India Emerges as Production Hub for Small Cars

Anjana Pasricha
Voice of America
December 16, 2007

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India is emerging as a production hub for Asian car manufacturers rolling out new compact models for the global market. Anjana Pasricha reports from New Delhi that the market for small, low-priced cars is on the rise worldwide.

Suzuki Motor Corporation says a new compact hatchback targeted at European customers will start to roll out of a plant near New Delhi in December of next year. The company says the car will produce lower greenhouse emissions than its European rivals.

The Japanese company plans to export nearly two-thirds of the 150,000 cars due to be made here annually.

Suzuki says it will invest $1.8 billion to increase capacity in its Indian factories over the next 15 months.

Suzuki is not the only company to use India as a manufacturing base for compact cars being sold on global markets.

South Korea's Hyundai has also made India a production hub for small cars. In October, the company launched a compact car known as the i10, which is being made only in Hyundai's Indian plants in the south of the country.

Much of the production is being exported, to Europe, Russia and Latin America.

Nissan says it also plans to manufacture a small car in India for export to Europe.

Industry analysts say India offers several advantages to car manufacturers. Yogendra Pratap , formerly editor of the automotive magazine Overdrive, says the country offers expertise, low production costs and millions of potential customers.

"India has all the engineering skills that are required to make cars," said Yogendra Pratap. "It is definitely cheaper to make cars here than elsewhere. For the sub-compact segment, India also has the volumes now. It makes sense to have a production base and a development base in a country where you are going to be having major volumes. Suzuki for instance sells more cars in India than in Japan."

Global auto manufacturers are focusing on compact cars as demand for them rises worldwide. Stricter emission rules in Western countries and rising fuel prices are prompting many European customers to opt for small cars.

Over the next five years, economists predict that hundreds of millions of people in emerging markets such as India, China, Russia and Brazil will be joining the middle class, and looking for cars priced under $10,000.

This has led global auto giants such as Toyota and General Motors to announce that they will develop low-cost cars. Most of these small cars are expected to be manufactured in Asian countries such as India and China.