Chinese automakers are investing billions of dollars to establish footholds in foreign markets, from India to Africa and Europe.

China's car manufacturers once struggled to sell their cars at home, let alone abroad. Now, the cars they are producing are much improved, analysts say, matching foreign rivals on quality and outflanking them on price. Leading Chinese brands are aiming to capitalise by building their first major factories overseas, realising Beijing's long-held strategic ambition for homegrown car makers to become globally competitive players.

SAIC Motor, China's biggest automaker, in June began testing the Indian market with a new SUV called the MG Hector, releasing 21,000 vehicles it expected to sell over six months; the SUVs sold out in four weeks.

Dealerships had to turn away customers like Shiv Nagpal. Mr. Nagpal, who works in his family's jewellery business, said Chinese products have a good reputation in India. "Even the fancy iPhone is made in China," the 37-year-old said recently at an SAIC dealership in eastern Delhi. "We want to try a new Chinese brand."

China's automakers have the resources to back their overseas push, said Michael Dunne, chief executive of automotive consulting firm ZoZo Go. "They are ready to lose money for 10 years" to establish themselves, he said.

Their ambitions are growing even as U.S. auto makers have retreated from many foreign markets. Mr. Dunne, who ran General Motors' Indonesia plant from its opening in 2013 until it closed two years later, said: "Western auto makers insist on a path to profits within 36 to 48 months, and that's just not going to happen in a country like Indonesia," where it takes time to build a brand and grow market share.

The Chinese companies have a powerful incentive to move overseas. Even though their home market is the largest in the world, car sales are stagnating after decades of growth.

Companies going abroad face the painstaking process of brand-building and constructing local supply chains and national dealership networks, which can take years and billions of dollars to achieve. Also, many of the countries Chinese auto makers are entering are dominated by Japanese auto makers.

China has faltered in such efforts before. A decade ago, state-run FAW Group unveiled plans to conquer Latin America by building a factory in Mexico to assemble kits shipped from China. The venture fell victim to the global financial crisis and never got off the ground. In 2014, Chery Automobile, another state-owned player, invested US$ 530 million in a plant in Brazil. Sales never took off, and Chery put the plant up for sale in 2017.

The current crop of Chinese companies is more capable and mature, having built competitive businesses at home that are taking away market share from many foreign players. Ultimately, these companies are eyeing the U.S. and other well-off markets. For now, they are focusing mainly on developing economies.

State-run SAIC has opened plants in Indonesia and Thailand in the past two years, from where it plans to export across Southeast Asia. It is aiming for 1 million overseas sales a year by 2025. Great Wall Motors opened its first overseas plant in Russia in June. And state-owned BAIC Motor last year started production in South Africa, opening a US$ 772 million facility that is the biggest Chinese investment in Africa to date.

Zhejiang Geely Holding Group, which owns Volvo Cars, in 2017 opened its first overseas plant for its Geely brand in Belarus to serve Russia and Eastern Europe. Geely launched its first vehicle for the Southeast Asian market in December, following its 2017 acquisition of 49.9% of Malaysian auto maker Proton. And Geely's commercial electric-vehicle unit, London EV, began production at a new U.K. plant two years ago.

"Global expansion by Chinese brands is a natural growth plan," a Geely spokesperson said, recalling how Japanese and Korean auto makers transformed themselves into international brands in the 1970s and 1980s.

SAIC declined to comment. Great Wall and BAIC didn't respond to requests for comment.

In India, SAIC is being buoyed by the unexpectedly strong demand for its MG Hector, which is a retooled version of a hot-selling Chinese SUV, priced locally at around US$ 17,700. SAIC acquired MG, a century-old British marque, in 2007. It also bought GM's India plant a few years ago.

The company is banking on India's unrivalled potential: Only 3.5 million cars are sold there annually, a fraction of China's 28 million. But incomes are rising, and auto sales are forecast to grow with them.

SAIC has arrived at the right moment to tap into that, said Paul Blokland, director of Segment Y Automotive Intelligence. "The upside for the next 10 years is gigantic," he said. "If I'd been GM, I think I'd have stayed."

https://www.wsj.com/articles/chinese-auto-makers-go-global-as-sales-slow-at-home-11565524800

India's debt problems have spread to consumers, gumming up the most-important piston propelling Asia's third-largest economy and dimming its chances of snapping out of a slowdown.

India's gross-domestic-product growth has slowed to a five-year low and is expected to head lower.

Its strapped central government can't spend to help and banks are struggling and won't lend much. Now consumers, whose spending makes up more than 65% of India's economic activity, are turning more stingy. The government has scheduled August 30th. to announce GDP growth for the three months ended June.

With wage growth slipping and joblessness rising, the sales of everything from condominiums and cars to some soaps and snacks have taken a hit this year as the average Indian consumer has grown cautious.

One recent morning, around 100 construction workers and handymen were loitering on a corner of a busy South Delhi neighbourhood. Some had the tools of their trade on display - buckets full of paint brushes, bags full of tools or wires. The spot is a place where freelancers gather, hoping to get at least a day's work.

A few years ago, 250 people would gather at the corner, with nearly all snapped up for work by midday. Contractors would offer them twice the regular wages to help on projects across the city.

Today, those who remain say they are lucky if they get 10 days of work in a month. They have cut back on spending. Lakchand Ahirwat, 54 years old, is making a third of what he used to and is sending much less money home to his family in a village in Uttar Pradesh. He has had to tighten his belt, buying less wheat for his simple daily meal and ending luxuries like bidi cigarettes, biscuits and even bars of soap.

"I bathe with clothing detergent now," he said as his fellow handymen nodded nearby.

Even at this micro-level, India's great spending spree seems to be stuck. That could be bad news for global brands including Walmart Inc, Amazon.com Inc, Starbucks Corp and IKEA Group, which are all making big bets on India.

Indian lenders have accumulated one of the world's biggest piles of bad debt in the past decade as small and large companies borrowed for all kinds of projects that were never finished or failed to find the demand they expected. They have been selling assets and lending less to pare down the problem.

That lull in lending has led to more problems, as companies struggle to raise money to expand, families can't get home loans and consumers are unable to finance their purchases.

The debt problem has trickled down, first hitting infrastructure and real-estate development, then truck and car sales and finally scooter and motorcycle sales.

In the past four months, passenger car sales have plunged 21% compared with a year earlier while two-wheeler sales are down 13%. That's the deepest plunge in decades.

Even some of the most basic consumer goods have been hit by the decline in wage and employment growth. In the first half of this year, sales of bars of soap, toothpaste and biscuits have all fallen or slowed significantly compared with a year earlier, according to a data company. The downturn has been even more sharp in rural areas and for products that cost less than 10 rupees or around 14 cents, said an analyst at the earlier mentioned company.

"The disposable incomes are under threat," he said. "Consumers are really stressed and that is reflected in their buying."

The debt problems of India's biggest banks, shadow banks and companies are rippling through rural India because millions of farmers also work part-time in construction. The dip in construction means they are sending less money home or coming home and hurting wages there, a report released last week from HSBC said.

"Rural wages have been falling and rural unemployment has been rising," the report said. "All of this has pulled down consumption growth."

The day labourers of New Delhi concur.

Ajay Kumar Yadav, 32, is struggling to pay off a loan he took out in better times. He can return home only twice a year compared with six times a year before. He says he would consider moving back to his village in the state of Bihar but wages there have been slashed in half to 50 rupees a day.

He had to take one of his two children out of school in his village and the one going to school has just one school uniform, which his wife has to wash almost every day. "Now it's too difficult to buy two uniforms," he said.

Auto and confectionery makers have warned of thousands of layoffs unless the government does something to help them. Hindustan Unilever has lowered the prices of some of its best-selling soaps.

The government unveiled a package of confidence and economy bolstering measures last week, which included steps to lower lending rates. It also included ways to lower the cost of car ownership.

Spending on new vehicles will remain subdued until the spigots of lending are reopened since 30% of car purchases and 80% of motorcycle purchases depend on loans, said Paul Blokland, director of Segment Y Automotive Intelligence.

"The access to finance has to improve" for sales to rebound, he said. "Every sector has been smarting."

Play-Doh, Monopoly and practically all of Hasbro's other toys were made in China for decades. Now, Hasbro is changing course.

While the company still sources expensive, complex toys like the electronic FurReal Friends from China, Hasbro has contracts for production in Turkey, Indonesia, Vietnam and Mexico. It has moved most aggressively into India, where Hasbro now buys from several sizable factories, and another is planned.

Multinationals around the globe have begun to look seriously at manufacturing in India, with its plentiful and inexpensive labor pool. But the investment doesn't mean doing business in India is getting easier. Rather, it is a sign that doing business in China is getting more difficult.

The Hong Kong-based Musical Group decided to build the latest Hasbro factory in India after facing severe labor shortages and soaring wages at its main factory in southern China. But Musical, like many companies, is running headlong into India's bureaucratic morass over land purchases, and the project is months behind schedule.

"We've had a very tough negotiation with the local government," said Christopher Tse, the managing director of the Musical Group, which for nearly 35 years did almost all its manufacturing in China. "It takes more time than I expected."

For Prime Minister Narendra Modi, the situation presents a political and economic challenge.

More than a year ago, Modi, wearing a traditional bright yellow jacket and standing below an immense logo of an Indian tiger, unveiled an ambitious effort to ramp up manufacturing. The "Make in India" campaign promised to reduce bureaucracy and improve infrastructure, paving the way for big multinationals and other foreign investors. It was a cornerstone of his candidacy.

Since then, almost nothing has gone as planned.

Progress in improving the country's inadequate roads, rail lines and ports has been slow. Corruption remains pernicious. Urban air pollution is even worse in India than in China, and could deteriorate further as more factories are built.

Plans to rewrite labor and land laws, and to overhaul state taxes, have stalled in Parliament. And an effort by Modi to bypass Parliament with temporary executive orders has run into trouble as well.

Modi's most controversial but potentially far-reaching executive order - making it easier to convert farmland into factory sites - expired on Aug. 31. He chose not to renew it. The ordinance had become a political liability in state elections, as farmers feared that it might be used to push them off their land.

"Ease of doing business is still a work in progress," said India's finance minister, Arun Jaitley, adding that state governments were starting to reform land and labor laws.

Yet, slowly and a little unpredictably, India's manufacturing sector is starting to attract overseas investment.

Foxconn, the world's largest contract manufacturer of smartphones and other electronics, which has most of its factories in China, agreed in August to open 10 to 12 plants in western India by 2020, employing as many as 50,000 workers. A week earlier, General Motors announced plans to invest $1 billion to develop new car models for the Indian market and nearly double the size of its 7-year-old factory on the outskirts of Pune.

CNH Industrial of Italy is building an agricultural harvester factory nearby. Ford opened a sprawling car assembly plant in northwestern India this year, and Daimler has added an extensive assembly line for buses to its truck factory in southeastern India.

"If you're able to manufacture a world-class product in India, the economics of exporting are quite lucrative," said Rustom Desai, the managing director of Corning's India operations, which include a highly automated optic fiber factory here.

Indian officials see manufacturing as essential to their country's future. They have 10 million young workers a year joining the labor force and few alternatives to create enough jobs.

Devendra Fadnavis, an ally of Modi who is the chief minister of Maharashtra state that includes Mumbai and Pune, has been aggressively marketing his state's huge labor force in trips to China and elsewhere. "We have the human resources - if we can liberate them, we can pioneer the industrial production for the entire world," Fadnavis said.

The pitch has worked. Foreign direct investment in India is up 46% over the last two years. It is down 1.3% in China, although it shows signs of a modest rebound lately.

The recent flood of foreign investment is helping propel India, which is expected to be the fastest-growing major economy in the world this year. The International Monetary Fund estimated this month that India's economy would increase 7.3% in 2015, compared with 6.8% this year in China.

In many ways, India is benefiting from the challenges facing China.

Blue-collar wages in China have more than quintupled in the last decade and companies face worker shortages despite economic weakness. "If you want to hire 1,000 workers, you only find 600, and the turnover will be 15 or 20 percent a month," said Tse of Musical Group, the Hasbro supplier.

Some multinationals also worry that China is becoming a politically riskier place to do business. Such concerns have been heightened by the country's growing show of force, like the sight of thousands of goose-stepping soldiers parading through Tiananmen Square on Sept. 3, or the rapid construction of military-grade airfields this year on hastily built artificial islands in the disputed South China Sea.

By comparison, India offers a stable democracy and low wages. Even skilled factory workers here in Pune, sometimes called the Detroit of India, earn about $300 a month, half of Chinese wages.

Maintaining its edge won't be easy for India.

For one, India needs to significantly upgrade its roads, ports and other infrastructure. Musical Group initially considered building a factory about 200 kilometers (120 miles) outside Kolkata, formerly Calcutta. India's poor roads meant the trip would take four hours.

"In China, 200 kilometers is two hours," said Tse. He ultimately decided to seek costlier land a few miles from the port, only to encounter slow-moving local officials.

India is also trying to expand manufacturing just as global trade stalls. A big export push by India could prompt a backlash in other countries, said Raghuram Rajan, the governor of the Reserve Bank of India and former chief economic adviser to the Indian government.

"To expect another China to come in without any political reaction would be naive," he said in an interview in Mumbai. "We're going to have a much tougher fight for market share."

While many multinationals are enthralled by the potential of the India consumer, it may be difficult for the domestic market to absorb a lot of extra production.

At least four Chinese smartphone manufacturers - Huawei, OnePlus, Coolpad and Oppo - have said they plan to produce handsets in India, while Xiaomi is cooperating with Foxconn to assemble phones in India and Lenovo plans to work with Flextronics. As China's market approaches saturation, millions of Indians each year are buying smartphones for the first time.

But higher-end manufacturers like carmakers are still struggling to break into a market that has yet to create a broad middle class.

India's population has nearly passed China's. But automakers sell nearly 2 million cars a month in China, compared with 200,000 a month in India. The best-selling cars in India tend to be very inexpensive subcompacts manufactured by local companies like Maruti, not the larger but costlier models sold by the multinationals.

Even among the affluent, "someone who can afford an Acura will probably buy a Civic," said Paul Blokland, the director of Segment Y, an automotive research firm based in Goa, India.

Millions of Indians are on the cusp of affording cars, although most cannot do so yet. Vishal Rode, a 31-year-old autoworker earns $80 a week. He had to take out a three-year loan just to buy a $780 motorcycle, but is convinced that better times will come.

"I want to buy a car in the future," he said. "In the last 10 years, a lot of things have changed."

Uber likes to make bold predictions - as perhaps befits a six-year-old company with a valuation of more than US$ 50 billion. Travis Kalanick, co-founder and chief executive, says his ride-hailing service can become sufficiently ubiquitous in the west not only to kill-off old-fashioned taxis, but even to tempt some hardcore motorists to stop driving altogether.

In emerging markets, the company makes an even more eye-catching claim. Mumbai's battered old red buses are carrying adverts bearing the slogan: "The freedom to own a car, without ever buying one". These imply that Uber could become so widespread that millions of people might decide never to get behind the wheel at all.

