Center of Gravity Shifting in India’s Small-Car Market

MUMBAI – India’s 10th New Delhi Auto Expo, which opened Tuesday, is shaping up to be a battleground for design and innovation vs. a war of wits and marketing, as global auto makers debut the latest in small cars and new engine technologies.

Japanese brands, for example, are pitting the refinement and reliability of their passenger vehicles against the precision engineering and drivability of the German car makers. But they also are unveiling low-cost subcompacts designed with India’s price-sensitive market in mind.

Every auto maker in India is tussling for market share, as evidenced by the 20 new and existing small compacts and smaller hatchbacks displayed at the show. However, there’s also a full-scale race among luxury vehicles, including small cars such as the Volkswagen New Beetle.

The range of product introductions at the Auto Expo swings from the new sporty Chevrolet Beat minicar priced at less than $8,500 to the Mercedes GL350 CDI SUV that will sell for $150,000.

One of four key emerging markets, India is Asia’s fourth-largest vehicle market and among the fastest growing, with a goal of reaching 3 million total vehicle sales by 2015, according to a government forecast. Industry sales in the first 11 months of 2009 included 1,310,665 cars and 582,293 light trucks, Ward’s data shows.

The game starts with Advantage Japan, which currently holds a 47.8% share of the Indian market. Maruti Suzuki India Ltd. is at the top with a 42.4% share, followed by Toyota Kirloskar Motor Ltd. and Honda Siel Cars India Ltd. Nissan Motor India Ltd. now arrives, bringing aggressive designs for low-cost, small and electric cars.

Maruti Suzuki’s market lead can be credited to its research and development base in India, providing the capability and understanding to build cars and make design alterations with a short lead time in order to suit Indian preferences.

GM India’s sporty Chevy Beat minicar one of many new small cars unveiled at Auto Expo.

But the Auto Expo already is revealing the challenges the auto maker is facing from its rivals. Among them is General Motors India Pvt. Ltd., which recently joined forces with the Reva Electric Car Co. in Bangalore to develop low-cost electric vehicles for India and some export markets.

GM India also is working on low-emissions, alternative-fueled vehicles, powered by liquefied petroleum gas and compressed natural gas, as well as researching biofuels.

The auto maker produces seven cars under the Chevrolet brand in India at two factories and is planning a $500,000 expansion that includes a car plant and engine and transmission facility.

Parent General Motors Co. says it expects to sell 100,000 vehicles in India this year. The auto maker sold 60,845 cars and light trucks in the country in the first 11 months of 2009, according to Ward’s data.

Stepping up its presence in India is Volkswagen AG, which recently took a 19.9% stake in Suzuki Motor Corp. and is looking to India for future small cars. The German brand reportedly is aiming at a 10% share of the Indian market.

VW has an added advantage of 10 years of Indian experience through its Skoda Auto India Ltd. subsidiary. Further, India’s luxury-car market is small in size but large in profit margin, giving VW an inside track with its Audi marque and fellowship with Porsche luxury cars.

Plus, German car makers all have small common-rail, direct-injection diesel engines to offer, whereas Japanese car companies in India are dependent on Fiat Automobiles SpA’s small multi-jet diesels.

All this has Maruti Suzuki worried. “We are aware that India now isn’t in a situation where we can be the sole winner,” company spokesman Hideki Taguchi is quoted as saying. Even R.C. Bhargava, Maruti Suzuki chairman, concedes: “It is going to be a tough battle.”

Maruti Suzuki currently offers seven small-car models with 30 variants that it believes provide buyers ample choice. The auto maker has said it is aiming to sell 1 million vehicles by the conclusion of the fiscal year ending March 31.

But these soon will be challenged by the VW Polo, upcoming Ford Figo, Toyota Etios unveiled at the Expo and Honda Motor Co. Ltd.’s unnamed new global compact car to be introduced in India. Honda also recently began selling its compact Jazz (Fit) hatchback in India.

Fiat India already has three small cars here. And GM India will be bringing a compact car from its new joint venture with Shanghai Automotive Industry Corp.

The booming small-car segment also includes offerings from powerhouse Hyundai Motor India Ltd. and Tata Motors Ltd. Interestingly, the car that started the rush to low-cost subcompacts among global auto makers, the Tata Nano, has yet to make its impact felt in the Indian market.