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New Delhi: Toyota Kirloskar India Pvt. Ltd, the Indian unit of Japanese auto manufacturer Toyota Motor Corp., has placed orders for components of its next-generation Vios, its mid-size sedan, that it plans to position as an alternative to Honda Cars India Pvt. Ltd’s popular City sedan.

The next-generation Vios from the Japanese firm’s stable is being developed byToyota Motor Asia Pacific in Thailand, with Indian specifications in mind, said two people familiar with the matter.

The car will be introduced in the Indian market in January 2018. It will be powered by two new engines: a 1.6-litre petrol and a 1.6-litre diesel engine.

The Indian unit will import these units from Toyota’s Thai arm.

“It is a full model change of Vios that will be sold across the globe," said a person, who has business interests with Toyota in India. “India is doing much more work than just localizing the model."

Honda City is the market leader in the mid-size sedan category, which grew 16% to 89,669 units during April-September. In the same period, sales of Honda City grew 12% to 39,239 units.

A Toyota Kirloskar spokesperson declined to comment on the company’s future products.

Toyota awarded contracts to its vendors in April when it said the company will slightly tweak the platform for India, according to a second person familiar with Toyota’s plans.

This person said that Toyota aimed to sell only 25,000 units in India, in the beginning, but it revised sales figures to 65,000 units a year.

“Toyota wanted to be conservative (about sales) in the beginning but it now expects the Indian passenger vehicle market to post healthy growth two years from now," said the second person.

Japanese news agency Nikkei in July 2014 had reported that Toyota may withdraw the Etios brand from India by stopping its production by 2020 and replace it with Vios. However, the Etios model will continue to sell in the market, said the first person.

According to data provided by Society of Indian Automobile Manufacturers (SIAM), sales of Etios fell 14% to 31,137 units during 2014-15. It grew 33% during the April-September period to 13,004 units. During the same period, sales of passenger cars grew 5% and 9.68%, respectively.

Aimed at emerging economies, the Etios was introduced in India in 2010.

A hatchback called Liva was introduced later on the same platform but it never off. The launches were part of Toyota’s effort to play the volumes game in India based on its understanding of where the market was headed: a 10-million passenger vehicle market by 2025, five times its current size, prompting a push for alternative strategies and newer models.

Toyota would look to plug in the gap in its product portfolio in India, said Anil Sharma, principal analyst with Gurgaon-based consulting firm IHS Automotive.

“Although, the City segment has not really exploded in India, it remains a very aspirational segment for the Indian middle class," said Sharma.

“Toyota would do well to have a product in the segment."

According to Sharma, Toyota’s product may not affect sales of Honda City unless Honda commits a “blunder".

Laying out Toyota’s challenge, Sharma cited Rajiv Bajaj, managing director of Pune-based Bajaj Auto Ltd: once Bajaj Auto exited the scooter segment, it lost that market to Honda Motorcycle and Scooter India Pvt. Ltd (HMSI) and Bajaj then decided against re-entering that product segment. Reason: the challenger will have to come with a significantly improved product with a lot of value proportion to take on the market leader.

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