At first, this sounds absurd. Some transport experts do claim that countries such as the US and the UK have reached a stage dubbed "peak car", whereby total vehicles use is starting to dip. But Indian car ownership remains tiny, at about 2%, according to research companies. This is far lower than in developed markets, where more than half of people tend to be drivers, as well as countries such as China.

Consequently, almost everyone agrees this level will rise dramatically. Analysts predict 4% of Indians will have cars by 2020. This in turn explains why General Motors unveiled plans to sink another US$ 1 billion into its loss making Indian operation last month, joining a host of global automakers gearing up for a future boom in car sales.

Yet Uber recently unveiled plans to invest US$ 1 billion into India, as well. This was partly to keep pace with Ola, its larger Bangalore-based rival. However, the splurge was also underpinned by a long-term bet, which Mr Kalanick outlined in a recent speech.

He argued that pollution and congestion leave cities in India and China facing an "existential" crisis. "We're offering a real alternative to a world that looks like a parking lot and moves like a traffic jam,' he said.

Tempting people away from cars is tricky. Vehicle ownership remains a powerful status symbol in emerging markets. That said it is not always a pleasant experience. Interest rates are high, making vehicle financing expensive. India's roads are bumpy and hectic. Parking is a nightmare. There is a reason why so many wealthy Indians employ drivers.

Uber's hopes of becoming chauffeur to the country's rising middle classes therefore rest on building a service that is both more convenient and cheaper than driving. It has a long way to go. Even in big cities like Mumbai or Bangalore, its service can be patchy, with much longer wait times than in New York or London.

Fixing that is mostly a question of supply. Uber has 150,000 drivers in India, but the idea that it could come close to 1 million over the next few years is not outlandish.

Ola predicts it will cross the million mark by 2017. The fact that only 2.4 million cars were sold in India last year gives a sense of the scale of the two companies' ambitions. This big potential increase in Uber's driver network was behind last week's tie-up with Tata, India's largest business group.

Tata invested US$ 100 million in the US Company. In exchange, it hopes its motoring and finance arm will provide vehicles, financing and insurance to all those first-time cabbies.

Different types of services can also help. In San Francisco, Uber offers a cheap carpool option, in which multiple riders hop in and out of the same vehicle. A comparable service is some way off in India, but could eventually find favour in a country where customers are thrifty, and shared taxis are already relatively common.

Take all of this together, and the idea that taxi aggregators might prise some of India's coming generation away from car ownership does not seem quite so ridiculous.

"Young Indian people living in big cities used to buy a small car," said Paul Blokland, of Segment Y Automotive Intelligence, an India-based research group. "But now they might well decide to save that money, given it is expensive, and they can't find anywhere to park it anyway."

This does not mean Uber's path will be easy, particularly given India's treacherous regulatory environment. But if even a small portion of future car buyers decide to rely on cabs, it could help car ownership levels settle well below the levels typically seen in mature industrial economies. And if Uber wins even a portion of this business, it will go a good way to justifying its US$ 50 billion valuation too.

Mahindra & Mahindra is to acquire a majority stake in Peugeot Citroen's scooter division for €28 million (US$ 35 million), signalling a renewed phase of international expansion for both groups' struggling two-wheeler businesses.

India's third largest carmaker by sales on 7th October said it had signed a binding agreement to buy 51 per cent of Peugeot Motorcycles, the French car manufacturer's motorcycle unit.

Mahindra said the deal involved a €15 million cash injection as well as a €13 million shares purchase in the unit, which is also known as Peugeot Scooters and generated revenues of €99 million last year.

The sale is part of a wider turnround plan at Peugeot, Europe's second-largest carmaker by sales, which in July reported a return to profit in its results for the first half of 2014.

Mahindra described Peugeot's motorcycle division as "the oldest motorised two-wheeler manufacturer in the world", and "a key player in urban mobility in Europe for 116 years".

Shares in the Indian carmaker, which is part of the bigger Mahindra conglomerate, closed down more than 2 per cent in Mumbai.

The stake purchase in Peugeot Motorcycles is the latest in a series of attempts by Mahindra - best known for making inexpensive sport utility vehicles - to acquire global auto brands.

The Mumbai-based group bought South Korea's Ssangyong Motor in 2010, and has previously launched unsuccessful attempts to purchase Saab of Sweden and Aston Martin of Britain.

Mahindra said it would now "aggressively expand" Peugeot's scooter presence in developing economies including Vietnam and India, while attempting to arrest a sales slump in Europe.

Pawan Goenka, head of automotive at Mahindra, said its scooter division - which launched in 2008 and recorded a post-tax loss $75 million in 2013-14 - would push forward with plans for international expansion, including in African markets, aided by technology and design knowhow from Peugeot.

He added the company would now follow a "two-brand game" targeting Peugeot's scooters at higher-end customers while focusing Mahindra's range at entry-level consumers.

Mr Goenka denied that the deal was a prelude to any wider agreement with Peugeot's main carmaking business, whose financial difficulties led it to suspend plans to build a factory in India.

While Mahindra's Harvard-educated founder Anand Mahindra has often stated his enthusiasm for acquiring premier foreign brands, analysts said the Peugeot deal also stemmed from a desire to buy technology.

"[Mahindra] have found it hard to do the R&D for scooters themselves, the products they have developed haven't exactly set the market alight," said Paul Blokland of Segment Y Automotive Intelligence, an India-based research group.

India overtook China to become the world's largest motorcycle market by sales in 2012, according to a credit ratings agency, with an estimated 16m units expected to be sold this year.

The market has grown steadily in recent years - despite a contraction in car sales in 2012 and 2013 - driven by demand from lower income households in rural India, where motorbikes are popular for short trips.

The Indian launch of Lamborghini's Huracán on May 2, featured exhilarating footage of a flame-red supercar, accelerating away from Mumbai's Taj Mahal hotel before roaring off down the city's main seafront boulevard.

Yet, despite high hopes from their manufacturers, sales of such luxury sports vehicles have proved disappointing of late, dashing expectation that India would soon follow China's recent period of rapid supercar growth.

Lamborghini "feels good" about demand for its newest model, says Sebastien Henry, head of Asia-Pacific operations at the company, which is owned by Volkswagen of Germany - even though it made just 22 of its 2,021 global sales in India last year. Rival Italian manufacturers such as Ferrari and Maserati, along with Britain's Aston Martin, have faced sluggish demand too, with an auto research group estimating that fewer than 250 supercars will be sold in the country this year.

High-end vehicles are meant to be expensive, but in India price is a particular problem. The Huracán, supposedly Lamborghini's entry-level offering, retails at Rs. 34 million (US$ 559,000), or around two-and-a-half times the cost in Europe.

All supercars are shipped in from abroad, meaning that recent import duty hikes, along with a decline in the rupee, have effectively doubled their cost, according to Lalit Choudary, the owner of Aston Martin's franchise in India.

Some companies have been especially unlucky, notably Ferrari, which launched in India in 2011 only to run into problems with their distributor. Ferrari severed ties with the distributor earlier this year.

A general economic downturn has hurt sales too, effectively capping the size of the high-end market, says Gautam Singhania, a wealthy textile tycoon and car enthusiast, who founded Mumbai's first supercar club. "Somebody like me from childhood always wanted a Lamborghini or a Ferrari, and when they first came to India I got one," he says. "But that demand is sucked up. The manufacturers need to do more to reach that next level of customer."

A more general limitation, meanwhile, comes from India's potholed roads - a factor likely to stop all but the bravest drivers testing Lamborghini's claim that the Huracán can race from zero to 100kph in a touch over three seconds.

"These things are plainly unsuitable for India, in contrast to China, where they built nice new highways," says Paul Blokland of Segment Y Automotive Intelligence, an India-based research group. "When India has a network of motorways, without bullock carts coming the wrong way down the outside lane, these cars will do better."

Others are less gloomy, however. India's economy is picking up, while import duties are set to fall. A roaring stock market has also doubled the number of India's dollar billionaires over the past two years, according to a research firm - creating a new group of wealthy potential purchasers.

India could benefit from forthcoming new luxury models as well. Germany's Porsche now makes most of its Indian sales through sports utility vehicles. The likes of Lamborghini, Bentley and even Rolls-Royce now plan to launch SUVs of their own, creating supercars more suited for India's tricky conditions.

These changes, as well as relatively low cost of sales, mean luxury car brands are likely to stick it out in Asia's third-largest economy, despite the tough conditions, says a consultant.

"Everyone wants to be here, because of the fat margins and the near zero overheads," he says. "For a brand selling a couple of thousand cars a year, even 20 or 30 cars from a country like India is a bonus."

Global car companies including Volkswagen, Ford and Renault-Nissan are redoubling plans to transform India into an auto export hub and targeting vehicle shipments to Europe and the US as a hedge against shrinking demand in Asia's third-largest economy.

Hopes that India's once fast-growing market will soon rival China have been savaged over the past two years by a slump in car sales and rising costs following a sharp depreciation in India's rupee.

Many international motor groups, which have channelled more than US$ 8 billion into India since the mid-1990s, now view exports as the only answer to chronic oversupply in a country where vehicle capacity will more than double to 9.5 million by 2018, up from 4.5 million last year, according to a provider of automotive forecasts.

Volkswagen, the world's second-largest car company by sales, plans to nearly treble Indian exports to almost 55,000 units this year, having failed to achieve a breakthrough in the nation's ultra price-sensitive domestic market.

Mahesh Kodumudi, president of Volkswagen India, which already exports cars to about 30 countries and has found particular success shipping vehicles to Mexico, says that his company will consider exporting to Europe and America.

"We see tremendous potential for India to become an export hub, especially with the rupee weakening," he said at the 2014 New Delhi auto expo. "If I can export to Mexico, why can't I export to the United States?" he added. "Even Europe...it could be eastern Europe, western Europe as well."

US-based Ford is also increasingly focused on exports as it opens a US$ 1 billion factory this year, bringing the company's annual capacity to 440,000 vehicles despite selling only 77,000 in India during the last financial year.

Ford plans to export to more than 50 markets from its two Indian facilities including 10 countries for its successful EcoSport sport utility vehicle which it already plans to send to countries in western Europe.

Ford said it had "no specific plans" to export the EcoSport to the US but industry analysts said that the group was likely to consider the move.

"For Ford, it makes a great deal of sense to look to export to America," says the director of a New Delhi-based research group.

"Given how popular that car has been all around the world and how much spare capacity they are going to have in India...I think they will do it," he added.

Renault and Nissan, which operate in a global alliance, also hope to increase exports, having sent abroad more than 60% of the roughly 600,000 vehicles the duo has so far produced in India.

Indian auto-makers are projected to send abroad about 553,000 passenger and light-commercial vehicles by 2020, up from about 375,000 in 2011, according to an automotive consultancy service.

India's underused factories and geographic location see the country well-placed to supply emerging markets in Africa, Asia and the Middle East, analysts say but exports to Europe and even the US are also increasingly attractive.

"After the recession in the West, there is an increased focus on value... so it is perfectly possible that mid-range cars made in India, like the EcoSport, could find a good market in America or Europe," says Paul Blokland of Segment Y Automotive Intelligence, an India-based research group.

Nissan is scoping out the electric car market in Bangkok.

It just signed a memorandum of understanding with the Metropolitan Electricity Authority there to test the Nissan LEAF.

"We have started by readying the infrastructure in order to make sure that Nissan's electric vehicle technology will respond to customer requirements effectively and gain positive response in the Thai market," said Nissan Motors Thailand president Takayuki Kimura.

A pure electric vehicle is unlikely to be popular with Thai consumers, said Paul Blokland, director at Segment Y, a Bangkok-based consultancy.

Bangkok is hot and humid. Temperatures soar to more than 100 degrees Fahrenheit in the summer and the humidity means running a car's AC full-blast most of the time. Now add relatively long commuting distances for many Thai drivers.

"These are not ideal conditions for electric vehicles," Blokland said.

To date, four LEAFs have been sold in Thailand, all in 2012, said Blokland. The LEAF might make sense in Bangkok as part of a "mobility package" that included another car, he said. "Whether that would fly in Thailand, I don't know."

Lower taxes on hybrid gas-electric vehicles - the non-plug-in variety - make then fairly popular in Thailand, said Blokland. "The Thai customer is not that interested in the technology but they like the fact that they can get a Camry or a Jazz [sold as Fit here] effectively at a discount," he said.

No plug-in electric vehicles are currently for sale in Thailand, said Benjamin Asher, an analyst at a provider of automotive forecasts in Thailand.

As for the suitability of the market for pure electric vehicles, he agrees with Blokland that demand is likely to be low among consumers.

People are moving to the suburbs and "long traffic jams with air-conditioning on full would no doubt take a toll on the battery," Asher said.

Though there is a trend for professionals who work in Bangkok to move to the city from the outer regions, that is usually a second home, he said. They buy a car so they can go home on weekends to see their family.

"So while the daily commute may be short, they would also want range to get back to their home-towns," he said.

Bangkok is not so different in that from another Asian cities like Beijing. There, traffic jams are terrible and commutes can be long, in time as well as distance.

Beijingers also often buy cars so they can get out of the polluted and congested city on weekends, so range will be an issue.

One advantage Bangkok does have over Beijing - some 70% of Bangkok's energy is from relatively clean natural gas. Most of Beijing's electricity comes from burning coal.

Let's not forget the Nissan LEAF and other electric cars have no tailpipe.

So even if consumers might be slow to adopt EVs, governments will recognise electric cars add no emissions to city air while long lines of other cars are stuck motionless in grid-locked traffic jams, idling and spewing pollution.

As Japanese auto players battle the aftermath of the earthquake and tsunami that hit their country in March, the global pecking order is set for an overhaul.

Last year, Toyota topped the global sales rankings with 8.42 million units, followed by GM with 8.39 million units and Volkswagen with 7.14 million units. This year, Toyota is expected to tumble to third place. General Motors (GM) is set to wrest back the No. 1 spot from Toyota, a position it lost to the Japanese carmaker in 2008.

"Normal production (for Toyota) is not expected to resume until November, and so total output is expected to lie somewhere between 6.5 and 7 million units, enough for third place," says Mr. Paul Blokland, Managing Director, Segment Y, an automotive research firm.

Toyota Kirloskar Motors (TKM) and Honda Siel Cars (HSCI), the India subsidiaries of Toyota and Honda, respectively, have announced production cuts in the wake of disruptions in component supplies from Japan. Toyota has said it will cut production by 70% between April 24th and June 4th at its two plants outside Bangalore. The company says production will drop by 10,000 units during this period.

The two plants, which have an annual capacity of 150,000 units, churn out the Etios sedan, multi-utility vehicle Innova, premium sedan Corolla Altis and sport-utility vehicle Fortuner. Toyota Kirloskar also sells the Prius hybrid and Camry sedans in India, but these are imported as completely built units (CBU).

