India Sees Sea Change from Economy Cars to Midsize, Luxury

India's car market, including sport/utility vehicles (SUVs), has grown and diversified over the last decade to more than a dozen major automakers, two dozen models and 50 variants, adding up to last year's sales of 482,100 passenger cars and 100,000 SUVs, says a study by DRI Global Automotive Group.

If that weren't reason enough to draw the world's most competitive automakers, consider this: India's domestic car market is worth $3 billion a year, with sales likely to rise six-fold from 1998 levels to 2.4 million vehicles by 2010, the Society of Indian Automobile Manufacturers estimates. India's prominence in information technology also is creating a sizable professional class with strong purchasing power sure to influence future passenger car demand.

Major global automakers, meanwhile, finally are grabbing sales from the traditional domestic makes with models such as the Ford Ikon - the first foreign-brand car designed to Indian tastes. Other popular models include the Mitsubishi Lancer, Honda City, Daewoo Matiz, Hyundai Accent and Santro, Fiat Sienna wagon and Toyota Qualis SUV.

And Honda Motor Co. Ltd. plans to launch its Accord in India next year. DaimlerChrysler AG also is eyeing India as the production site for a new small car in 2002, and Ford India is considering introducing another car that would be compatible with the Ikon.

A major causality is Maruti Udyog Ltd., the long-time partnership between the Indian government and Suzuki Motor Corp. that once held 80% of the entry-level car market. Now the government is thinking of pulling out, and Maruti is hoping its new Suzuki Alto will boost flagging sales.

What's not yet known is how Maruti fits into General Motors Corp.'s game plan after GM doubled its stake in Suzuki earlier this year (from 10% to 20%). Maruti is not sitting still. As sales of economy cars lose their grip, midsize and luxury car sales are picking up speed. Other segments gaining popularity are station wagons and SUVs. In a pre-emptive launch, Maruti unveiled India's first station wagon, the Baleno Altura, on Sept. 1, beating Fiat India Ltd.'s new Sienna Weekend to market.

Now the government is weighing in with a controversial revamp of its own - a new automotive policy that could take effect April 1, helping protect its domestic market while putting a damper on further industry expansion.

In addition to hiking the amount of initial investment for a startup venture from the current $50 million to $100 million, the proposed policy would over the next five years impose an export duty of 10% to 20% on sales; make it mandatory for foreign investors to set up a design laboratory/research facility in the country and put tariff levels on components, kits, completely-built-up units and second-hand cars.