India plans to manufacture cheap cars

MUMBAI, Trading a motorcycle for a car in India has long been too expensive for many, but manufacturers plan to offer models at $3,000 or less to attract new buyers, analysts say. The push by Nissan Renault, Tata Motors and Global Automobiles — a subsidiary of the Kolkata-based Xenitis group and China’s Guangzhou Motors — comes as car sales in India fell in April and May to a combined 1.52 million from 1.6m a year earlier. It was the first back-to-back monthly decline in three years, a period of annual double-digit growth. But a new sales strategy is about to be unleashed. Tata’s small car is likely to be the first one to roll out, said Ashutosh Goel, an auto analyst with brokerage Edelweiss Capital. They have a firmed up model design and on-going plant construction. The much-awaited model could be priced between Rs100,000 to Rs125,000 ($2,457 to 3,017) and arrive by 2008 from its Singur plant in West Bengal. The management has indicated that a prototype of the small car is ready. It could be a four-seater with an engine capacity of 630cc, added Ajay Shethia, an analyst with brokerage firm Enam Securities. The Tata car is being pitched to first time buyers eager to switch from motorcycles or scooters, which can cost from Rs30,000 to Rs80,000. Motorcycles have enjoyed record sales in the past five years in India as middle-class incomes have risen. But the combined sales of two-wheelers, scooters and motorcycles fell by more than eight per cent in April-May from a year ago, as interest rates have risen in a bid to tame inflation. Interest rates have been highest for commercial vehicles and car loans (from 8.5 per cent in March 2006 to about 14.25 per cent at present), said Govindarajan Chellappa, an analyst with Credit Suisse Securities. This has led to higher cash purchases for cars and two-wheelers, he said. India’s creaking roads can barely handle its estimated seven million cars, but analysts say smaller vehicles, about two-thirds cheaper than similar models sold in Europe or the United States, will be snapped up. India’s largest car company, Maruti Suzuki, pioneered the cheap car in India with its 800 model more than 20 years ago. The company still dominates the niche with cars as cheap as Rs240,000, but it faces stiff competition from Tata, South Korea’s Hyundai Motors and others entering the market with aggressive plans. Demand for small cars is likely to be helped as they are better geared to meet lower emissions given their light weight, smaller engines and better fuel economy. Nissan Renault announced last week that it sees small car growth as attractive and wants to build a car in India with local partner Mahindra and Mahindra. We are investigating how we can make a $3,000 car. If we build a car like this, it will be in India, Carlos Ghosn, chief executive of Japan’s Nissan Motors and France’s Renault, told the media in Yokohama. Japan’s Toyota is also considering India as a small car hub by 2010, by expanding their dealership with Indian partner, Kirloskar. Detroit auto giant General Motors last year announced plans for a new unit at Talegaon, near the western city of Pune, that will have an annual production capacity of 140,000 small cars and significant expansion as the market demands. Looking ahead, Credit Suisse’s Chellappa said auto sales are expected to pick up as the economy grew by 9.4 per cent in the year ended March and is forecast to grow by about 8.5 per cent in 2007 by the central bank. Assuming the economy remains strong, demand could rebound in the second half of this year, Chellappa said.