Honda Siel will halve production at its plant in Greater Noida, where it manufactures the City, Civic and Accord sedans and Jazz hatchback, beginning May. "Honda is making every effort to work towards a full recovery after July," the company said in a statement. Last fiscal year, it produced 60,400 vehicles at the plant and recorded average monthly sales of slightly over 5,000 units. A 50% cut for May, June and July would thus result in a decline of 7,500 units.

Bad Times

The calamity could not have struck at a worse time for the two companies. Both have plans to launch small cars in India. This is a critical step as this segment constitutes 70% of the country's car market and neither player has a small car in its portfolio. However, the parts shortage has the potential to upset the launch plans.

Honda's small car, the Brio, was set for an October launch, while Toyota was planning to unveil the Etios Liva, the hatchback model of its sedan Etios, in June.

The Japanese players' supply problems are expected to benefit their rivals. Even before the natural disaster in Japan, all Toyota vehicles manufactured in India had a waiting period of one to three months. That is likely to go up, to the advantage of its competitors.

"We believe the biggest beneficiaries will be Volkswagen and Ford. Hyundai could also benefit as its new Verna directly competes with Honda's City," says another analyst from a consultancy firm.

While both the Japanese carmakers are putting up a brave face, their sales will continue to take a hit if the problem in Japan is not fixed in the projected time frame. "There is still a lot of uncertainty over when production for the auto industry can return to normal. We suspect the impact may be longer than most people expect," says media source. Over the long term, though, the two may be able to regain some lost ground.

The parts shortage is also likely to impact the growth of the Indian passenger vehicle industry as a whole, adds analyst from consultancy firm. "The shortage may knock off 2% growth in the Indian passenger car market this fiscal. We expect the market to grow at 11%-12.5% in 2011-12," he explains. Last fiscal, passenger car sales stood at a little over 2.5 million units, registering almost 30% growth over the previous year. It will take some doing to match that growth anytime soon.

The chronic disease of the biggest auto markets in the world‒overcapacity‒could spread to India sooner than most people think. As everyone from Hyundai to Honda spends billions to rapidly ramp up their production here, sooner or later they will be making more cars than they can sell, say some experts.

"I see overcapacity even in the BRICs countries," said an executive of an auto consultancy. "The number of players (in India) has increased dramatically." The BRICs countries are Brazil, Russia, India and China.

That might seem hard to believe with car and commercial vehicle sales climbing to a record high of around 2.5 million in the year ended March 31, and in a country where just 12 people in 1,000 own a car or utility vehicle.

But it's an opinion that even some car manufacturers hold‒around one-third of the 200 auto executives who responded to a research survey out earlier this year predicted India would be struggling with overcapacity in the auto sector within the next five years.

It's still a minority view‒and hardly the 20% to 35% overcapacity companies are already dealing with in the U.S., Japan and Europe‒but it's something Indian auto executives (as well as investors and car buyers) should think about as they tune-up their plans in India. "Now there are 50 players in India and they are still building capacity."

But auto executives and analysts said that if the prices and products are right, India will have no trouble boosting passenger car and commercial vehicle sales. The research survey showed that 40% of respondents expect sales to climb to more than four million by 2014.

The real problem for auto companies in the not-too-distant future could be the lack of roads and parking spaces and possible rising fuel prices said, Paul Blokland, director of auto research company Segment Y Automotive Intelligence based in Goa.

"If you look five years from now then it may be impossible for people to use their cars or park their cars," he said. "That will be more of an issue than capacity."

Environment Minister Jairam Ramesh, who grabbed headlines this week by blocking Vedanta Resources' mining plans in the eastern state of Orissa in order to protect forests and tribes there, dropped another bomb.

The government's protector of all things green told a gathering of the best and brightest of India's booming auto industry that electric cars and biofuels are probably no good for India.

While the popular Toyota Prius may be roaming Indian roads by the end of the year, there probably won't be very many people that love mother earth enough to accept the high cost and inconvenience of an electric car here.

Mr. Ramesh said to hundreds of auto executives and analysts assembled at the Society of Indian Automobile Manufacturers annual conference that electric cars don't make sense in India even for "green" drivers. Not only are they too expensive to be practical but they also lead to more (mostly coal-generated) electricity consumption which hurts the environment as well.

"I would urge the auto sector not to treat the environment as a speed-breaker," he said. Biofuels are also not the "silver bullet" for India's pollution problems, he said, because India needs to use its cropland to grow food not fuel. In India, automobiles only contribute around 7% of the country's greenhouse gasses.

A smarter way to lower auto emissions in India would be to promote the use of more fuel-efficient diesel engines, set strict emission standards and phase out old cars, analysts said, agreeing with Mr. Ramesh.

"Biofuels require so much land and India doesn't have land. With electric cars you just are just moving the pollution to a different location," said Paul Blokland, director of auto research company Segment Y Automotive Intelligence, an automotive-consulting firm based in Goa, India. "What would be a lot better is to get rid of the older vehicles."

India has around 18 million vehicles on the road today, of which close to one third are more than 13 years old, he said. As these cars on average pollute more than 20 times more than new cars, banning them from the road (or giving their owners incentives to trade them in for new cars and trucks) could cut India's emissions in half, Mr. Blokland said.

In 2007, when Yamaha Motor launched the first superbikes-the R1 and MT01-in India, the company knew it was a shot in the dark.

There were no reliable estimates of the size of the market and the Japanese company would have to invest a lot of time and effort in creating the infrastructure required at dealerships to sell and market these bikes.

"We started selling them mainly for brand extension purposes," says Pankaj Dubey, national business head at India Yamaha Motor. Big numbers were never on the agenda, he says.

But with sales averaging about 100 units a year, Yamaha knew its decision to prise open the market would pay off soon. Quick to spot an opportunity, Suzuki Motorcycle India and Honda Motorcycle and Scooter India, both subsidiaries of Japanese auto manufacturers, also launched their best-selling models and Precision Motor India started importing Ducati motorcycles, adding to the imports of luxury Porsche cars.

They were joined last week by Harley-Davidson, which started accepting bookings for 12 models in India. On Saturday Japanese bike maker Kawasaki Heavy Industries announced the launch of India Kawasaki Motors that would import and assemble top-end bikes

Top-end bikes of the likes of Suzuki's Hayabusa and Honda's CBR1000RR are typically bikes with a large displacement of around 1,000cc that allows them to accelerate quickly and maintain speeds of up to 300km per hour if road conditions permit. Since they cost Rs. 950,000-1.3 million (US$ 21,400-29,300), they're only bought by passionate bikers

"We estimate the market for large capacity bikes to hover at 500 units this year," says Debsena Banerjee of Segment Y Automotive Intelligence, an automotive consultancy. He expects any drop in demand to be offset by Harley-Davidson. "The market is holding up well," he says.

In the past these bikes were imported by enthusiasts with the help of agents who typically brought in the product as spare parts, paying 24% import duty compared with 104% for the completely built up bike. There are an estimated 3,000 such superbikes in the country and owners complain that servicing them is a problem.

Suzuki, which started selling the Hayabusa and Intruder in January last year, says it only managed to sell five to six units a month initially. But sales have picked up to an average 15 units a month.

"Because of the increasing demand, we will expand the number of dealerships selling such bikes from seven to 12 across the country," says Atul Gupta, vice- president, sales and marketing, at Suzuki Motorcyle.

This year Suzuki will also launch the GSX R100 in India. The Hayabusa and Intruder have seen very high demand, according to Mohammed Imaduddin Farooqui, a Suzuki dealer in Hyderabad. Two weeks ago he ordered a black Hayabusa and was told he'd have to wait for two months.

N.K. Rattan, head of sales and marketing at Honda Motorcycle, also says sales have held up to the company's expectations. It too is averaging 100 units a year.

According to him the number is not a big issue. What's more important is the development of a biking culture in India, which companies like his are doing their best to promote. Honda plans to launch another superbike, the VFR100, by the end of the year.

In the last year sales of superbikes have also received another unexpected boost. The Directorate of Revenue Intelligence (DRI) has begun to crack down on superbikes imported without the right paperwork. DRI estimates there at least 700 such bikes across the country, an official has said.

The world's fourth largest auto maker, Renault-Nissan, opened its new car plant on March 17th in Chennai, where it will build the Micra as part of efforts to gain a share of India's small-car market, even as it makes up for lost time.

The alliance also plans to introduce a sedan variant of the Nissan Micra, a global small car made for developing countries such as India, Thailand and Mexico that will also be exported to Europe and Africa from the plant in Oragadam, near Chennai, that was commissioned on 17th March.

Renault SA aims to launch more small cars in India as Carlos Ghosn, chief executive of both companies, fortifies his India plan, currently restricted to the Logan, which it makes with Mahindra and Mahindra.

"Just as Nissan came up with the Micra, you can expect Renault to come up with an offer for the B, B+ segment soon," said Marc Nassif, managing director of Renault India, referring to a range of hatchbacks dominated by Maruti Suzuki, Swift and Hyundai's i10.

Ghosn expects the Micra, sales of which will begin in June, to boost the alliance's fortunes as the Indian market is dominated by small cars.

The alliance's moves in the Indian market come as competition in the small-car segment gets tougher; in the last quarter, all car launches have been in this segment. General Motors launched the Beat in January, followed a month later by Volkswagen with the Polo. Last week Ford launched the Figo. Toyota and Honda are preparing to launch their made-for-India small cars next year.

"They (the alliance) can catch up. India is still at the very beginning of where car sales will be 20-30 years from now," said Paul Blokland, director at Segment Y Automotive Intelligence, an auto consultancy. "So even if you enter 10 years later, catching up is possible."

Mahindra and Renault have been disappointed with the Logan's sales, which have plateaued to 4,981 units so far this fiscal.

"There are discussions at this point for the repositioning and further simplification of the car," Ghosn said at a press conference in Chennai on 16th March. "As soon as these discussions reach a conclusion, they will be announced."

Renault and Nissan Motor also plan to tap into the market for more expensive cars. The firm plans to start selling the Fluence sedan and the Koleos sports utility vehicle in India next year. Nissan has said it will launch nine cars, out of which five will be fully imported. Nassif said these cars would help build the brand while the small cars would boost volumes.

The alliance also plans to use the new India plant as a training base for workers at its plant in Morocco, delayed by a year due to the global slowdown and expected to open in a year. Both plants are almost identical and are designed to make cars of either alliance partner.

The Chennai plant, spread over 2.6 million sq. m, was built with an investment of Rs. 45 billion (US$ 990 million), about half or Rs. 23 billion of which has already been committed. The Morocco plant, coming up in Tangiers, is of similar size and will see an expected investment of US$ 1 billion. The formal training process is expected to kick off by the end of this year, Nassif said.

Ghosn said in his inaugural address that the Oragadam facility will serve as a benchmark for other company plants.

The Chennai plant will start mass production in May and is expected to reach full capacity utilization by 2012. The Chennai plant will export cars to 100 countries including 35 in Europe.

Not long ago, the only time luxury-car brands like Audi or BMW made an appearance in India was in movies or at auto shows like this one. Not anymore.

As the economy has grown, so has India's appetite for luxury automobiles, making it an important target for foreign automakers looking away from Western markets mired in global recession and whose streets are already bumper to bumper with cars.

"India is one of the markets of the future," says Paul Blokland, managing director of Segment Y Automotive Intelligence, an automotive-consulting firm based in Goa, India. "Manufacturers are looking for new growth markets. They're not going to find that in Europe, the U.S. or Japan."

What automakers have found in India is a country just entering the age of motorization, where still only 1% of the 1 billion‒plus population owns a car. Although India trails the world's largest emerging car market ‒ China ‒ its sheer size gives it untapped potential that carmakers can't ignore. A decade ago, Mercedes-Benz was the only luxury-car brand in India.

In 2006, BMW opened up shop, and it was soon joined by Audi. Though high-end business still only constitutes 0.5% of the overall Indian car market, the brands are already selling more cars than in smaller countries like Malaysia and Thailand, where Mercedes and BMW have been active for 50 years.

The numbers in absolute terms remain small: only 9,000 of the 1.8 million cars sold in India last year were luxury vehicles, but so far the slow and steady approach is paying off. "For all of these companies like Rolls-Royce and Lamborghini, sales have exceeded expectations," says Blokland. "They're all very happy with the sales they've done here."

Tapping into India's car market has always been a challenge for foreign automakers. Despite India's blistering economy, manufacturers have discovered a historic preference for cars that are small, fuel-efficient and cheap.

The sensation that is the Nano is well-known; its unveiling two years ago at the New Delhi Auto Expo by Indian automaker Tata captured the world's imagination and further focused attention on India's growing role in the global car market.

To be successful in India, small-car manufacturers have had to tailor their product to Indian tastes and conditions. When General Motors launched a new small car called the Chevy Beat in New Delhi last week, the company "Indianized it," says Karl Slym, president and managing director of General Motors India.

That meant toughening the car's suspension to deal with erratic road conditions. It also meant accommodating a slightly different driving style. "People like to drive away quick [from traffic lights]," says Slym. "They don't like anyone to get in front of them so your transmission has to allow you to move away from the lights quickly, but also has to allow you to drive in traffic in second gear."

Foreign luxury-car manufacturers, however, have vowed not to change their product and have faced unique challenges trying to get a foothold in the market. With few open roads to hit, but plenty of traffic jams to navigate, Indian consumers, unlike their Chinese counterparts, often opt for function over form.

Those who want a stylish ride pay for it dearly: import duties of more than 100% essentially double the sticker price of all foreign cars. To get around that, BMW and Mercedes assemble some of their models locally, cutting the taxes in half.

When BMW first arrived in India, it discovered that the customers who could afford a luxury car were not used to going out of their way to buy it, says Peter Kronschnabl, president of BMW India. In the past, a car would be sent to the home of a prospective buyer, who would decide by the look of it in the driveway whether to purchase it or not. So the company began investing in a larger network of dealerships, opening 18 showrooms around the country to woo potential buyers.

Because having a hired driver is also common practice among India's socioeconomic élite, BMW also had to change its sales pitch to suit a buyer who might never even sit in the driver's seat. "When we get in contact with a customer, we show the backseat as well," says Kronschnabl. "We don't only focus on the driving experience because the [hired] driver experiences the driving; the owner experiences the backseat."

Because the backseat rather than the driver's seat is a big selling point, unlike in most markets, bigger and more expensive BMW 5 Series sedans outsell the more affordable, smaller 3 Series models. This flexible approach has paid off for BMW, which finished the year as the top seller of luxury cars in the country. The competition, however, is good for everyone, says Kronschnabl, who expects the luxury market will more than double in size by 2015. "There's still pent-up demand," he says. "Everyone's growing, nobody's losing."

Not content with its leadership position in the small car market, Maruti Suzuki India plans to expand its product range to other segments, including multi-utility vehicles (MUVs), as it looks towards its next phase of growth and seeks to tackle increasing competition. At the 10th Auto Expo, India's biggest car maker unveiled new models and laid out a road map for capacity expansion.

