Paran Balakrishnan: Global giants in small-car race

India's roads were once the place where the country declared its isolation from the world. In other corners of the globe, automotive technology changed and new models appeared on the highways at yearly intervals. India drove on in a time warp.

The most common vehicle was the Ambassador, a slightly updated version of the '50s Morris Oxford. The other widely seen car was the Premier Padmini, based on an early, '60s Fiat. I once had a guest from Italy who shrieked with excitement as she hopped into my Premier and said her father had owned a similar model when she was a child.

Today we've all moved on. The Ambassador - dowdy or majestic depending on your point of view - is still around but even the Government has stopped buying this lumbering knight of the road.

In fact, it now looks as if India is the next Promised Land for the global auto industry. Growth is in the high teens and the world's auto giants are scrambling to pour in billions of dollars. They are hoping to grab a share of the Indian market and also turn this country into an export hub.

Suzuki - which through its Indian arm Maruti controls about 55 per cent of the Indian market - has announced that it is to form a $1.5 billion ($2.36 billion) joint venture with Nissan to export small cars. This is on top of Maruti-Suzuki's existing plans to double production by investing about $1 billion in coming years.

Other global manufacturers are also stepping on the accelerator. In July Honda said it would pour in about $600 million over the next 10 years. One of Honda's top bosses also surprised his audience by declaring that, "in future, India will be a more important market for us than China". Honda is looking at building a second factory for small cars that will rev up its presence in the Indian market.

It isn't hard to figure out why the auto giants are steering towards this country. About 1.1 million cars were made in India last year. That's slated to climb to 2 million by 2010. What's more, India's burgeoning middle class is finally able to play out its ambitions on the roads.

In the old days, young people who had just got a job would have headed off to book - back then there were waiting lists for most vehicles - an economical two-wheeler. The white-collar workers of today, helped by easy credit, are more likely to saunter to an auto showroom and drive away in a sleek sedan.

The result is that cars of all shapes and sizes are racing out of the showrooms. The biggest sellers are, of course, the small cars which still account for about 66 per cent of the market.

So GM is getting ready to open a new factory where it will start making the Chevrolet Spark (in some parts of the world called a Daewoo Matiz) next year. And Toyota is investigating whether it can bring a small car to India.

Hyundai, which already has one small winner on the road, is turning the ignition on the second and even Mitsubishi is looking at joining the small car race.

Two other newcomers to India - Volkswagen and Citroen - are also thinking of driving into this country in small cars.

India's home-grown champions, meanwhile, are readying to take them on. Tata Motors, one of the world's largest truck and bus manufacturers, faced considerable scepticism when it made its debut in the auto segment in the late '90s. Today its small hatchback, the Indica, is the country's single largest-selling model.

Now Tata Motors is moving forward in all lanes. It is changing its range from small cars to SUVs but is also on target to launch a stunningly cheap small car by 2008 that will cost only Rs100,000 ($2163).

The Tatas are hoping that the super-inexpensive car will bring in new buyers who would otherwise have bought two-wheelers. If the Tatas can pull it off, they will change the entire dynamics of the auto industry.

Maruti, which started in the mid-80s as a joint venture between the Government and Suzuki Motor Corp, is majority-owned by Suzuki and still dominant.

Firmly in second spot is Korean manufacturer Hyundai, which made its foray into India in 1998 and which now has 18 per cent of the market.

But small cars are, as any auto manufacturer will tell you, a dangerous game. And that's not only because they are driven like dodgem cars on India's high thrills roads. From an auto manufacturer's point of view, they are a high-volume, low-margin play.

Luckily for the manufacturers, small cars are no longer the only game in town. There are now enough affluent Indians to consider settling into leather-backed comfort and buying vehicles like the Mercedes, being built in the western state of Maharashtra.

Another sign of the increasingly affluent market is that BMW is building a plant near the southern city of Chennai (previously Madras) that will move into gear by early 2007 and turn out about 1700 3 Series and 5 Series cars in its first year.

Several other manufacturers are in the queue to enter the country. There's Renault in partnership with another powerful Indian group, Mahindra & Mahindra, which is due out with an eastern European mid-sized model, the Logan. Meanwhile, Fiat has struck up a partnership with the Tata Group to make its return to India's highways.

But it isn't just the Indian market that's getting everyone excited. India is already one of the world's largest exporters of small cars - and rising oil prices are perking up sales of economical autos around the world. So auto giants like Hyundai, GM and the Suzuki-Nissan partnership are all looking at turning India into their global small-car export base.

All this is a far cry from the era when a Morris Oxford look-alike ruled the roads. India's potholed roads obviously aren't ready for the onslaught and pollution is bound to get worse as the country gets into the driver's seat.

But, heck, when has that stopped anyone - anywhere in the world - from revving up and driving off into the sunset?

* Paran Balakrishnan is the associate editor of the Telegraph, Kolkata. His column appears fortnightly, alternating with Eye on China.