MUMBAI – Honda Siel Cars India Ltd. initiated a new premium small-car segment here last month when it launched its second-generation global compact car, the Jazz, also known as the Fit in some markets.

More than 2.8 million Jazz/Fit cars have been sold in 130 countries, Honda Motor Co. Ltd. says.

The premium hatch has a 1.2L i-VTEC gasoline engine specially developed for the Indian market, providing an impressive combined fuel economy of 38 mpg (6.2 L/100 km). It’s compatible with E10 fuel and meets Euro 4 emissions standards.

Priced between Rs698,000 and Rs733,000 ($14,850-$15,600), the Jazz’s three variants are the most expensive among India’s current crop of small cars. Other premiums in that price range, such as the Skoda Fabia and Hyundai i20, have failed to make a mark.

Small-car competition is stiff in India. Maruti Suzuki India Ltd., Hyundai Motor India Ltd., Tata Motors Ltd. and Fiat India Automobiles Ltd., combined, offer 15 small models with 72 variants that sell in a more-affordable range of Rs202,000 to RS636,000 ($4,217-$13,278). An extreme comparison finds the Jazz priced about five times more than the new low-cost Tata Nano, whose concept has captivated the global industry.

Other threats to the Jazz may come from midsize and luxury cars, even within Honda Siel’s own stable. The price difference between the Jazz and Honda’s City sedan version, which has been in the local market for some time, is Rs80,000 ($1,670). The two use the same platform and a number of common components.

But Honda is not worried, believing City owners may buy the Jazz as their second family car. M. Takedagawa, Honda Siel president and CEO, tells the media the introduction of the Jazz in India creates a new superior-premium hatch segment.

“(The) Jazz has all the Honda values – technology, design, drivability, efficiency and safety,” he says. “We are going to change the rules of the game through Jazz. It has all the features of a luxury car neatly packed in a hatch.”

While Honda’s Indian sales fell 16.5% to 52,492 in the last fiscal year, ended March 31, the current year’s April-May period saw a 5.3% improvement to 7,729 units, compared with like-2008.

The Honda City sells about 3,500 units a month, and the Jazz is expected to bring an additional 2,000-2,500 deliveries. As the economy improves, Honda Siel expects to register double-digit growth.

Meanwhile, Honda is looking for ways to lower its costs. The Japanese parent recently started research-and-development operations in India to increase domestic sourcing and reduce reliance on imported components.

This will help cut costs and insulate Honda from the yen/dollar fluctuations. The auto maker is providing design, engineering and technology help to local component makers for developing parts. The Honda Accord presently has a local content of 35%, Civic 65%, City 74% and Jazz 77%.

Components also come from Thailand, Indonesia, Philippines and Japan. But most of the materials, such as die castings, forgings and foundry supplies, are sourced locally. Honda is negotiating with Tata Steel to source high-tensile, low-weight steel.

While Honda Siel has made an early start with the Jazz, other super-premium cars are on the horizon.

Toyota Kirloskar Motor Ltd.’s compact car is due from its upcoming second plant by 2010. Volkswagen India Ltd. plans to bring its Polo here in 2011 on multiple platforms powered by 1.2L diesel and 1.6L gasoline engines.

Hyundai is planning continuation of its small-car series with the i30 by the end of the year, and Mahindra Renault Ltd. is bringing the Renault Sandero to the Indian market in two years.

General Motors Corp. has extensive plans to make India a hub for its small-car exports to Europe and Africa within the next two years, and Fiat plans to push its 500 and Grande Punto models.

Nissan Motor Co. Ltd. and Renault SA are linking up with local manufacturer Bajaj Auto Ltd. to produce a Nano fighter, but the partners have yet to decide whether to jointly develop a small car or each to have its own.