Designed in India, Maruti Suzuki managing director Shinzo Nakanishi unveils the concept version of an MUV that is capable of carrying at least seven people, at the 10th Auto Expo in New Delhi.

The company is producing at full capacity at its plants in Gurgaon and Manesar in Haryana and expects to cross one million units in domestic sales and exports this fiscal, managing director Shinzo Nakanishi told journalists.

With the Indian car market forecast to double to three million units by 2015, Maruti Suzuki plans to raise its capacity to 1.5 million units to defend its leadership position of about 50% of India's passenger car market. Most of the expansion would take place at the Manesar facility. Nakanishi expects exports to stay flat at about 150,000 units per year by 2015.

Car makers, including Toyota Motor Corp., Honda Motor Co. and General Motors Corp., are seeking to challenge Maruti Suzuki's dominance and increase their share of the Indian market by introducing a slew of small car models, stepping up the pressure on the Indian auto maker to devise new strategies to power growth.

Maruti Suzuki unveiled the concept version of an MUV capable of carrying at least seven people. Named the R3, the MUV has been wholly designed by its research and development facilities in India.

With this, the company has plugged a crucial gap in its product portfolio and would be venturing into a segment that accounts for 13% of car sales in India. The R3 will be pitched against the Toyota Innova and the Mahindra Xylo-both runaway successes for their makers. MUV sales in India rose 40% to 91,782 units in the first eight months of this fiscal year.

Initial reactions to the R3 were positive. "It's an excellent product for the Indian market, where you need to pack in a lot of people in very little space," said Paul Blokland, director of Segment Y Automotive Intelligence Pvt. Ltd, a firm based in Goa. "What's important is this is the first time a car has been designed in India."

The firm hinted that the R3 would be put into mass production soon. "Typically it takes about 24 months to take a car from the concept stage to production," said I.V. Rao, managing executive officer (engineering) at Maruti Suzuki.

It also displayed the Kizashi sedan, which would mark its entry into the D-segment-generally defined as cars priced over Rs. 1 million (US$ 21,978). Sales are expected to begin by the end of calendar 2010, according to a company spokesperson.

To maintain its market share, the company plans to aggressively develop its marketing network as well as work on reducing the cost of producing cars. These cost savings could be passed on to customers, Nakanishi indicated.

The company is already working with vendors to reduce costs with the Alto hatchback and may pass these benefits on in the coming months. The Alto, India's largest selling car, sells over 20,000 units a month.

Maruti Suzuki's current stable of small cars would see models being refreshed at periodic intervals and new variants being added. In the last 15 months, Maruti has cemented its position in the small car market with the launch of the Ritz and A-star hatchbacks.

Still, Nakanishi admitted 2010 would be a tough year as the company would have to fight hard to defend its market share. "This is not going to be easy as there are many car makers coming in," he said.

Volkswagen AG (VW) plans to launch the Polo hatchback in March. Toyota expects the Etios, its small car unveiled at the auto expo, to hit the streets in December, while Honda is targeting 2011 for its small car launch. A recent global partnership between VW and Suzuki Motor Corp. would take some time to play out in the Indian market, Nakanishi said.

Among the options that could potentially be looked at are contract manufacturing by Maruti Suzuki for the Volkswagen Group and making use of VW's diesel technologies, he added.

Toyota Motor Corp.'s Prius and a number of other green-themed vehicles got their India debut at this week's New Delhi Auto Expo, but auto executives and experts agree it will be years before many people buy them.

Toyota said this week it would start selling its hybrid Prius, which runs on both gasoline and electricity, by the end of this year. India's largest auto maker, Maruti Suzuki India unveiled its answer to the Prius an electric concept car called Eeco Charge that it won't produced in mass until 2015, if ever.

India's Tata Motors, South Korea's Hyundai Motor Corp., General Motors Co. of the U.S. and France's Renault SA also have electric or gasoline-electric hybrid vehicles on display here this week. Toyota's newly launched Prius hybrid car sit on display at the Auto Expo 2010.

Hyundai brought in Bollywood super star Shah Rukh Khan to unveil its electric car, the i10 Electric, at the Auto Expo, but the company doesn't expect to sell many. "I don't think India is really ready for it," said Arvind Saxena, director of marketing and sales at Hyundai. "We don't have the infrastructure to use this car."

Vehicles like the Prius have become popular in developed countries. In the U.S., Prius sales fell 12% last year to about 159,000 vehicles from 2008 amid economic weakness. But it remains one of the nation's most popular vehicles.

Indian consumers are extremely price sensitive, and few are willing to pay double the standard sticker price it can cost for a battery-powered vehicle. Electric-car batteries likely would still be more expensive than gasoline-fuelled cars and subject to India's high tariffs because they would come from abroad.

"The battery will end up costing as much as the vehicle itself," said Paul Blokland, director of Segment Y Automotive Intelligence Pvt. Ltd. a Goa-based automotive consulting company. "Adding the green element just costs too much."

Analysts project that the Prius will cost more than US$ 40,000 in India.

Few cities in India have regular power and few homes have parking spaces near electric outlets. Regular blackouts make it tough to charge even a cell phone in much of India. Therefore, a battery powered car is unlikely to sell well, analysts and industry executives said.

"You can bring in electric vehicles, that's fine. But where are you going to get the electricity?" said Pawan Munjal, managing director and chief executive of Hero Honda Motors, India's largest motorcycle maker.

Electric scooters and motorcycles have been on Indian roads for a few years. After initial interest, sales of battery-powered two-wheelers has plunged over the last two years at two of India's top electric two-wheeler makers, TVS Motor Co. and Electrotherm India. Both companies combined sold around 12,000 battery powered vehicles last year, down from 22,000 in 2008, Mr. Blokland said, amid concerns about cost and battery replacement.

When the price is right and regulations required it, Indians have embraced environmentally friendly options. India has close to one million compressed natural gas vehicles on the road, mostly taxis and trucks. That makes it one of the largest user of CNG vehicles in the world, according to industry group Asian NGV.

Natural gas has worked in India because CNG vehicles are close to the same price as gasoline powered ones. It is also relatively inexpensive to switch a regular car or truck to CNG.

Ford Motor Co. is making a major push this week in Asia - long a weak link in its global operations - as part of an ambitious strategy started three years ago by Chief Executive Alan Mulally.

In India on September 23rd, Mr. Mulally unveiled a new low-cost small car specifically developed for Asia that will be built at a newly expanded Indian plant. The vehicle, called the Figo (pronounced fee-go), will be sold in India and exported to other countries in the Asia-Pacific region.

On September 25th, Ford will announce plans to open its third assembly plant in China, according to people familiar with the matter.

The two moves will significantly increase Ford's production capacity in the fastest growing region in the global auto industry, and will give the company a new car that is priced and sized for a large swath of buyers across Asia.

"Alan fully recognizes that we had to be strong in all three areas of the world if Ford Motor Co. was going to be a cohesive, integrated and successful company," said John Parker, executive vice president of Ford's Asia-Pacific operations.

The new small car - Figo is colloquial Italian for "cool" - is due to be launched in 2010. It was developed as part of a US$ 500 million investment in India announced January 2008. Part of the investment doubled capacity at a plant near Chennai to more than 200,000 cars a year. The tiny four-door hatchback with cat-eye headlamps gives Ford an entry into an increasingly important segment of the Asian market.

The vehicle is expected to sell for under US$ 10,000, within reach of many people in India's growing middle class.

Ford believes the Figo will appeal to customers who want more than a bare-bones vehicle, such as the US$ 2,000 Nano developed by Indian auto maker Tata Motors.

For Ford, which sold only about 30,000 vehicles in India last year, the Figo "will be quite crucial for further growth," said Asish Mathew Jose, market analyst for Segment Y Automotive Intelligence Pvt. Ltd., an automotive research company in Goa, India.

In China, which is expected to pass the U.S. as the largest auto market this year, Ford has two plants that together can produce about 447,000 cars a year. The company is expected to announce a third plant with partner Chonqing Changan Automobile Co., bringing total capacity to more than 600,000 vehicles a year.

Ford still faces many challenges in Asia, however. Even with the new capacity it still trails key competitors in China.

Toyota Motor Corp. can make 800,000 vehicles a year, and expects to lift that to more than one million in a few years, a Toyota spokesman said. General Motors Co., which got an earlier start in China than Ford, has partnerships and joint ventures that give it total capacity of 1.29 million vehicles a year, including small commercial vans.

The Ford name isn't uniformly known in India or China, and its dealer networks are still developing. In China, Ford has 216 full-service dealers, compared to Toyota's more than 500 and GM's more than 800. Ford accounts for about 2% of car sales in the Asia-Pacific market.

Shoring up Ford's Asian operations has been a critical goal for Mr. Mulally, a former Boeing Co. executive with substantial experience in the region. But since arriving at Ford in 2006, Mr. Mulally has had to focus on keeping its U.S. operations afloat. He is credited with having taken quick action to put the company in a much stronger position than rivals GM and Chrysler Group LLC, both of which went through bankruptcy and took government bailouts.

At the same time, however, Mr. Mulally also dispatched executives to find out what was holding up growth in Asia. They found an organization that wasn't focused enough on the region's two giant markets, China and India.

In China, Ford has lagged behind GM, Toyota, Volkswagen AG and other Western auto makers. According to J.D. Power & Associates, Ford is the No. 12 auto brand in China in terms of sales. The company has been slowed in part because its partner is located in Chonqing, in the less developed western provinces. There, Ford hasn't always been able to find suppliers for certain components, forcing it to use more expensive imported parts, Ford officials said. That hurts the profits, they said.

GM and VW, in contrast, have plants near Shanghai, an area teeming with auto suppliers and consumers with cash to spend.

In India, Ford struggled early on with models that proved too expensive for Indian consumers. Now, the Fiesta subcompact is its top seller, and a model called the Endeavor is the country's top-selling sport-utility vehicle.

In 2008, even as Ford's problems worsened in North America, the company mapped out a plan to invest US$ 2 billion to become more competitive in Asia. It started work on the Figo and recently, Ford said it would move its Asian headquarters from Thailand to Shanghai.

Ford is now working to consolidate manufacturing in four regions. It also seeks a more cohesive regional approach instead of country-by-country operations, and is working to enhance the Ford brand. "We concluded that we wanted to focus on the Ford brand because this is what you were going to have to do if you wanted to create a Ford powerhouse around the world," Mr. Mulally said in an interview.

While committed to building products in the markets in which they are sold, Mr. Mulally said he wouldn't rule out making Fords in Asia for the U.S. market. When GM recently considered a similar move it caused an uproar at the United Auto Workers union.

Harley-Davidson said on August 27th it planned to start selling its motorcycles in India next year, in a clear move to exploit the subcontinent's fast-growing market and mitigate losses suffered in the US.

India is the second-largest market for motorbikes and is dominated by small and inexpensive models - which cost on average less than Rs. 60,000 (US$ 1,227) - and are used as an alternative to cars.

India, where motorcycle sales have grown 15 per cent this year, could help lift Harley, which slashed its sales forecast for the year in July after having reported a sharp drop in its US and global sales due to the financial crisis.

"Given the rapid development of India's economy and physical infrastructure, this is exactly the right time to bring the world's greatest motorcycles to one of the world's largest motorcycling nations," said Matthew Levatich, Harley's president.

Analysts are sceptical about whether Harley's premium bikes, which have starting prices ranging from US$ 6,999 for a 883 model to US$ 25,299 for a Fat Bob in the US, will be able attract Indian bikers, given that the US group will have to add a 105 per cent duty on all its motorcycles.

"They can expect decent sales only if they price it competitively, say starting at Rs. 700,000," said Debsena Banerjee, an automotive analyst from Segment Y Automotive Intelligence, a Goa-based consultancy. "If not, then with people spending less in today's time, Harley might find it tough selling the desired number of bikes."

The other main challenge for Harley will be India's creaking roads and highway infrastructure. Although India's transport ministers Kamal Nath said this year that the government would spend about US$ 21 billion to overhaul the country's road network, it could take years before plans are implemented.

Harley, which has opened a subsidiary close to New Delhi and has begun looking for dealers in India's main cities, has not yet said which models will be on sale in the subcontinent and at what price.

The US group will also merchandise accessories and riding equipment throughout the country.

The company's main competitor would be India's Royal Enfield - a direct descendant of the famed British motorcycle maker - whose designs are little changed from the 1950s and whose bikes also enjoy a cult status among vintage bike aficionados.

Royal Enfield, based in the southern city of Chennai, India's automotive hub, has seen its business grow more than 20 per cent this year and plans to add four new dealers to the existing 149 in the country.

Yamaha, Honda, Ducati and Suzuki are the other main foreign competitors with which Harley will have to battle for market share.

In 2007, after some mangoes-for-bikes diplomacy, it looked like iconic bike maker Harley-Davidson Motor Co. was ready to ride into India, but that wasn't to be.

That entry, however, may happen as early as next week when Matt Levatich, president and chief operating officer of the company visits India, said a person familiar with the matter who did not want to be identified. Levatich has been invited as one of the speakers at the annual convention of industry body, the Society of Indian Automobile Manufacturers, on 28th August.

"Harley-Davidson continues to lay the groundwork for our market entry into India. We are making good progress on our overall plan to enter the market, and will have more details to share at the appropriate time," wrote a company spokesperson in response to an email questionnaire seeking details on when the company planned to enter India.

Accompanying Levatich is Anoop Prakash, who has been appointed the India managing director at Harley-Davidson. Prakash, who graduated from Harvard Business School, previously worked at the US department of housing and urban development and workflow solutions firm Lexis-Nexis.

Specific details on which models the company plans to launch were not available. Harley-Davidson was first granted permission to start operations in India by the Foreign Investment Promotion Board in April 2007. In exchange, the US government allowed the import of mangoes from India after a gap of 18 years.

But Harley was forced to abandon plans to enter the Indian bike market as the duty structure made importing unviable. Import of completely built up, or CBU, units of automobiles are taxed at the rate of 104% in India. The company had then said that this would put its products out of reach for Indian consumers.

"We are looking for some concessions from the government... We want to enter India as it is a key market but we don't know when will it be," Tim Hoelter, vice-president of government affairs at Harley-Davidson, had told reporters in May 2007.

Before 2007, the country's ministry of shipping, road transport and highways had blocked the entry of Harley-Davidson's bikes saying that the country lacked emission norms for bikes with an engine capacity exceeding 500cc. The government then agreed to recognize Euro III emission norms for bikes with an engine capacity of 800cc and above.

Duty rates at present would likely result in Harley-Davidson pricing its bikes at between Rs. 400,000 and Rs. 1.4 million. But that is unlikely to deter prospective customers as the market for superbikes has been doing well in India. Superbikes, which have a large engine displacement of around 1,000cc, are priced anywhere between Rs. 900,000 (US$ 18,600) and Rs. 1.2 million in India.

