Mumbai: Nearly 50 years ago, France’s Renault SA and India’s Mahindra & Mahindra Ltd planned to make a Rs7,000 car for India, but were frustrated by local rules restricting foreign investment.
A lot has changed in the past half century, and more than a dozen car makers are now circling the global auto industry’s new battleground—to make cheap, small cars for the world’s big emerging economies. India’s market for cars alone should nearly double to two million by 2010.
Rising incomes and new model launches are boosting sales of bigger sedans and premium cars, but manufacturers’ focus is on the lower end of the market that accounts for about two-thirds of annual unit sales.
Stirred by Tata Motors Ltd’s plans to launch the world’s cheapest car, at just Rs100,000 ($2,450), next year, Renault, Nissan Motor Co. and Mahindra are mulling a $3,000 model. Toyota Motor Corp., Honda Motor Co., Fiat Spa and Volkswagen AG are also looking to build low-cost cars to compete in fast-growth emerging markets from India and China to Russia.
On Wednesday, SkodaIndia, a fully-owned subsidiary of Volkswagen Group’s SkodaAuto of Czech Republic, revealed plans to launch Skoda Fabia, its first small car in India, according to PTI.
“We are planning to launch the car by the end of this year. Fabia is very well accepted globally and with our experience in the car business, we are confident of receiving a similar response from the Indian customers as well,” Skoda India managing director Karsten Bogun said.
But despite technology advances, cost savings and shared platforms, there is precious little margin in cheap, no-frills models, so car makers need volume sales. Analysts say Tata Motors will have an edge, but warn that making it a viable model will be a tough challenge.
“It was an idea the Tatas had that is close to becoming a reality, whereas for the others it is still only a concept,” said Asit Bhandarkar, fund manager at brokerage JM Financial.
Indian roads were revolutionized more than two decades ago by the arrival of Maruti 800 from Suzuki Motor Corp.’s unit Maruti Udyog Ltd, that was both affordable and appealing compared to the boxy, utilitarian Fiats and Hindustan Motors Ltd’s Ambassador cars available then.
Maruti, which has more than half the local car market, has since launched new entry-level models such as the Alto, but still sold over 79,000 mini 800s in the year to March. The 800 sells for about $4,800.
Some analysts say they believe Maruti will cut prices of the 800 or reposition it, and rival Hyundai Motor Co., India’s second-biggest car maker, will also take on Tata Motors.
There is a tax benefit to small car makers: India cut a tax on small cars to 16% from 24% last year, helping sales of models up to 4 metres long and with up to a 1.2 litre petrol or 1.5 litre diesel engine.
Tata Motors chairman Ratan Tata reckons the Indian market for his car alone could be 1 million units a year at a “mature stage” and could be extended to the rest of Asia and Africa.
“A cheap car will sell well,” said Bhandarkar. “Whether it’s a Tata or a Maruti or any other brand is what remains to be seen.”