Global carmakers are lining up to make India, home of Tata Motors' (TAMO.BO) Nano, the world's cheapest car, a base for their export operations as they try to cut costs and move to compact, fuel-efficient vehicles.
South Korea's Hyundai Motor (005380.KS), which already exports close to half of its Indian output, wants to make India its global hub for making and exporting small cars.
Toyota (7203.T), the world's largest auto maker, is designing a compact car for the Indian market and plans to make the country its small car hub by 2012.
And Ford Motor (F.N) is investing about $500 million to double capacity at its India plant, which will not only produce a compact car but become a strategic global production hub.
Japan's Suzuki Motor Corp (7269.T) has a strong foothold as
majority owner of leading Indian carmaker Maruti Suzuki (MRTI.BO), which is spending more than $300 million on building a small-car research and development center in the country.
The company exported 54,707 cars in the five months from April, the start of the 2009/10 fiscal year, more than double its shipments for the same period a year earlier.
Apart from the obvious cost advantages, India has a good base of component suppliers who come with the experience of having supplied to global car companies, said Deepesh Rathore, auto analyst with IHS GlobalInsight.
India is in a strong position at the moment to be an exporter.
EXPORTS NOW, DOMESTIC LATER
India's domestic auto market is relatively small, especially considering a population of more than 1.1 billion, with about 1.5 million passenger vehicles being sold last year.
It is however a fast-growing market, even in a global auto downturn. For the first four months of 2009/10, domestic car sales rose nearly 10 percent from a year earlier.
That potential offers an extra attraction to base export operations in Asia's third-largest economy. As the Indian auto market grows, production facilities would already be in place.
Remember, India, along with Brazil, Russia and China, is a fast-growing market, said P. Balendran, vice president, marketing with GM India.
All big companies have created capacities here. So when they have the capacity, it has to be utilized. Until the domestic demand picks up, these cars will be exported, he said.
General Motors GM.UL, plans to export 20 percent of the output from its plant in Maharashtra in western India by 2011, once it reaches its full capacity of 140,000 units.
Hyundai is stepping up production of its popular i20 hatchback to export to more countries to meet the growing demand.
John Parker, Ford's Executive Vice President of Asia-Pacific and Africa, said its compact car would cater to local and export markets.
We see lots of potential for exporting cars from India,' he said, adding that India, along with China, Thailand and Africa, was seen as a strategic center, especially for small cars.
We are trying to make the cost structure healthy and we have to have an efficient cost-base, Parker said.
While China also offered a low-cost base, GlobalInsight's Rathore said component sourcing was not as easy there as in India, but said Thailand, which was now concentrating on trucks, would pose future competition as a strategic base for small cars.
(Editing by Muralikumar Anantharaman)