The big small car story

India is slowly carving out its place as a global small car hub. Already, companies like Suzuki Motor, Hyundai Motor and Nissan have shifted production of some of their global models to India and in future, more small cars would be manufactured from here.
The reason is simple: India offers what Renault-Nissan chief Carlos Ghosn famously described as 'frugal engineering'. Besides the cost advantage, global car makers are also discovering that the Indian market's appetite for small cars remains unsatiated despite exponential growth in the last six years.
According to global consultancy IHS Global Insight, more than 2.2 million 'A' segment cars would be produced in India by 2014, which is about 29% of the world's small car production. In other words, almost one in three small cars in the world would be produced in India by 2014.
"This would represent about 29% of the total world output of 7.7 million A-segment cars. We believe India would be exporting more than 5 lakh A-segment cars by 2014," says Deepesh Rathore, managing director for IHS Automotive in India.
Sample this: Suzuki Motor Co makes the A-Star car only in India and then sells some of it to compatriot NIssan. Nissan sells this car rebadged as Pixo in European markets. Hyundai Motor Co makes the i10 and 120 cars only in India and exports sizeable numbers of these to various markets. Nissan stopped production of the Micra in UK and now makes this car at its facility in Chennai.
India's status as a small car hub received a shot in the arm when in 2006 the government introduced a differential excise duty regime favouring small cars. As of now, cars less than 4 metre in length and with engine displacement of 1200 cc for petrol or 1500 cc for diesel are taxed at the lowest excise slab of 10%. All others attract more than double the excise rate.
As India became a small car base over the last five years, the overall cost equation has improved further and the Indian supplier base in now able to meet stringent global quality requirements.
But some hurdles remain. Rathore of IHS cautions that more exports would actually happen in the B segment (such as Hyundai i20) and the micro truck (such as Tata Ace) and that the lukewarm response to Tata Nano has brought down export potential of small cars from India.
"Small cars exports would have received a further boost had the Nano achieved the success that Tata Motors targeted for. Due to the lukewarm response to the Nano, ultra low cost car projects will now not receive the attention they deserve," Rathore added.
The debacle of the Nano appears to have discouraged many followers and some mini car projects are already being abandoned. General Motors India has recently admitted that plans to launch a car smaller than the Spark hatchback have been shelved.
"It (small car) was under discussion when the `1 lakh car (Nano) came in. We have reached a decision point that it is not right for us," said GM India president and managing director Karl Slym.
The development of an ultra low cost car by Bajaj Auto for Renault also appears to be in jeopardy, again partly due to inability to source parts at such low costs which would justify ultra low prices for the end product.
Pawan Goenka, the president of Society of Indian Automobile Manufacturers, says India is now losing its cost advantage, especially for exports, because of increasing labour cost, power and infrastructure. He also alludes to high cost of setting up new plants. Given these challenges, India may lose out to countries like China in the small car pecking order unless significant policy interventions are made.