Manufacturers such as India Yamaha Motor and Honda Motorcycle & Scooter India (HMSI), which at present import these bikes, say they had underestimated the potential size of the market. While manufacturers had initially estimated there was a market for 300 such bikes every year, sales have shown the number is closer to 450-475, according to Debsena Banerjee of Segment Y Automotive Intelligence, a Goa-based consultancy.

It's not just luxury cars that have been immune to slowing auto sales in India. Superbikes are keeping them company.

Top-end bikes, which include the likes of Suzuki's Hayabusa, Honda's CBR1000RR and Yamaha's R1, are typically bikes with a large displacement of around 1,000cc that allows them to accelerate quickly and maintain speeds up to 300km per hour if road conditions permit. Since they cost Rs. 950,000-1,250,000 (US$ 19,000-25,000) they're only bought by passionate bikers.

"While the market is niche, the future is promising," says Sanjay Tripathi, head of product planning and brand management at the India unit of Yamaha Motor, the first to import superbikes in end-2007. A slowing economy has not hit sales, he says.

While manufacturers had initially estimated there was a market for 300 such bikes every year, sales have shown it's closer to 450-475, according to Debsena Banerjee of Segment Y Automotive Intelligence, a Goa-based consultancy.

In the past, these bikes were brought into the country by importers on behalf of bikers. There are around 3,000 top-end motorcycles in the country, according to industry estimates, and some bikers find servicing them a problem.

Despite declining auto sales in the country due to an economic slowdown, luxury car makers such as BMW India and Mercedes-Benz India have reported robust growth of around 40% and 14%, respectively, in the year to 31 March.

In contrast, sales at India's top car maker Maruti Suzuki India grew just 1.45% in fiscal 2009, compared with 12% in the previous year. Pankaj Chadha, a director in the automotive practice at Ernst and Young, says the market for top-end motorcycles could be larger. "There isn't enough promotional activity (being) done by manufacturers in India to promote high performance adventure bikes," he says.

Still, India Yamaha Motor decision to prise open the market seems to be paying off. It was surprised by the response for its 1,000cc-plus R1 and MT01 models. In its first year of sales to December, it sold 107 motorcycles, almost double the 50-60 it had thought it would sell. The company has a dozen dealerships across India.

Quick to spot an opportunity, Suzuki Motorcycle India and Honda Motorcycle and Scooter India, both subsidiaries of Japanese auto manufacturers, also launched their best-selling models. And, Precision Motor India started importing Ducati motorcycles from last May, adding to the imports of luxury Porsche cars.

N.K. Rattan, head of sales and marketing at Honda Motorcycle, says he plans to sell at least 100 bikes in the first year of their launch. There are as many as 700 illegally imported bikes across India, according to DRI estimates.

Suzuki, whose bikes are available at seven dealers across the country, has sold 51 of its Hayabusa and Intruder models in the four months since their launch. Mohammed Imaduddin Farooqui, a Suzuki Motorcycle dealer in Hyderabad, says he receives around 25 enquiries a day and expects sales to likely increase after the general election that ends on 13 May.

Precision, which sold 50 units last year, says it plans to set up India's first Ducati sales and service outlet in Mumbai by September as the market is "holding up well". The Streetfighter, a new model from Ducati, would debut in India later this year, according to Ashish Chordia, Precision's chief executive.

In the next few months, bike sales are likely to receive a boost from an unexpected source. The Directorate of Revenue Intelligence, or DRI, has begun to crack down on superbikes imported without proper paperwork. To escape high levels of duties, currently 105%, on imported bikes, some import them dismantled, billing them as spare parts and paying a lower duty of 24%.

A DRI official, who declined to be identified, said his office had seized 80 bikes in Mumbai and Pune. DRI estimates there are as many as 700 illegally imported bikes across India. More raids are planned in a few months, the official said.

Tata Motors announced the launch of the Nano, its much awaited low-cost car, at a glittering ceremony in Mumbai, keeping its entry sticker price at the promised Rs1 lakh without levies.

With taxes and duties, the base Nano model would retail for Rs. 123,000 (US$ 2,460) in New Delhi and at least Rs. 113,000in Pantnagar, Uttarakhand, where the car will first be manufactured. Other variants, featuring air conditioning and power windows, will sell for Rs. 151,000 and Rs. 172,000 each in New Delhi.

Prices at other cities farther from Pantnagar would be higher. At Mumbai, the entry Nano model would sell at Rs. 134,000 and go up to Rs. 185,000.

"A promise is a promise and I am pleased to say the promise is kept ," chairman Ratan Tata told a 2,000-strong crowd at the Parsi Gymkhana lawns at south Mumbai. But only the first 100,000 buyers of the Tata Nano will have the option of buying the base model at Rs. 100,000, said Ravi Kant, managing director of India's biggest auto maker.

Kant, at a meeting with editors early afternoon, chose not to answer a specific question on whether this model would make money for Tata Motors and said that in the long run, it would. Later, at a press conference, he said the "Nano project is not just commercially viable but very profitable".

The Nano hits the road 25 years after another car, the Maruti 800, made in collaboration with Japan's Suzuki Motor Co., expanded India's car market. Some 2.5 million Maruti 800s have been sold to date.

The Rs. 172,000 price tag for the top version puts it at a less competitive position vis-a-vis competing models, said B.V.R. Subbu, chief executive of auto company Argentum Motors and former Hyundai Motors India managing director. The Maruti 800, for instance, starts retailing at Rs. 200,000 and an air-conditioned version sells for Rs. 204,000-just Rs. 53,000 more than a Nano with air conditioning.

"It takes the Nano into the Suzuki Alto territory and it remains to be seen whether people want to buy it over the Alto," he said. A Maruti Suzuki India executive said it was too early to comment on prices but was categoric that the firm would not "get into the ultra low-cost segment". Tata Motors has "stuck to what they promised and we feel a lot of two-wheeler users will migrate to cars. This will help us as a company," I.V. Rao, chief executive (engineering), told.

Another auto expert didn't think the price would hurt Tata Motors. "There will be enough people buying the Nano because it is a Tata car and they made good the Rs. 100,000 promise; look what happened with the Indica (when it was launched)," said Paul Blokland, director at Segment Y Automotive Intelligence. The Indica, when launched in 1999 received 100,000 bookings, and has since sold 900,000.

Tata Motors has decided to take as many bookings as possible between 9th April and 25th April, it will choose 100,000 allottees at random within 60 days of close of booking. The remaining applicants have the option of retaining their bookings and earning an interest of up to 8.75% a year on booking prices from at least Rs. 95,000 to Rs. 143,000.

Application forms will cost Rs. 300 each and registration will start at Rs. 2,999.

Tata Motors has tied up for car loans with several banks such as State Bank of India, Punjab National Bank and Axis Bank that have a large network across small towns and cities across India. Forms will also be sold and accepted at the outlets of Tata group brands such as Titan, Tata Indicom, Westside and Croma.

Deliveries of the car will begin in July and it will take Tata Motors at least until July next year to make these 100,000 cars, said Kant.

That's because Tata Motors' small car plant at Singur, a village about 45km west of Kolkata, had to be shifted to Sanand in Gujarat in the face of political opposition in West Bengal. The Gujarat plant, near Ahmedabad, is expected to start producing the car late this year or early next year, said Tata. The capacity of that factory will be 250,000 a year.

Meanwhile, deliveries will start from the company's Pantnagar plant, with a capacity of 50,000 units.

Initial reactions from those that have test-driven the car suggest it has lived up to the hype. “The genius of the Nano is that they've spent money where they should,” said the editor of one of the country's top-selling auto magazines. He's test-driven the car and believes Tata could get as many as a million bookings. “The car is a triumph of pocket science over rocket science.”

Powered by a two-cylinder aluminium, 624cc engine, the Nano will, at first, be offered in a petrol-only version. It has a top speed of a 105 kmph, the firm said. Available in three variants, it gives 23.6 km a litre, shows data from Automotive Research Association of India (ARAI).

Tata said he still thought he could sell a million Nanos a year, based on studies done by the company a few years ago where it had looked at the number of scooters and motorcycles sold in India.

He said initial demand would be met quickly. “We really don't want somebody to wait too long for this car as it's like waiting for a very pretty woman. If you wait for her for too long she becomes old and probably fat,” he joked.

The Nano comes with a 18 month, 24,000km warranty, whichever is earlier. This deviates from the industry norm of at least 50,000km. Said an analyst, “While this does not mean that Nano has a quality issue, it definitely bespeaks of the low confidence levels of the engineering team at Tata Motors,” he added.

The past few months have been rough for Tata Motors, which has sunk in a little over Rs. 2,000 crore in the Nano project. Truck sales, the firm's mainstay, have crashed in the last five months. It had also borrowed heavily to finance its purchase of marquee brands Jaguar and Land Rover in March 2008. This June, the company is slated to refinance or pay back a US$ 2 billion bridge loan it had taken to finance their purchase.

When the company first came up with the idea of the “people's car”, Tata had said that the company could consider selling the car through small entrepreneurs, who would build the Nano from kits supplied by the company. He said the company could still do this but only after its manufacturing operations had stabilized and it had a separate “kitting operation” in place.

The future of car manufacturing would see more multi product contract manufacturers, Tata said, with the car companies themselves focusing only on design and manufacturing.

In the last 10 months or so, a lot of changes have happened in Chakan, the town between Mumbai and Pune that is fast becoming India's Detroit.

In one location, for instance, what used to be a concrete foundation in a churned-up wasteland is now a gleaming Volkswagen plant.

In the vast 43,000 square metre hall outside the office of Dr. Thomas Dahlem (technical director for Volkswagen India), experts from plants in Germany, the Czech Republic and Spain hover around the assembly line, bringing the plant's 500 Indian workers up to speed on the "Volkswagen Production System". In less than a month - a year ahead of schedule - the first Skoda Fabia will roll out of the gates.

That will be big news. Angela Merkel, the German chancellor, may even fly in for the launch.

But for Chakan, it's just one more plant. Two minutes drive away, Mercedes-Benz began producing luxury cars and lorries from its new facility at the end of last month; General Motors (GM) began producing its Chevrolet Spark from nearby Talegaon back in September, and in November, Tata and Fiat began producing the Fiat Linea in Ranjangaon. There is more to come: Renault and Bajaj plan to produce their low-cost cars here, and plants are on the way from China's Sany Heavy Industry, Korea's Hyundai Heavy Industries, America's International Truck and Engine Corporation, as well as dozens of international and domestic car-component manufacturers.

When all the planned plants are built, this part of Maharashtra state alone will be making 1.8 million cars a year - more than Britain.

There can be few other areas anywhere in the world that are industrialising so rapidly. Dr. Dahlem says: "If you drive between Pune and Chakan it's amazing what's happened in the last one year. Every week you see a new announcement of housing that's come up."

But something else has changed over the last ten months - no one is sure any more that all this capacity is needed.

Last year, India's five-year run of rising car sales came abruptly to a halt. Sales have now fallen year-on-year for six out of the past eight months, and the Society of Indian Automotive Manufacturers (SIAM) expects sales of four wheelers in the country to be just two million in the year to the end of this month, down from 2.03 million the previous year.

But the industry has already installed capacity of 2.8 million, so the glut is going to get worse over the next few years.

A leading consultant in India, says: "There have been a lot of new players and new capacity in India, attracted by growth, which would in any case have led to some overcapacity. But the demand slowdown due to the financial crisis has accentuated the overcapacity problem."

Silvain Bilaine, the managing director of Renault India, made the decision in mid-December to freeze work on the new plant in Chennai it was planning with Nissan and Mahindra. At 400,000 cars a year, the Chennai plant would have been India's largest new project. "Some people will suffer," Mr. Bilaine warns. "India has three major plants not running at capacity, and next year another five lakh (500,000) cars will be available in capacity with no extra market."

Honda also slammed the brakes on its new plant in the state of Rajasthan at the same time as Renault.

But for other international car makers, the slowdown has come too late. GM is perhaps the hardest hit. With its new plant in Talegaon, it can now produce 225,000 cars a year, but this year it expects to sell 72,000 at best, meaning it is operating at under a third of its full capacity. Last month, GM announced that its India business would no longer be "self-funding" this year; the first time since 2004 it has needed cash from its parent company.

Others also have new capacity coming on. By next year, Ford will double production capacity at its Chennai plant to 200,000 and Toyota will bring on a new 100,000-capacity small-car plant near Bangalore.

The problem would be still more severe if the Rs. 100,000 (a little over US$ 2,000) Tata Nano had hit full production at the end of last year, as originally planned.

Tata will take bookings for the first few Nanos next month, but won't produce in significant numbers until its new plant at Sanand in Gujarat starts up at the end of this year, adding a further 250,000 cars to India's capacity.

Inside Volkswagen's hangar, none of this matters yet. Dr. Dahlem is focused on ironing out the last few glitches to worry about what market that first batch of Fabia's will find. It is difficult not to be impressed by the cleanliness and order he's achieved: it's as if an outpost of Wolfsburg, Volkswagen's hometown, has been improbably established in the chaos of India.

"I would lie if I said I hadn't had headaches or sleepless nights," Dr. Dahlem says of the task.

He is now working to bring the plant up to Volkswagen's international standards before the launch next month, and workers are busy testing Skoda Fabias that have been produced in test runs. "There are still some slight defects," Dr. Dahlem says. "We have still a few things to improve. But we will do it."

This is nothing to do with the quality of India's engineers, who, he says, are excellent. "We have found quite a lot of capable people in India. In some countries around the world, it's more difficult because you don't get the engineers with the experience. India has quite good standards; the workers at the shop floor level and also the specialists you can find here."

There are 500,000 students in the nearby city of Pune, many of whom study engineering or another technical subject.

This is part of Chakan's attraction as a car-making hub: India has huge domestic market potential, but also boasts an abundance of low-cost component manufacturers, and a deep well of engineering expertise. Indian manufacturers Tata Motors and Mahindra are starting to target international markets. Korea's Hyundai has pioneered manufacturing for export, selling its Indian-made I10 model in 97 countries.

But it's still the domestic market potential that international car companies are targeting. Only about eight out of every thousand Indians own a car, according to the Society of Indian Auto Manufacturers, and in a country of 1.4 billion people, even a small improvement in this ratio translates into massive sales growth.

"In the medium term, I don't think there will be too much capacity," says Paul Blokland, director of Segment Y Automotive Intelligence, a car consultancy based in Goa, India. "We are still at the dawn of motorisation in India."

On the whiteboard in one of the training rooms at Volkswagen, someone has written out how production in the plant is set up to respond constantly to VW's sales data. "We try to produce to the average rate of customer demand," Dr. Dahlem explains proudly. "This is the advantage of the new plant here - precise."

But he brushes away my suggestion that this will mean a delay in reaching capacity. "We will follow our plans. When we come to full capacity, we believe that we will be right on the spot, on the right point: the economy comes back and we can sell our cars."

In another indication of its on-again, off-again approach to the Indian market, PSA Peugeot Citroen, Europe's second largest car maker by sales, continues to test the waters here.

