India races for the world's cheapest car

NEW DELHI - The telecom revolution in India has made cheap mobile telephones accessible to even the country's poorest, and now India's underclass is likely to be able to go from two wheels to four when the cheapest entry-level autos hit the roads in the near future.

The race for the world's cheapest four-wheel vehicle was recently ignited by Tata Motors' plans to launch a Rs100,000 (US$2,470) car in 2008. In comparison, China's bargain auto, the Chery QQ,



retails for about 20,000 yuan ($2,600).

Partners Renault/Nissan and Mahindra are also eyeing a sub-$3,000 model, while Toyota Motor Corp, Honda Motor Co, Fiat, and Volkswagen AG also plan economy cars to compete in the Indian, Chinese and Russian markets. India's market for cars is predicted to double to 2 million by 2010, with passenger-car sales growing by 18.5% last month.

Motorbike maker Bajaj Auto Ltd is reportedly looking at a slightly higher-end compact car, while reports suggest that Ford India may enter the segment that accounts for 75% of sales in the country.

Last week, SkodaIndia, a fully owned subsidiary of Volkswagen Group's SkodaAuto of the Czech Republic, announced plans to launch the Skoda Fabia, its first small car in the Indian market, where a "small car" is defined as one with an engine displacement of 1.3 liters or less.

Encouraged by the good response to its recently launched Chevrolet Spark, General Motors India recently said it has set a target to capture 15-20% of the domestic compact-auto market by 2010, one that is currently dominated by Maruti and Korea's Hyundai.

The current buzz, however, is over Tata's four-door, 600cc rear-engine model suitable for both gasoline and diesel. This "people's car" has drawn obvious comparisons to Germany's Volkswagen Beetle and Britain's Mini.

This is opposed to the 800cc Maruti, base-priced at Rs225,000, and the high-selling 1,000cc hatchbacks made by Hyundai's Santro, Maruti's Swift and Tata Indica, all of which begin at about Rs350,000.

Tata's venture partner Fiat will engineer the new mini-car and analysts expect an initial output of 100,000-250,000 units. Tata Motors chairman Ratan Tata has estimated that the Indian market for the car could be as high 1 million units and expand to the rest of Asia as well as Africa.

Auto makers Maruti, Bajaj, Honda and Renault-Mahindra have taken notice. "We will be part of this competition. We are investigating ... how we can make a $3,000 car,'' Nissan-Renault chief executive officer Carlos Ghosn said recently. "If we build a car like this, it will be done in India because the suppliers are there, the plants will be there, and the environment in India would be very favorable to a frugal product definition."

This week, Honda announced its intention to enter the Indian small-car market after the huge success of its mid-size Honda City and bigger Accord and Civic.

The company is planning to launch a premium small car by 2009 and hopes to compete with the $3,000 price range.

Honda Motor Co chairman Satoshi Aoki, in India to firm up Honda's second plant in Rajasthan, said: "We are studying the Fit and City models for the cheap small-car segment. But we have to make sure that a cheap small car will have Honda characteristics. However, our mini-vehicles are priced at $9,000, and making a car with one-third of that price would be a challenge."

Observers say that Renault-Nissan, Italian auto maker Fiat, Tata and Maruti are likely to emerge as the three largest global low-cost vehicle manufacturers.

According to PricewaterhouseCoopers, India will become the single largest test ground for all versions of these low-cost vehicles. They predict that by 2010, more than 100 million world households will be able to afford a $2,000-$3,000 car.

It is expected that a quarter of these buyers will be from the more than 7 million two-wheeler users in India.

Currently India is the world's 12th-largest consumer market. By 2025, it is should be the fifth-largest and larger than Germany, according to a recent McKinsey survey.

While urban and semi-urban areas are the big markets, there is uncertainty whether the car could do well in rural areas where poor road conditions make bicycles and scooters the main mode of transport.

Some car makers, including Honda and Toyota, have raised questions about quality, safety and reliability of such a low-cost car. However, some analysts say that given the high accident and fatality rates of two-wheeler riders, especially in urban areas, the economy car is a better option.

But India also holds the dubious distinction of the highest number of road accidents in the world. According to official figures, last year the road death toll stood at more than 60,000. The carnage is due to a deadly cocktail of fast vehicles and slow-moving bullock carts, cyclists and people on the highways, while inadequate emergency medical services exacerbate the situation. India's large road networks pass through villages and towns, often without safeguards such as overpasses and service lanes.

The Gurgaon-Delhi expressway is almost complete but has also turned into a killer route, with many crushed while trying to cross the busy road. This weekend the former chief minister of Delhi, Sahib Singh Verma, was killed on a highway near Delhi when a truck crashed into his vehicle. The truck driver was trying to avoid a cyclist.

Yet the market for more powerful high-end luxury cars is expanding because of rising incomes and a surfeit of new Indian millionaires and billionaires.

Rolls-Royce, Porsche, Lamborghini, Aston Martin, Ferrari and Maserati, Jaguar, Mercedes-Benz, Maybach and BMW are beating sales targets. The size of the luxury-car market in India is estimated to be more than 5,000 a year and growing at 30% annually.