Mumbai: The US and European auto makers should be better placed to meet pent-up demand for cars in India by the year-end, as they go ahead with expansion plans, while Asian rivals delay investments due to the crippling financial crisis.

General Motors Corp. (GM), Ford Motor Co. and Volkswagen AG, buffeted by the crisis and reeling from the worst downturn in car and truck sales, are pinning their hopes on emerging markets such as India to take up some of the demand slack.

Confident move: Ford’s India chief Michael Boneham justifies the firm’s investments in India, saying it would have adequate payback. Harikrishna Katragadda / Mint

“Japanese auto makers, and particularly Toyota, have decided to reduce the amount of capex (capital expenditure) they’ll spend globally over the next couple of years as they see out this downside, rather than continuing investment for when an upswing takes place," said Ian Fletcher, auto analyst at IHS Global Insight, a forecasting and research agency.

“India is one place where they should probably be continuing investment as it will probably be one of the markets in which a faster recovery in vehicle sales takes place given the low numbers of vehicles on the road already," he said.

Car sales are forecast to grow 3-5% in the year to next March, after just 1% growth in the year just ended, according to the Society of Indian Automobile Manufacturers data.

Sales of trucks and buses, which have been harder hit by the downturn, fell 26% last year, but could grow at 7-10% this year. April data showed Tata Motors Ltd’s first rise in truck sales in annual terms since September.

But Asia’s top car makers are reassessing their capital investments worldwide.

“Toyota, Nissan and Honda have been hit pretty significantly by the US downturn as they had a strong presence there," said IHS Global Insight’s Deepesh Rathore.

Latest data from Japanese auto makers show sales continuing their downtrend. Japan’s industry-wide auto sales fell 23% in January-March from a year ago, and their US sales were down in April, too. Nissan, which said it was on track to roll out a small car by mid-2010 in a venture with Bajaj Auto Ltd and Renault SA, is dithering over making light trucks in a venture with Ashok Leyland Ltd.

“Nissan and Leyland are currently studying ways to optimize production plans in line with the joint venture agreements due to the economic crisis. The LCV (light commercial vehicle) production in Chennai is currently under study," a Nissan spokeswoman said.

The truck market in India has collapsed in the last six months as a slowing economy slammed the brakes on freight movement across the country.

“I’d say it’s natural for any company to review, revisit their plans," Rathore said.

Toyota, scheduled to start operations from its second assembly plant at the start of next year, will roll out its compact car at the end of the year, while its existing plant will continue to make its Corolla sedan.

A spokeswoman for its Indian unit, Toyota Kirloskar Motors Ltd (TKM), told Reuters: “TKM will, of course, carefully monitor the trend of demand in the market as we make our decisions on what to produce and how much to produce from month to month."

In contrast, American and European auto makers are confident their investments will be justified when demand picks up. “Investments in India would have adequate payback... I wouldn’t be doing it if I didn’t think so," Ford’s India chief Michael Boneham told Reuters recently. “I wouldn’t make decisions that cost the company these investments. Demand will be greater for 2010 than we had originally thought."

Ford is investing $500 million (Rs2,475 crore) to expand capacity in India and introduce a small car in the first quarter of 2010.

Analysts said GM and Ford, whose market share is eroding at home, see India as one of few growth markets.

Earlier this year, Germany’s Volkswagen opened a new $770 million facility in India to make the Skoda Fabia this year and its Polo supermini next year, while Daimler AG’s luxury unit Mercedes-Benz, which used to make cars in a plant leased from Tata Motors, has opened its own unit.

Despite the slowdown, officials of both German auto makers said demand in India would take off once the recovery started and they wanted to be ready for that.

Daimler showed its confidence in the Indian market by going it alone on a project to make trucks even after local partner Hero Group unexpectedly pulled out of the venture.

Analysts said China and India had become more powerful players as consumer incomes have risen.

Although both have suffered in the downturn, their growth potential is much stronger than in Europe and other markets, where there is overcapacity.

“It doesn’t surprise me that a lot of the European brands are looking to markets like India and China as the obvious places to continue making investments," said Peter Haynes, director, JATO.