Honda has named India the "lead country" for its global small car which is expected to debut in two or three years. This is part of the Japanese automaker's strategy to create models for lead countries and modify them appropriately for other global markets. For example, Japan was the lead country for the Jazz.
The reason for Honda's India inclination is obvious: the country has become the second-largest maker of small cars, overtaking Brazil (Japan is number 1, but the gap is narrowing).
Small cars account for 80 per cent of the domestic market (up from 75 per cent last year) and exports are growing at top speed. According to the Society of Indian Automobile Manufacturers, small car exports rose 53 per cent between April and September to 1,97,249 units against 1,29,090 units a year ago.
Little wonder, then, that last Monday, Japan's Suzuki Motor said its annual operating profit would be four times its original forecast because of strong India sales. South Korea's biggest automobile maker Hyundai Motors also admitted its growth has been buoyed by small car sales in markets like India.
Hyundai recorded more than half of sales from China and India and Toyota saw around a third of sales coming from emerging markets.
Analysts say domestic growth rates for small cars have been boosted by the government's efforts to combat the fallout of the financial meltdown in the second half of 2008. As a result, taxes on small cars - defined according to length and the size of the engine - were cut to 8 per cent.
Hyundai Motor India senior vice-president (marketing & sales) Arvind Saxena says the economic slowdown of the past one year has reinforced consumer preference for fuel-efficient and inexpensive small cars.
Almost a quarter of Hyundai's repeat customers now own two small cars, Saxena added. In the past, the second purchase was invariably a mid-sized sedan.
That's precisely why manufacturers, like Nissan Motor Company after the meltdown forced it to shut plants overseas, are investing in emerging markets. Nissan is eagerly waiting to launch its new mini-car that will debut in India before the Europe, US and even Japan.
The company, which is Japan's third-largest car company, is making India the production hub for the yet unnamed compact car due to be launched in May. It will export to more than 100 countries from its plant in Chennai that has an annual capacity of 400,000 units.
Similarly, US automaker General Motors' India arm will become one of the only two centres of production of the new mini-car scheduled for launch in the next two months.
The car, which is expected to be priced at around Rs 4 lakh and will sell side by side with the hatchback Spark, will be exported to Asia Pacific and European countries from its plant in Talegaon near Pune.
The lure of the domestic high-volume game of small cars has also attracted Ford Motor Company to put the Indian car buyer on top of its agenda.
Allan Mulally, Ford's president and chief executive, says "We know the high importance Indian consumers place on value for money. We know (they) want quality, fuel efficiency, technology and safety. And Ford is going to give it to you."
The company is investing $500 million on transforming its India business into a volume manufacturing and export hub and a regional centre of excellence for small car development and production, according to a senior company executive.
Car ownership in the developing world shows immense potential for growth. A report prepared by Deloitte says there are 511 cars on the road for every 1,000 citizens in the UK, compared to 22 per 1,000 in China and just 11 for India. Analysts predict that the largest purchasing segment by 2020 will be first-time buyers.
Besides, small cars from India are making it big in European markets, where people are moving from gas guzzlers to fuel-efficient cars and taking the scrappage incentives being doled out by various European governments.
According to European Automobile Manufacturers Association, the total passenger car market in Europe is currently pegged at over 14 million units. Estimating the small car market to be 2 to 3 per cent, the total market size for small cars in Europe is pegged at nearly 5,00,000 units, of which over 80 per cent would be met by auto companies Hyundai and Maruti alone.
Nearly 75 per cent of the total vehicles sold in the US earlier were bigger cars and trucks. Now, 40 per cent of the US population is moving towards more fuel-efficient cars, suggesting huge export potential.