A senior PSA executives Frederic Saint-Geours, board member and adviser to chief executive officer, and Rajesh Nellore, managing director for India operations, met Andhra Pradesh government officials to explore investment opportunities in the state. B. Sam Bob, principal industries secretary of Andhra Pradesh, described the talks as "preliminary". PSA is also exploring investment opportunities in other states, he added.

PSA is no stranger to the Indian car market. Post-liberalization, its Peugeot unit was one of the first entrants in India through a joint venture with Premier Automobiles, to make the Peugeot 309. Labour problems at Premier's Kalyan plant in suburban Mumbai had delayed production.

In 2001, Peugeot pulled out with only a few thousand cars sold. But now, shrinking car markets in the West have prompted car makers such as PSA to look at the developing world with renewed interest. Indian units of Ford Motor Co., General Motors Corp. and Toyota Motor Corp. have continued to invest in India even as their parents posted losses.

Ford plans to put in $500 million (Rs. 24.35 billion) in capacity expansion and a new plant. General Motors inaugurated its 140,000-unit Talegaon factory on the outskirts of Pune in Maharashtra in September. Nellore, who worked previously at components firm Johnson Controls joined PSA last July to head India operations and opened an India office in October.

The company plans to develop India as a sourcing hub. "We were actively sourcing in India through our partners Magna Steyr but we're looking at taking a more direct approach," said Nellore. He declined to comment further.

In November, PSA held customer clinics in New Delhi and Mumbai to get feedback on its cars. The Peugeot 207, 308 and 408, and Citroen C5 and C6 were on display.

PSA's tried and tested diesel technologies could also give it an edge in the Indian market, said Paul Blokland, director of Segment Y Automotive Intelligence, an automotive intelligence firm. About half the cars sold in Europe run on diesel engines.

The Tata Nano, with a projected price of about $2,500, was hailed as the world's cheapest car when it was introduced in January, but nearly a year later there is still no factory to build it.

Farmers have filed a case against the Indian government and Tata Motors, demanding better compensation for land sold to support the latest Nano factory in Gujarat, India. Sales of the Nano in India - originally scheduled for October of this year - will not begin until next spring.

This is the second time that Tata has faced off against angry farmers and politicians. A similar series of protests erupted this summer, at a factory purpose-built for the Nano in the town of Singur, in the state of West Bengal. Protesters (led by a handful of local political leaders) alleged that Tata forced farmers from their land or paid a fraction of the land's true value.

By October, the Singur protests had grown in size and intensity. Highways surrounding the factory were at a standstill, and workers were being threatened. Tata finally abandoned the Singur factory, in which it had invested $350 million, according to the BBC at the time.

"There is no way this plant could operate efficiently unless the environment became congenial and supportive of the project," a Tata spokesman said.

Plans to build a new factory in Gujarat seemed to put the Nano back on track. But another land dispute has sparked a sense of déjà vu for Tata.

"The land dispute is real," said Paul Blokland, managing director of Segment Y Automotive Intelligence, an automotive consulting firm based in Goa, India. "The locals say that the lease on the land has run out, and that it therefore reverts to them, while the government says it bought off the original landowners in the 1920s."

Once again, Tata has been forced to find a quick solution. Automotive News reported recently that Nano production will now begin at Tata's existing factory in Pantnagar in the northern state of Uttarakhand. And according the Economic Times on Friday, Tata has received an allotment of land from the Uttarakhand government to expand the Pantnagar factory for Nano production.

Even with a rapid expansion of the Pantnagar factory, sales of the Nano will (at least initially) fall well short of Tata's original expectations, Mr. Blokland said.

"The plant in Gujarat will not start serious manufacture until late 2009," he said, adding that the Nano will be produced in small numbers, between 3,000 and 4,000, in Pantnagar, calling it a "soft launch."

This is far from the 100,000 annual sales Tata envisioned when the Nano made its debut at the New Delhi Auto Expo in January.

When Aniket Deshpande, a shopkeeper from the central Indian city of Aurangabad, saw the first pictures of the Tata Nano earlier this year, he was overjoyed.

"I thought it was a beautiful and wonderful car," he said. "I thought, "when it will be launched I want to be first customer'. It's my dream to purchase a car, and the Tata Nano comes in my budget."

The unveiling of the world's cheapest mass-produced car in January was a worldwide phenomenon, vying with the launch of Google's Android phone and the iPhone 3G for the year's most sensational product launch.

The "people's car", costing just 100,000 Indian rupees (Dh7,460), even made the front cover of Newsweek magazine.

But the fascination of the developed world paled compared with the excitement it generated for the millions of Indians for whom the Nano's launch meant being able to afford a car for the first time.

Within days of the launch, Mr Deshpande, 24, a car enthusiast who recently began studying for a degree in automotive engineering, put his name down on a waiting list at Sanya Motors in Aurangabad. He has been pestering Rajendra Jagirdar, Sanya's general manager, ever since.

"Five or six customers are asking every day," says Mr Jagirdar. Tata has yet to announce how waiting lists for the cars will be handled, but Sanya already has an unofficial list numbering in the hundreds. Dealers elsewhere are just as swamped. Pandit Automotive in Pune and Om Sai Motors in Mumbai both claim to have more than 1,000 customers waiting for the car.

Normally, marketing executives would give their expensively whitened eye teeth for this kind of consumer excitement ahead of a product launch, but for Tata Motors, it is a problem. Because last month, the Nano missed its unofficial launch date.

When Tata chairman Ratan Tata unveiled the car in January, Tata Motors had hoped to sell the first batch of Nanos into last week's Diwali festival ‒ the most auspicious time for Hindus to make large consumer purchases.

That the car was not in the showrooms is not Tata's fault. At the start of last month, Mr Tata decided to pull out of his factory in the village of Singur, 40km outside Kolkata, just weeks before starting production there.

Mamata Banerjee, an outspoken opposition politician, had staged a month-long blockade of the plant, making impossible demands that a large part of the land be returned to farmers.

"If someone had put the gun to my head I would not move away," Mr Tata said ruefully, announcing Tata Motors' departure. "But I think Banerjee has pulled the trigger."

After leaving Singur, Tata quickly found a new home for the Nano factory in the village of Sanand, in business-friendly Gujarat.

The move well may have saved Tata from future heartache. But it has robbed the Nano of its big-bang launch. It will now be at least a year before Tata begins manufacturing the 20,000-plus cars a month needed to fill the orders for for Mr Deshpande and the others like him.

Ravi Kant, the chief executive of Tata Motors, said the company was working hard to get the highest possible Nano production when it launches the car, but was limited by the capacity of plants in Pune and Pantnagar.

"I wish we would have been able to have the Nano much earlier than we have it now, because it would have created more dynamics in the whole industry, it would have brought excitement into the market, it would have changed the whole ball game of the market itself. The delay hasn't been good," Mr Kant said.

The speculation now is that the car will be launched on or near Mr Tata's birthday on Dec 28. Tata's first standard passenger car, the Tata Indica, was launched on Dec 30, 1998, so that date has special meaning.

But the launch will be largely symbolic. The first Nanos will be produced at Tata's factory at Pantnagar, with backup from its plant in Pune. The plant is expected to produce only between 3,500 and 4,000 cars a month ‒ far too few to register on the market.

Ramesh Khare, a dealer at Pandit Motors, said: "If the Tatas produce 40,000 Nanos a year, I will be able to sell them all just in Pune itself. That much demand is there."

It will take more than a year for Sanand to begin production at 250,000 cars a year, and longer for it to reach peak production of as many as 500,000 cars a year.

Until it gets there, Tata has given no clue as to how it will select which of the enthusiasts such as Mr Deshpande get to own the trickle of cars coming off its production lines.

"I don't have much of a handle on how they're going to satisfy such huge demand with such a small number of cars," said Paul Blokland, of emerging markets car consultancy Segment Y Automotive Intelligence.

Experience may make Indian consumers more tolerant of the delay than consumers in the West would be.

Mr Blokland points out: "In the past ‒ only 10 years ago really ‒ when a new vehicle was launched, if you wanted to book a vehicle you had to make a fairly substantial up-front payment, and then wait for as much as a year for the car to appear. In the case of the old Ambassador and Padminis it could take five years."

But Tata may opt instead to use a lottery system, perhaps bypassing dealers and involving the internet.

"The whole booking thing smells so much of the planned economy that they may wish to avoid that," Mr Blokland said.

When the Nano programme was launched, it rapidly came to symbolise both the "frugal" engineering that India is getting a name for, and the vast potential market the country offers manufacturers who can cut prices deeply enough.

The Singur factory blockade debacle means it will also become a symbol for the way India's rowdy democracy, with its frequent strikes and rabble-rousing protest groups, can make land acquisition for industrial projects a grim process.

Tata was right to move. Even if enough of an agreement was reached to end the protests, Ms Banerjee would never have let Singur die as a potential rallying issue. And if Tata and the West Bengal government had granted farmers the huge improvements in terms she was campaigning for, that would have meant rewarding her for her populist stance.

"It's not that difficult to get it right," says Roddy Sale, an investment banker based in Mumbai, who advised BHP Billiton and other mining companies on setting up in India, of buying up the land. "But once you've got it wrong, even in a small way, then it's almost impossible to correct it."

Mr Tata lamented in an open letter to the people of West Bengal after the move that "our dream of contributing to the industrial revival of West Bengal has been shattered by an environment of politically motivated agitation and hostility".

Aside from its shattered dreams, Mr Tata argues the move has not hurt the firm too much.

He said at the launch of the Sanand plant: "We would be retrieving most of our costs out of Singur and I don't believe that there will be a need to have any appreciable loss reflected in our financials in the current year."

Tata didn't pay for the land, and the machinery for the factory can be used in the new plant, so all the company has lost is the cost of the huge building covering the production line.

Analysts at Indian bank Kotak suggest that this, plus the cost of relocation, would not come to much more than US$60 million (Dh220.39m) of the $300m invested in the facility.

But it's not just customers who have been left waiting. German car-parts manufacturer Bosch had nearly finished an extension to its production facility in Bangalore to provide fuel-injection systems for the Nano. Now that capacity could lie idle for as long as a year until Sanand starts up.

Others have invested even more heavily. The UK's Caparo, for example, which is providing body parts for the car, had already built a plant at Singur and shipped in its machines.

The suppliers will need compensation. Tata held a meeting for them on Oct 16 in Mumbai and asked them to provide detailed accounts of their costs involved with Singur, as well as the added cost of moving.

One member of the ruling Communist Party of West Bengal. a state where conspiracy theories thrive, has even gone so far as accusing Tata's rivals, Suzuki and Bajaj, of funding Ms Banerjee to scuttle the Nano, which will take a huge slice of their motorcycle, scooter and small-car markets.

Bajaj chairman Rahul Bajaj has issued a firm denial, but the fact remains that with the Nano, Tata will be the sole manufacturer in a newly created market segment.

A year's delay means losing a year of that privileged status and there are at least six global car makers working on low-cost cars, including Renault and Nissan, which have teamed up with Bajaj, General Motors, Ford, Toyota and Honda.

As many as 400,000 of the the Renault-Bajaj-Nissan ultra-low-cost, or ULC, cars are to roll out of Bajaj's planned plant in Chakan, near Pune, by 2011. The move from Singur has effectively halved Tata's lead.

Then again, it's not as if Tata was planning to use its first-mover advantage to hit consumers with high prices. Indeed, if Tata manages to keep the price tag of the Nano below $3000, it is unlikely that any of its rivals will manage to match it.

So the most precious thing Tata risks losing is momentum ‒ the level of excitement that had built up around the car.

At the time of the Nano's launch in January, Mahesh Chauhan, the chief executive of Rediffusion, the advertising agency that handled it, said the car was enough of a celebrity to pretty much sell itself.

Familiarity may start to change that over the next year. But the shortage of demand could work the other way. Anant Rangaswami, the editor of Campaign India, said: "Even before the problems that they had, I didn't expect them to do a high decibel launch. In many ways, because it's going to come out in a phased manner, what they need is less. They will have a backlog."

India is becoming a small-car manufacturing hub for some of the world's biggest auto makers. Hyundai has boosted production in India to about 500,000 cars this year.

Annual passenger-car exports from India have jumped five-fold in the past five years. Industry analysts predict exports over the next three years will surge nearly 300% to more than half-a-million vehicles a year.

India's homegrown auto innovation -- Tata Motor Ltd.'s $2,500 Nano minicar -- has attracted global attention, but the export wave consists mainly of small cars built in local plants by Japanese and South Korean car makers, including Suzuki Motor Corp., Hyundai Motor Co. and Nissan Motor Co.

In late September, India's biggest car exporter, Hyundai, added a midnight shift at its southern India plant to boost production 40% and meet booming demand for its i10 minicar abroad. Both Hyundai and Suzuki unveiled subcompacts at the Paris auto show, targeting consumers in Europe, their main market for made-in-India exports.

"Right now, India has everything -- the local market, the quality and the companies," says Shohei Kimura, managing director of Nissan Motor India, who moved to India last month to start building Nissan's capacity here to 200,000 units annually over the next three years.

A rising tide of exports will create much needed Indian jobs. Unlike China and many other Asian nations, India's economic growth has been powered not by manufactured exports but by its service sector and local consumption. To continue the strong expansion -- which has averaged more than 8.5% a year for the past five years -- and to absorb millions of new workers, India needs more manufacturing.

Despite the rapid growth, India is still a relatively small player in auto exports, shipping about 200,000 cars in 2007, most of them minis and subcompacts. Japan, by contrast, exports about five million cars a year, and South Korea about three million.

Not all big auto makers are rushing to export from India either. Honda Motor Co., which inaugurated the first phase of a new plant in India in late September, is delaying full-scale operations there by six months, citing concern about its car sales in India. The company also says it hasn't yet decided whether to make India a major export hub.

Politics can also derail big plans in India. Tata Motors recently decided to pull out of a new factory near Kolkata that was supposed to produce the snub-nosed Nano. It gave up on the site in response to violent protests demanding the return of part of the facilities' land to farmers. Full-scale production and export of the Nano will be delayed, analysts say, as Tata shifts production elsewhere.

Korean car maker Hyundai is at the forefront of the export drive, a position it earned by committing early to make cars in a then-unpromising market. When it began production 10 years ago, local consumers were purchasing only about 300,000 cars a year, despite the country's population of almost one billion.

At the time, most foreign companies couldn't count on much help from either the central government or local bureaucrats, who were often suspicious of overseas investors. Moreover, a decrepit transportation infrastructure and iffy power supplies often made it tough to keep factories running.

But Hyundai Motor India Ltd. started producing cheap subcompacts at a new plant with capacity of about 100,000 units a year near the southern city of Chennai. Hyundai trained most of the workers from scratch, often giving them two years of on-the-job training before hiring them full time.

Hyundai's timing turned out to be right. An emerging Indian middle class wanted an affordable car to squeeze the family into, and the $6,000 Hyundai Santro fit the bill. Soon the car was selling well, but Hyundai needed even more sales to soak up its excess capacity and keep costs low.

