Toyota Kirloskar Motor (TKM), the automotive joint venture between Japan's Toyota Motor Corp. and India's Kirloskar Group is set to invest Rs.1400 crore ($350 million) on a new plant in Bangalore from where it will roll out its small car in a bid to tap the largest segment of car market in India.

According to K.K. Swamy, deputy managing director of Toyota Kirloskar Motor, Toyota Motor Corp. is developing the small car from the scratch in Japan and by 2010, the car will be ready to roll out from the Indian plant.

The facility, TKM's second in India, will come up at Bidadi in the vicinity of the existing plant and will be able to produce 100,000 cars when its starts production, Swamy said. The company's current plant has an annual production capacity of 63,000 units.

From this plant, we will roll out a strategic new small car which is now being developed at our research and development facility in Japan. The new car will meet the market demand of Indian consumer. We also plan to export the small car, Swamy said, adding that the car would neither be the cheapest nor costliest in that segment.

Accordingly, the dealership network would also be expanded, he added.

The company is expected to raise funds through a mix of debt and internal accruals.

TKM is a joint venture set up between Toyota Motor Corp. and Kirloskar Group in 1997 with a shareholding ratio of 89:11. The company, which has a market share of about 2.6 percent in India, has enjoyed immense success with its sedans such as the Corolla and the Camry, the multi-utility vehicle Innova and the sport-utility vehicle Land Cruiser Prado. In 2007, it managed to sell 54,000 vehicles, achieving a turnover of Rs.4000 crore ($1 billion). The company now hopes to expand its market share by increasing its production capacity to 600,000 units by 2015 and the launch of its small car, which market analysts feel, will be from the stables of Daihatsu, a company in which Toyota owns 51 percent. Daihatsu is known for its compact cars globally.

TKM is one of the many automobile companies keen on tapping India's four-wheeler market as the country's booming economy has lead to increased consumer spending. In 2007-08, the passenger car market saw a total sale of 12,03,531 units against 10,76,582 units in the previous fiscal, registering a growth rate of 11.79 percent. Annual passenger vehicle sales are forecast to rise to 2 million units by 2010 in India and analysts say Indian car sales would more than quadruple to $145 billion by 2016.

The Indian small car market is dominated by market leader Maruti Suzuki, which controls over 50 percent of the market. However, in January, Tata Motors challenged its leadership by unveiling its ultra low-cost car Nano. Tata's Nano and the popular Indica are expected to be pitted against Maruti Suzuki's small car offerings - Alto, Maruti 800, Wagon R and Zen. Keeping pace is South Korea's Hyundai Motors, which has tasted success with its Santro and the new i10 models.

Also entering the small car market is Toyota's Japanese rival Honda, which has set up its second manufacturing plant in Rajasthan to launch a small car by 2009. World's third largest automobile manufacturer, the US-based Ford Motor Co. also said it would invest $500 million in India to make a small car that will have a sticker price as low as $7,500. Meanwhile, Japan's Nissan Motor Co., which has plans for a $7,000 and $5,000 car in the next few years, has joined hands with France's Renault SA and Indian motorcycle maker Bajaj Auto Ltd. to launch a $3,000 car by 2010. Germany's Volkswagen AG said it would also start to make small cars at a new plant around the same time.