Automakers come knocking
India's quest to be a leading carmaker has received a vigorous boost in recent days, with a parade of global companies unfurling plans to assemble cars here for domestic consumption and export.
The recent announcements - by BMW, Suzuki, Nissan, Volkswagen, Honda and Toyota - reflect the allure of selling cars to every echelon of an increasingly affluent society. The government recently forecast that automobile sales would leap from US$ 34 billion this year to US$ 145 billion in 2016, accounting for one-tenth of India's economic output.
At the market's top end, BMW announced in recent days that it would assemble cars in India for the first time, catering to a widening sliver of the new rich. A US$ 25 million plant near the southern port of Chennai will manufacture 1,000 of BMW's 3 Series and 5 Series models starting next year, with a peak capacity of 1,700 cars a year.
But the site, producing expensive cars and depending on existing models, is an anomaly. So lucrative is the Indian market that most companies are inventing smaller cars to cater to value-conscious consumers - then seeking to export those made-for-India cars around the world to ensure large, cost-efficient production runs."Previously, they thought, 'What do we have that could fit into India?'" said Paul Blokland, director at Segment Y Automotive Intelligence in Bangalore who has advised Volkswagen, BMW, Hyundai and other producers on entering the Indian market. "Now, they think, 'What can we invent for India and fit into the rest of the world?'"
Honda and Toyota announced last week that they would bolster their India presence with smaller cars. Honda said it would quadruple its Indian capacity to 200,000 cars by 2010, primarily with small cars. Toyota, which has yet to market a small car in India, said it would soon do so in the hope of seizing a 10th of the local market by 2010.
In the same week, Maruti Udyog, the Indian automaker jointly controlled by Nissan and Suzuki of Japan, said that it would spend about US$ 650 million to expand its Indian factories and build new ones, nearly doubling its capacity in the country to 1 million cars by 2010. Exports, primarily to Europe, will multiply more than tenfold in that period, to 400,000 cars a year from last year's total of 35,000.
Later, Volkswagen confirmed rumors that it was scouting plant locations to make its first Indian-made vehicle, also to be a small car.
These moves came a month after General Motors said it would build a US$ 300 million plant in India to produce a fuel-efficient hatchback called Chevrolet Spark, priced between US$ 6,000 and US$ 8,000.
The plans appear to embody what the business writers John Seely Brown, a former chief scientist at Xerox, and John Hagel, a former management consultant, have called "innovation blowback" - in which multinational companies pick up new skills in emerging markets and then apply them to their home markets.
In a recent interview, Nick Reilly, president of General Motors in Asia, said the Indian market had compelled his company to learn how to make money on small cars - a talent that could prove useful at home in the United States, where high fuel prices are making smaller cars more popular. "If we're going to be successful in Asia, we have to be successful in small cars," he said. "And that will give us the potential products to go back into our traditional markets of Europe and the U.S. with smaller cars, which we haven't had before."
The spurt in Indian car output adds to mounting signs of an industrial awakening. To date, the Indian economy has gained stature mostly in services, including an outsourcing industry that has generated about one million jobs. Though impressive, that achievement has spread little opportunity among villages and small towns, where more than two-thirds of Indians live.
On a recent visit to a Hyundai factory in southern India, managers spoke of a country that was slowly changing to make itself friendly to manufacturers - and of a world that was slowly adjusting to the idea of "Made in India."
After years of resistance by unions, the government of Tamil Nadu, the state where the Hyundai plant is located, recently permitted factories to run on three-shift, 24-hour cycles. The switch made the plant the first Hyundai site in the world to operate without pause, Heung Soo Lheem, chief of India operations for Hyundai, said in an interview.
When the company started exporting the Santro hatchback to Europe, in 2003, dealers there sought a 5 percent discount on India-made cars, which they saw as inferior. At Hyundai's invitation, several dealers visited the factory in India; impressed by what they saw, they withdrew their request.