"That is why exports become not just a viable option but a necessary option" for anyone that wants to remain competitive in the Indian market, says Ashok Jha, the New Delhi-based president of Hyundai Motor India.

By 2004, Hyundai was India's biggest car exporter, selling 70,000 India-made cars a year overseas to more than 70 countries. Today, Mr. Jha says, Hyundai's smallest cars -- the Santro and the i10 -- are produced only in India and exported mostly to Europe.

The company has boosted production in India to about 500,000 cars this year and plans to raise that to almost 650,000 next year. It plans to export about half the cars, up from about one-third now, as rising interest rates squeeze domestic demand and higher gasoline prices heighten the appeal of small cars abroad. The company is also studying the U.S. market as a possible target for its India-made cars.

"Our factories are producing the highest quality cars," Mr. Jha says. "As others have realized India's potential, they are all setting up here," he adds.

Indeed, so-called "Little Detroits" have sprouted outside Chennai and Pune, near Mumbai, where regulatory barriers have been lowered -- along with tax rates and the cost of land and power for big factories.

Other manufacturers also plan to step up exports. Suzuki exported about 50,000 cars in 2007 and hopes to increase foreign sales to 200,000 units in the next two years. When Nissan raises its output to more than 200,000 vehicles a year, about half will be exported, the company says.

"Previously, India was not taken into account by car companies, but now [it] has become the focus" as a market and a manufacturing base, says Paul Blokland, director at Segment Y Automotive Intelligence, an emerging market automotive consultancy in Goa.

Perhaps Ratan Tata can only turn on the showmanship once a year. In January, Tata Group's chairman launched the world's cheapest car, the Tata Nano, by driving it onto a stage in Delhi to the thundering soundtrack of 2001: A Space Odyssey.

But recently, when Tata Motors announced the US$ 2.3 billion (£1.2 billion) acquisition of Land Rover and Jaguar, he was nowhere to be seen. The absence of triumphalism may be a sign of the size of the gamble. By the time the Nano starts trundling off the production lines later this year, Land Rover and Jaguar will represent more than 60 per cent of the cars that Tata sells by value.

An auto analyst in Mumbai, says: "If you look at what this company will be after the acquisition, it's a completely different being."

Jaguar has cost its old parent, Ford, nearly US$ 10 billion in losses. So this is a huge risk and Tata is taking it at a time when the global slump has led to a 33 per cent drop in Jaguar's US and European sales, and the credit crunch has hiked the cost of borrowing. The US$ 3 billion 15-month bridging loan arranged by Tata won't have come cheap, nor will its refinancing.

The market is spooked. The stock fell over 7 per cent when the deal was announced, recovering a little and then falling again later. Analysts worry that increased interest on the debt will cut Tata Motors' earnings by as much as 30 to 40 per cent next year.

Another analyst argues that Jaguar Land Rover is a much bigger risk than Tata Steel's US$ 12 billion acquisition of Corus, the erstwhile British Steel. "It's a bigger bet because with Corus at least they have some cost synergies. But this is a new world for Tata; no synergies are visible."

What most perturbs the market is the lack of any clear plan for the companies that Ford wasn't already working on. "Our motivation isn't based on outsourcing and it is not based on taking technologies from these companies," Ratan Tata told reporters at the Geneva Motor Show last month. "What attracted us was that these are two very iconic brands. We believe it is the duty of whoever owns them to nurture the image, to retain their touch and feel, not to tinker with them."

Tata certainly isn't tinkering. It plans to leave the two companies' managements to continue with their existing strategies, without cutting staff, closing plants, moving manufacturing to India, or sourcing cheaper parts from India.

C. Ramakrishnan, Tata Motors' chief financial officer, says Jaguar and Land Rover's business plan to 2011 will remain in place. In the short term, this means the deal is to a large extent a bet on Jaguar's new XF, released this March to the best reviews a new Jag has received for years.

But that does not mean it can revive flagging sales in a downturn. Tata chief executive Ravi Kant has admitted as much. "We may have some pressure," he told reporters in Thailand, adding: "We are not taking this just for the next two or three quarters; we take this for the next 20 to 30 years."

Ratan Tata is not a fool, nor is he a stranger to the challenges faced by British car makers. "I think they know what they've bitten off," says a banker who has worked closely with Ford. "They know what it will take to sort Jaguar out. They know it's a 10-year process."

But why do the deal? For the same reason Tata Steel bought Corus - to give Tata Motors a global presence.

A Mumbai-based expert says: "No matter how hard they tried, they would not have been able to create a global brand in cars. They would have always remained an Indian company with exports to Africa." And Jaguar and Land Rover came cheap. Ford paid a total of US$ 5.3 billion for the brands when it bought them in 1989 and 2000. For US$ 2.3 billion, Tata gets them debt- free, along with a US$ 600 million pension contribution from Ford.

And crucially, Ford has funded a pipeline of new models. Paul Blokland, director at Segment Y Automotive Intelligence, says: "It costs anywhere between US$ 500 million and US$ 1 billion to develop a new car, so to buy seven to eight fairly young platforms for US$ 2.3 billion is not so expensive."

After the XF, the Jaguar XJ is due next year, and Land Rover's Freelander, released in 2006, still has about a decade left. Building up the Lexus brand has taken Toyota 18 years, with only partial success.

The deal leaves Tata with an unusual business model: the world's cheapest car on one side, and some of the world's top luxury brands on the other. "We came to the conclusion it's a pretty neat strategic fit," Mr. Blokland argues. "There is a clear polarising trend in Europe, with sales going to budget brands such as Skoda and Fiat for small cars and to luxury brands such as BMW, Audi and Mercedes at the upper end. There would be no point in Tata developing a Mondeo; that's where companies like Renault are struggling."

The lack of fanfare and Ratan Tata's clenched lips may have frustrated the markets, but a do-nothing approach may turn out to be what Jaguar needs. "Frankly, Ford never had a clue how to manage Jaguar," says the banker who worked with the US giant. "Every time they take a decision, they retake it every five minutes. Tata will be significantly better than Ford."

But it may end up costing a lot more than US$ 2.3 billion.

At last the wait is over. After nine months of negotiations - not to mention false dawns - Tata Motors has struck a US$ 2.3 billion deal with Ford for its two remaining British marques, Jaguar and Land Rover.

In a statement issued March 26th, Tata said that Ford would also contribute approximately US$ 600 million to the pension funds of the two British automakers.

The question now is whether Tata can do a better job of managing the two brands, which long weighed on Ford's bottom line, than the Detroit automaker did. Jaguar and Land Rover couldn't be more different from Tata's other grand project, the US$ 2,500 Nano, or anything else in its lineup. "I don't think there's anything in there that's a fit with the Tata Group," says an independent automotive consultant in London.

Tata has a lot on its plate

As a result, the new money-losing brands from Ford will test management at Tata Motors as never before. And the challenge comes at a time when the Indian company is already stretched. In addition to the Nano, Tata recently launched a new multi-utility vehicle, the Sumo Grande, and will introduce new versions of its Indica hatchback and Indigo subcompact. Jaguar and Land Rover will also have to compete with Tata's other auto businesses for funds and management time, including its commercial vehicle business and a joint venture with Fiat inked last year that will produce vehicles in India and Thailand. Throw in the new luxury marques and Tata's management will be busier than ever.

Then there's the challenge of selling Jaguars in India and a line of Indian-owned luxury brands around the world. In India, demand for the luxury marques in the short term is likely to be limited. While growing quickly, India's luxury car segment accounts for only 1% of the total car market. BMW and Mercedes-Benz, for example, sell just 3,500 cars a year in India between them. "The Jag could surely sell a couple of hundred cars in India," says Paul Blokland, chief executive of Segment Y Automotive Intelligence, an auto consultancy based in the southern Indian state of Goa.

Whether Indian ownership will affect Jaguar sales is harder to determine. To date, an Indian passenger car has never been an international success. Tata, for example, failed to sell its Indica car, rebranded as the City Rover, in Europe in large numbers after its launch in 2003. And while most analysts and auto industry observers view the Jaguar and Land Rover purchase as good for the brands, some wonder whether Tata, despite running high-end hotels in India, has the marketing experience to handle the challenges of the high-end car business.

Looking for savings

Another test will be how to bring down costs at Jaguar and Land Rover. While steeped in history, Jaguar and Land Rover weighed on Ford's earnings and cost it, by some estimates, in excess of US$ 10 billion in losses over the years. A constant problem was that production at the British plants, which Tata has no plans to close, is expensive.

Analysts say that in much the same way Tata is using its in-house component manufacturers to make the super-cheap Nano a reality, it may be able to tap Indian expertise to find savings at Jaguar and Land Rover. But "the process will be slow and in the luxury segment there are a lot of dangers of embarking on this route," adds an analyst. "Tata will need to tread carefully."

Still, for all that, what is inarguable is Tata Group's winning habit when making daring acquisitions. In the past five years, Tata has embarked on an investment binge that is building the group from a once-stodgy regional player into a global heavyweight. Since 2003, Tata Group has bought the truck unit of South Korea's Daewoo Motors, a stake in one of Indonesia's biggest coal mines, and steel mills in Singapore, Thailand, and Vietnam. It has taken over a slew of tony hotels, including New York's Pierre, the Ritz-Carlton in Boston, and San Francisco's Camden Place.

Corus: Benchmark acquisition

Its crowning deal to date has been Tata Steel's US$ 13 billion takeover in April of Dutch-British steel giant Corus Group. In one swoop, the move greatly expanded Tata Steel's range of finished products, secured access to automakers across the U.S. and Europe, and boosted its capacity fivefold, with mills added in Pennsylvania and Ohio.

That's the kind of track record that makes some analysts believe Tata's purchase of Jaguar and Land Rover will ultimately pay off. "When they bought Corus, a lot of people said they were stupid. Maybe it's the same with Jaguar," says a Mumbai-based analyst. "If anyone has a chance to emerge as a big auto player from India, it's Tata."

It's called the Nano, for its high technology and small size. It's cute, compact, and contemporary. It's a complete four-door car with a 624cc gas engine, gets 50 miles to the gallon, and seats up to five. It meets domestic emissions norms and will soon comply with European standards. It's 8% smaller in outer length than its closest rival, Suzuki's Maruti 800, but has 21% more volume inside. And at US$ 2,500 before taxes (value-added taxes increase the price by about US$ 300), it is the most inexpensive car in the world.

Starting this fall, the Nano will roll off the assembly lines at a Tata Motors plant in Singur, Bengal, and navigate India's potholed roads.

The Nano, also known as the People's Car, is Ratan Tata's dream come true, and is India's contribution to changing the global auto industry. "The car has put India on the global map," says Fionna Prins, head of business development for Segment Y Automotive Intelligence, a Goa-based automotive consultant for emerging markets. "Tata has done in four years what the Japanese took 30 years to do. It will change the whole industry."

Even rivals are gushing. "It's a red letter day for Indian industry, a day India should be proud of," says Venu Srinivasan, chairman of motorcycle maker TVS Motors. "Ratan Tata has the vision to create a new business model and all the naysayers are looking at it with concern. The Nano is a path breaker."

Judging by the extreme enthusiasm that greeted the launch of the car January 10th at the biennial Auto Expo 2008 in New Delhi, the Nano has exceeded industry expectations. For the four years that the car has been in the making, Tata Motors, which makes trucks, sport-utility vehicles, and the Indica, India's second most popular car, has endured skepticism and disbelief from rivals both domestic and international.

In the past week alone, domestic rival Bajaj Auto unveiled a hastily configured concept car with a price tag of US$ 2,700, and Osamu Suzuki, chairman of Japan's Suzuki Motor, said the US$ 2,500 price point was not where the market is in India. International carmakers and media doubted Tata's ability to meet international environment and safety standards, and wondered aloud what the appearance of an affordable car would do to India's already congested roads.

Throughout, Ratan Tata remained unfazed, despite his own doubts of meeting his timeline and price goal at a time when the costs of raw materials, from steel to rubber, were rising. But Tata promised a US$ 2,500 car, and "a promise is a promise," he said to an audience spilling out into the streets and packed with government officials, industry chiefs, international carmakers, and reporters. "I hope it will be seen as the car which changes the manner in which people in rural and semi-urban India will travel," said Tata. And, he added, "it will be a profitable venture for the company."

The Nano has broken ground on many different levels--in price, in size, in distribution, and technology. By using lighter steel, a smaller engine, and having longer-term sourcing agreements with parts suppliers, Tata was able to keep the price of the Nano down. Its length of 3.1 metres, width of 1.5 metres, and height of 1.6 metres, with wheels at the outer corners and engine, gears, and transmission in the rear, creates space inside the car.

Tata has filed 34 new patents on the Nano, says Girish Wagh, chief engineer and leader of the 500-man engineer and design team that created and developed the car. Most are in the engine; the Nano will have a two-cylinder, 33hp engine with a four-speed manual transmission. Analysts say the true engine innovation will come next year, when Tata introduces the diesel version of the Nano.

Finally, the distribution of the car will also be an innovation. Just like a bicycle, it will be sold in kits that are distributed and serviced by the entrepreneurs who will assemble it for the consumer. Tata won't elaborate, and will only say "the distribution system will be a variant from the norm. It will remove some of the layers in distribution and service."

The Nano basic will sell for US$ 2,500, but there will be many versions of it, including an air-conditioned one, and prices could go up to US$ 4,000, still less than the Maruti 800, until now the world's cheapest car at US$ 4,810. And it will be customized for overseas markets and exported. Ratan Tata intends to export the car to emerging markets in Africa, Latin America, and Asia, where it'll be a natural fit, says Paul Blokland, director of Segment Y who has been following the auto sector in emerging markets, particularly China, for a decade. The Chinese, he adds, have been only making copies of cars all these years, and have a lot to learn from Tata Motors' innovative vehicle.

The Nano, having created a new market segment, has already begun to spawn an industry around it. India's Apollo Tyres has said it will start to make tires for small cars like the Nano, and the industry could clearly grow if the Nano proves to be popular.

Will Ratan Tata shift to a lower gear now that his dream has been fulfilled? He'd like nothing better, he says, but it's unlikely. "We have to now deliver a reliable product, and the Indian consumer has still to ratify it," he said. "We have only just put a stake in the ground." Does he worry about rivals? "We were driven by a desire to achieve what we set out to do, and it can be achieved by anyone who tries to achieve their dream. Someone else may be able to do it better than us," he said.

Certainly there's interest from consumers. At Bafna Motors in Mumbai, the phones were ringing all day, according to S.M. Bafna, managing director of the auto dealer. He had to keep his phone off the hook to ward off prospective buyers. Bafna wouldn't hazard a guess of how many Nanos he might sell, for "I might underestimate the demand," he said. "People are desperately waiting for the car."

India's quest to be a leading carmaker has received a vigorous boost in recent days, with a parade of global companies unfurling plans to assemble cars here for domestic consumption and export.

