India has emerged the leader in small cars, overtaking Japan, as declining sales in Western markets coupled with robust growth in Asia redraws the global map of the auto industry faster than many expected.


It's well known that China will overtake the U.S. as the world's largest car market this year. Less noticed is the fact that India will top Japan for the first time in sales of super-compact cars. It overtook Japan as the world's number one producer of basic cars in 2007.

Automakers like Ford (NYSE: F), Nissan, Volkswagen, General Motors, and China's Shanghai Automotive Industries Corp. are pouring hundreds of millions of dollars into the country, hoping to capture a piece of the growing market for tiny, inexpensive passenger vehicles. As they do so, they are quietly transforming India into an export hub for small car manufacturing….

And price matters. Executives say most Indians won't spend more than $8,000 on a car.

To manufacture these low-margin vehicles profitably, carmakers must localize production to cut costs and ramp up volumes….

Hungry for scale, carmakers must count on exports….

Analysts caution that India's emergence as an auto hub still faces headwinds like bureaucratic red tape, labour unrest, inefficient ports, poor infrastructure and competition from Thailand and South Korea, which recently signed a free trade agreement giving carmakers duty-free access to Europe.

"It's not a foregone conclusion despite the high demand," said John Bonnell, director of automotive forecasting at J.D. Power and Associates in Bangkok.

"Compromising that is a lot of red tape, bureaucracy and unions."

Still, the global appetite for basic cars is growing. Sales of such cars will hit 4.9 million vehicles this year, up 13 per cent from last year, while total car and truck sales will shrink by 6 per cent, to 62.9 million vehicles, says J.D. Power and Associates….

This article is excerpted from the 23 December 2009 edition of the “Toronto Star”.