India Becoming Production Hub for Compact Cars

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India's exports of automobiles have surged as global automakers turn the country into a production hub for compact cars. A host of companies such as Suzuki, Ford and Toyota plan to spend millions of dollars in the coming years to build auto plants in India.

When exports of automobiles crossed a quarter of a million in the first seven months of the year, India's auto industry had two reasons to cheer.

Although India exported fewer cars compared to other Asian countries such as Thailand and South Korea, it saw a rise in exports, whereas these countries witnessed a drop. Also, for the first time, India exported more cars than China.

All the cars exported from India were compact cars produced by global automakers such as Suzuki and Hyundai.

The surge in exports comes as India turns into a production hub for cheap, fuel efficient cars.

Yogendra Pratap, editor of Auto Bild India, says automakers first began making compact cars in India to cater to a booming domestic market, where three out of four cars sold are small cars. But as worldwide demand for compact cars began growing due to rising fuel costs and stricter controls on emissions, manufacturers began to export cars from India.

"Companies like Hyundai and Suzuki are basing production of some of their models only in India, which gives them volumes, so helps reduce cost for domestic sales and exports as well," Pratap said. "We give them a huge market here, and on top of that if cars can be exported, there are great economies of scale, something that could not be achieved in Thailand for example where the domestic market is really small. "

European countries such as Britain and Germany are popular destinations for small cars made in India.

American automaker Ford is the latest to announce plans to launch a compact car in India next year. Ford will double capacity at its car plant in southern India to make the "Figo," which it also plans to export. Ford has said small cars represent the future for automakers, and expects sales of these cars to double over the next decade.

Other companies such as Suzuki, Nissan, Toyota, and Honda have already announced plans to spend about $5 billion to make small cars in India or increase production at their existing plants over the next three years.

Their entry is not surprising. India is home to the world's cheapest car, the $2,055 Tata Nano, a car which auto analysts say showed the world that India had the engineering skills and low cost facilities needed to make a small, contemporary car.