Oragadam: On a dusty sun-baked field, in a ceremony presided over by a priest tossing water and rice, Japanese car maker Nissan Motor Co. made a bold step into the Indian market.
The traditional Hindu ritual this month, attended by half a dozen sweating Japanese and European executives, blessed the site where Nissan will build its first passenger vehicle factory in India, a sprawling $1.1 billion (Rs4,697 crore) complex where rice fields stood. The plant, built jointly with its French partner Renault S.A. outside Chennai, will turn out 400,000 cars a year when completed.
Japan’s Big Three—Toyota, Honda and Nissan—led the world in factory automation and eco-friendly technology, but until now they have been cautious about venturing from the roads they know: the mature markets of North America and developing markets closest home. Now, in a radical shift, they are plowing into exotic terrain, from Saharan Africa to the former Soviet Union to the plains of south India.
Hedging profits: Inside the Honda plant in Greater Noida. Automobile sales in India are expected to double to 3.92 million units by 2012. (Photo: Ramesh Pathania/Mint)
They are determined not to repeat the mistakes of a decade ago, when they were late to the party in China, and where they have since trailed rivals such as Volkswagen and General Motors. They have been particularly quick to expand in India, a nation of 1.1 billion that is just beginning its automotive revolution, and that many call the world’s next mega-market after China.
The aggressive moves by traditionally cautious auto makers are the latest sign that the epicentre of the global industry is somewhat shifting from California to somewhere between Canton and Kolkata.
So places with rapidly escalating demand—such as India, Brazil, Russia and China—will be more important than ever. “These developing markets used to be an afterthought” for Japanese auto makers, said Hirofumi Yokoi, an analyst in Tokyo for CSM Worldwide, the auto market research company. “Now they are the industry’s future.”
According to CSM, vehicle sales in developing regions are expected to rise by about 10 million units over the next six years, contributing 76% of the industry’s global growth.
“It used to be that Honda relied on its US business, maybe too heavily,” said Honda’s president in India, Masahiro Takedagawa. “Nowadays, we are trying to spread the sources of profits more globally, beyond just one market.”
Toyota, the biggest of the three, has opened a factory in Russia, is building a second Indian plant, and recently announced a new small car for India. Honda is building a plant in Argentina and expanding production in Brazil and India. Nissan is erecting factories in Russia, Morocco and China, as well as a second plant in Chennai.
Sales of cars and trucks are expected to double to 3.92 million units by 2012, according to a forecast by the market research group Global Insight.
The Japanese are not alone. Just in Chennai, Ford Motor Co., BMW AG and Hyundai Motor Co. have all built factories.
The large Japanese automakers also find themselves in the unaccustomed position of trying to catch its much smaller Japanese rival Suzuki Motor, which became the largest car company in India by being one of the first to arrive.
Concerns of falling behind are felt keenly at Nissan, which sold only 500 vehicles at its five dealerships in India last year. However, by 2012, the company hopes to increase that to more than 200,000.
To head its push into India, Nissan tapped Kimura, a 29-year veteran who had been running the company’s model factory in Oppama, Japan. Kimura, who worked five years at Tennessee, said he expected personal adjustments as well in Chennai, where he will move in September. He noted that the city had only two Japanese restaurants, versus 10 near Nissan’s Tennessee plants. “There’s a big difference between Tamil Nadu and Tennessee,” said Kimura.
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Bill Vlasic from Detroit contributed to this story.