Hyundai's largest operation outside Korea. So far this fiscal year, Hyundai has exported about half of the 377,019 cars it manufactured in India, 65 percent of them to Europe.

"Chennai could be a good Detroit in India," Lheem said.