New Delhi: India has two of the world’s 10 largest car factories: Maruti Suzuki India Ltd’s factory in Gurgaon, which is at No. 3, and Hyundai Motor India Ltd’s in Chennai at No. 7, an indication not so much of the country’s growing market for cars or its emergence as an export hub, but, analysts say, of the unique nature of and the challenges involved in manufacturing in the country.

Graphic: Ahmed Raza Khan/Mint

In 2009, Maruti’s Gurgaon plant produced 620,000 cars and Hyundai’s factory at Irungattukottai made 550,000. In China, Changan Auto’s Chongqing Jiangbei plant produced 525,000 cars. “There is no plant in China like Maruti’s," said Puneet Gupta, market analyst at CSM Worldwide. He attributes the smaller output numbers at Chinese car plants to the manufacturers’ focus there on large and medium-size cars that require fewer units to achieve economies of scale, a key contributor to profitability in the car manufacturing business.

A majority of the plants on the list, such as Fiat’s Tichy facility in Poland, ranked sixth, or Suzuki Motor Corp.’s Kosai plant, which now ranks fifth below Maruti’s Gurgaon facility, make small cars. Hyundai’s factory at Ulsan, South Korea, which makes 1.2 million cars a year, tops the list.

Listen to Puneet Gupta, a market analyst at CSM Worldwide talk about India’s car market, the country’s biggest car plants, and trends one can expect to see in the next five years. Click here

The rankings may be a result of poor global demand for cars in 2009. Last year, customers around the world bought 50.91 million cars, 2.4% down from 2008’s 52.17 million, according to a report by Scotia Capital. In contrast, the Indian market did well with customers buying 1.2 million cars in 2009, 12.5% more than the 1.05 million they did in 2008.

In 2008, Maruti Suzuki made 640,000 cars at its Gurgaon plant, giving it a rank of five for the year, while Hyundai did not make it to the Top 10.

Analysts say that as the production of cars in India increases in the future, more factories in the country could make it to the top 10 list.

Several global auto firms have already invested or are investing in building huge factories that will produce cars for both the Indian and export markets.

In March, the Renault-Nissan alliance inaugurated its facility at Oragadam, near Chennai. It plans to eventually scale up capacity at this factory to 400,000 cars a year. Ford Motor Co. of the US has also established India as a hub for small cars. It recently expanded capacity at its Maraimalai Nagar plant near Chennai to 200,000 cars a year.

Managing supply chain operations in a developing country such as India is often a challenge and companies prefer to be near a supplier, explaining why they choose to increase capacity at existing factories, said an expert. “There is always merit in expanding an existing facility in a country like India," said Kapil Arora, partner (auto practice) at audit and consulting firm Ernst and Young.

Poor infrastructure is another reason why companies prefer to expand existing facilities. Every job in a car factory translates into five new jobs in allied products and services, and so, in addition to tax breaks and cheap land, state governments often promise to build infrastructure around auto plants.

India’s labour-intensive plants also mean that firms must manufacture more cars per plant to achieve global economies of scale, said another expert.

“In India, scale can be hit at between 400,000 and 500,000 units," said Vikas Sehgal, a partner at consulting firm Booz and Co. Managing these plants is very complex as they begin to resemble “mini cities", he added.

Sehgal estimates that in Europe and the US, car makers would have to roll out 250,000 cars a year to achieve economies of scale. That may explain why there are no US factories in the top 10 list.