The recent announcements - by BMW, Suzuki, Nissan, Volkswagen, Honda and Toyota - reflect the allure of selling cars to every echelon of an increasingly affluent society. The government recently forecast that automobile sales would leap from US$ 34 billion this year to US$ 145 billion in 2016, accounting for one-tenth of India's economic output.

At the market's top end, BMW announced in recent days that it would assemble cars in India for the first time, catering to a widening sliver of the new rich. A US$ 25 million plant near the southern port of Chennai will manufacture 1,000 of BMW's 3 Series and 5 Series models starting next year, with a peak capacity of 1,700 cars a year.

But the site, producing expensive cars and depending on existing models, is an anomaly. So lucrative is the Indian market that most companies are inventing smaller cars to cater to value-conscious consumers - then seeking to export those made-for-India cars around the world to ensure large, cost-efficient production runs.

"Previously, they thought, 'What do we have that could fit into India?'" said Paul Blokland, director at Segment Y Automotive Intelligence in Bangalore who has advised Volkswagen, BMW, Hyundai and other producers on entering the Indian market. "Now, they think, 'What can we invent for India and fit into the rest of the world?'"

Honda and Toyota announced last week that they would bolster their India presence with smaller cars. Honda said it would quadruple its Indian capacity to 200,000 cars by 2010, primarily with small cars. Toyota, which has yet to market a small car in India, said it would soon do so in the hope of seizing a 10th of the local market by 2010.

In the same week, Maruti Udyog, the Indian automaker jointly controlled by Nissan and Suzuki of Japan, said that it would spend about US$ 650 million to expand its Indian factories and build new ones, nearly doubling its capacity in the country to 1 million cars by 2010. Exports, primarily to Europe, will multiply more than tenfold in that period, to 400,000 cars a year from last year's total of 35,000.

Later, Volkswagen confirmed rumors that it was scouting plant locations to make its first Indian-made vehicle, also to be a small car.

These moves came a month after General Motors said it would build a US$ 300 million plant in India to produce a fuel-efficient hatchback called Chevrolet Spark, priced between US$ 6,000 and US$ 8,000.

The plans appear to embody what the business writers John Seely Brown, a former chief scientist at Xerox, and John Hagel, a former management consultant, have called "innovation blowback" - in which multinational companies pick up new skills in emerging markets and then apply them to their home markets.

In a recent interview, Nick Reilly, president of General Motors in Asia, said the Indian market had compelled his company to learn how to make money on small cars - a talent that could prove useful at home in the United States, where high fuel prices are making smaller cars more popular. "If we're going to be successful in Asia, we have to be successful in small cars," he said. "And that will give us the potential products to go back into our traditional markets of Europe and the U.S. with smaller cars, which we haven't had before."

The spurt in Indian car output adds to mounting signs of an industrial awakening. To date, the Indian economy has gained stature mostly in services, including an outsourcing industry that has generated about one million jobs. Though impressive, that achievement has spread little opportunity among villages and small towns, where more than two-thirds of Indians live.

On a recent visit to a Hyundai factory in southern India, managers spoke of a country that was slowly changing to make itself friendly to manufacturers - and of a world that was slowly adjusting to the idea of "Made in India."

After years of resistance by unions, the government of Tamil Nadu, the state where the Hyundai plant is located, recently permitted factories to run on three-shift, 24-hour cycles. The switch made the plant the first Hyundai site in the world to operate without pause, Heung Soo Lheem, chief of India operations for Hyundai, said in an interview.

When the company started exporting the Santro hatchback to Europe, in 2003, dealers there sought a 5 percent discount on India-made cars, which they saw as inferior. At Hyundai's invitation, several dealers visited the factory in India; impressed by what they saw, they withdrew their request.

Cheap Chinese cars, some costing just $5000, are hitting international markets and causing concern in South Australia's vehicle industry.

Described by experts as "crude and simple", the cars are merely seen as the first generation from an awakening economic giant eager to flex its manufacturing muscle around the world. "If these cars aren't reliable - the quality is not there - then they'll be seen as lemons and people won't buy them," Australian Manufacturing Workers Union state secretary John Camillo said. "But if they've got the high quality and low cost, and if it's very, very good then we've got major problems."

Apart from labour, the vehicles are cheap because there are no research and development costs. China copies cars as it doesn't recognise intellectual property rights. As well, the vehicles fail to meet Western standards for safety and emission norms.

While China is producing bigger and more expensive cars, especially in partnership with some of the world's largest car manufacturers, a home-grown example of cheaper vehicles includes the Chery QQ, which is based on the Daewoo Matiz. The car is selling in countries such as Egypt, Iran, Syria and Algeria for about $5400.

Another manufacturer, Geely, sells its entry level Haoqing, which is based on the Daihatsu Charade, for about $4900. "It's not a matter of if, it's when they will bring these vehicles into Australia, even though it's probably another five to 10 years away," Mr Camillo said. "They are always looking at getting bigger and bigger, that's why Ford and Holdens have established the joint partnership with China because they can see the writing on the wall."

However, Australia's car makers and some experts are playing down the expected Chinese invasion. Paul Blokland, director of Segment Y Automotive Intelligence, an automotive consultancy, says the current cheap models would need substantial improvements to meet Australian legal standards, substantially increasing their cost. The Chinese would also have to provide service and parts back-up, something they failed to do in the Indonesian motorcycle market. "I think in about five years the first generation of these cars will be more marketable to Western markets, including Australia," Mr Blokland said. "I think they'll be quite common at the very low end of the market in the way that a Hyundai or a Kia is."

While GM is the largest car maker in China, Holden spokesman Jason Laird said the Chinese-owned companies would have to work hard to please fussy Australian buyers and gain market share. "Everybody is aware of what's happening in the Chinese car market and their potential growth and their long-term aspirations for export," he said. "Rather than us preparing for them coming, they have to have reasonable strategies in place to try and come after our cars, just like the Japanese and the Korean manufacturers have done."

But with tariffs dropping from the current 10 per cent to 5 per cent in 2010 and possibly lower further down the track, the unions are worried. "If we don't do anything and we just sit back then these (Chinese) cars will have a major impact on the local auto industry," Mr Camillo said. "There won't be any car industry and we'll just import the vehicles - we'll end up being just a mining country."

Half of the specially engineered plastics used in India's automotive industry are currently sourced globally, and the plastics content of cars made in India is expected to rise 30 percent by 2010, said Sunil Malhotra, deputy general manager of Maruti Udyog, a partner in India's largest car maker. Maruti manufactures cars under collaboration with Suzuki of Japan.

"There is a lot of opportunity" in India, he told a group of three dozen plastics professionals at the Auto Plastic Asia: New Materials and Applications conference in Bangkok on September 14th, 2005.

Several factors are behind the high global sourcing rate in India, said Malhotra: The raw material for some specially engineered plastics - such as special grades of polycarbonate and acrylonitrile styrene acrylate - are not available locally. New technology is also not available locally.

For example, the compounding technology for new generation materials is unavailable in India. Consequently, the high-flow, high-impact raw material to manufacture low thickness bumpers can't be found in India, he said.The growing number of free-trade agreements in Asia has also made global sourcing more cost-effective.

Still, India's use of plastics - including specially engineered plastics - in locally produced, light-weight vehicles is expected to rise from 60 kilograms per vehicle in 2005 to 80 kilograms per vehicle by 2010, Malhotra said. That compares to the current 120 kilograms per vehicle in the United States, Japan, and Europe.

At the same time, India's vehicle market sales growth is one of the fastest in the world. Sales should grow by around 10 percent to 1.3 million units in 2005, said Paul Blokland, director of Segment Y Automotive Intelligence, an automotive consultancy in Bangalore, India. Of that, 80 percent will be light vehicles.

Segment Y forecasts India's vehicle market to show about a 10 percent compounded annual growth rate for the next five years, reaching 2 million units by 2011. If India's Tata Motors is able to realize its scheme to build dozens of local plants that will assemble a US$ 2,200 car, Segment Y's sales forecast for 2011 will increase to 2.5 million units, said Blokland. The Tata car would have a 600cc engine with a continuously variable transmission.

To be sure, there are potholes in the road to success for foreign plastics companies in India. For one, engineered plastics represent only a small slice of the automotive plastics market in India.

Plastics consumption based on the vehicle segment in India is dominated by passenger cars, which accounted for 35 percent of plastic consumption from 2002-03, according to Malhotra. Motorcycles were next at 28 percent, followed by scooters, also at 28 percent of total consumption.

Most of the plastic used in passenger cars - 46 percent - is made from PP, a widely available material. Maruti-Suzuki (India), by far India's largest passenger car maker with 43 percent market share, consumed 3,207 tons a year of polypropylene in 2004-05.

But India is a net exporter of both PP and polyethylene plastics. Domestic suppliers include Reliance Industries of Mumbai, Indian Petrochemicals in Vadodara, and Haldia Petrochemicals of Haldia. Foreign suppliers include Idemitsu Petrochemical of Tokyo, Basell Polyolefins in Elkton, Maryland, and Mitsui Chemicals in Osaka, Japan.

Another hurdle: India's relatively low production volume means that it wouldn't be economical to produce the parts just for the India market. Yet, testing and approval systems and standards vary from company to company and region to region. Materials made for India might not pass other places. For example, Europe uses ISO and DIN standards, while the United States use SAE. Southeast Asia uses JIS and SAE.

Malhotra predicts that automakers will unite behind a common approval system, but others are skeptical. "Global specifications are a good idea," said Marc Setzen, managing director EM/TPE Europe for PolyOne Th. Bergmann GmbH of Gaggenau, Germany. "But the 'China price' means that the lowest global price would have to be met, [and] we are struggling with meeting global specifications at the lowest price."

Alarmed by high world oil prices and sporadic shortages of gasoline and diesel in big Chinese cities this summer, China's leaders are drafting plans to impose steep taxes on cars and sport utility vehicles with large, gas-guzzling engines.

The taxes will add as much as 27 percent to the price of vehicles with large engines, notably sports cars and large sport utility vehicles, auto industry officials and people advising the government on the plan said. At the same time, taxes may be cut slightly for models with the smallest, most efficient engines, although the details are still under discussion, they said.

The taxes follow China's adoption in July 2005 of fuel-economy standards that are more stringent than those in force in the United States. The Bush administration announced plans on recently for phasing in tougher fuel-economy rules with the 2008 through the 2011 automobile model years, but the Chinese government has already imposed even stiffer standards to take effect in 2008 and 2009.

The planned taxes in China are part of a much broader effort by Beijing to improve its energy security. Efforts by state-owned oil companies to buy foreign businesses have drawn the most attention, most notably Cnooc's unsuccessful US$ 18.5 billion bid this summer for Unocal and China National Petroleum's recent US$ 4.18 billion deal to buy PetroKazakhstan.

But China also has been focusing on energy efficiency in 2005. Zhang Guobao, vice minister of the State Development and Reform Commission, said last week that the next Five Year Plan, for 2006 to 2010, would put energy conservation ahead of expanding energy supplies, sources said.

China's State Council, or cabinet, is in the final stages of drafting the new vehicle taxes, a complex process involving many government agencies, said He Dongquan, the transportation program officer in the Beijing office of Energy Foundation, a nonprofit group that has worked with the government on the issue. "I'm quite sure it will be adopted in the next one or two months," he said.

Feng Fei, the director of the industry department at the State Council's Development and Research Center, said in late June 2005, that his agency had submitted a plan calling for excise taxes on auto manufacturers to increase steeply for vehicles with large engines that burn more gasoline.

"The taxation change is mainly aimed at encouraging car owners to consume less oil and at cushioning environmental pressures," Feng said. With rising gasoline prices already pushing consumers toward more fuel-efficient models, automakers appear to be offering little resistance to the tax changes.

"The move is consistent with energy conservation plans, and we believe it is the right way to go in achieving energy efficiency in society." said Li Fengzhen, the chief financial controller of Great Wall Automobile Holding, a maker of midsize SUVs that would face slightly higher taxes under the plan.

The track record of promoting energy-efficient vehicles through gas-guzzler taxes has been mixed in other countries, said Paul Blokland, the director of Segment Y Automotive Intelligence, a consulting firm in Bangalore, India, that tracks automakers in Asia. Very affluent consumers who can afford big vehicles with large engines tend not to be discouraged by extra taxes on the initial price of the vehicle, he said.

Another analyst said that Chinese buyers, unlike American buyers, already tend to choose vehicles with smaller engines so increased taxes will fall on a small share of the entire market.

The multinational that may face the biggest burden from the taxes is probably DaimlerChrysler, which sells Jeeps and big Mercedes sedans in China. Grand Cherokees with 4- and 4.7-litre engines, not especially large by American standards, would fall in the highest category of excise taxes. Trevor Hale, a DaimlerChrysler spokesman in Beijing, said that the automaker had not seen the details but supported the Chinese government's general desire to improve fuel economy.

China now imposes an excise tax of 3, 5 or 8 percent on cars - those with larger engines pay higher rates - while taxes on SUVs and minivans are 3 or 5 percent. Under the new rules now nearing completion, the taxes will range from 1 or 2 percent for vehicles with the smallest engines and up to 20 percent for vehicles with engines of 4 litres or more, said An Feng, the director of the Auto Project on Energy and Climate Change, a nonprofit group in Beijing that has advised the government on fuel-economy policy. The group has not been directly involved in drafting the new tax regulations.

In addition, An said, the government has been working on a new gas-guzzler tax similar to the American tax, but including SUVs and minivans, which are exempt in the United States. He said that the tax would vary from 5 to 15 percent, depending on engine size, and would apply to vehicles that fall short of the fuel-economy standards imposed since July 2005.

Chinese vehicle taxes largely exclude pickup trucks, which are separately regulated and do not sell well in China. Also, minivans in China tend not to have large engines and so may not face much, if any, tax increase. Chinese officials also talked earlier in 2005 of imposing a fuel tax once world oil prices started to decline, basically holding domestic gasoline and diesel prices at whatever peak they might reach. High prices would encourage long-term attention to efficiency, the officials reasoned.

But Chinese officials have been silent on the topic of a fuel tax lately, as they have had to cope with dissatisfaction, from taxi drivers in particular, over the price increases that already have been imposed.

Australians could be buying Chinese or Indian cars for the price of personal computers by the end of the decade, as the first Chinese Volkswagens make their way to Australia.

The Volkswagen Polo Classic sedan will cost Australian consumers $23,990, in what is thought to be the first test for Chinese cars in any Western market. While the German company said it had focused on quality and brand maintenance for this first batch from China, a Chinese car costing $US4200 ($5456) and an Indian car for about half that price may not be far behind.

Paul Blokland, director of Segment Y Automotive Intelligence, an automotive consultancy in Mumbai, said Chinese cars would be common in the Australian market within a decade. "It took the Japanese 30 years to establish themselves in Western markets. The Koreans did that in about 15. The Chinese will probably achieve it in seven or eight, or less."

A Chinese joint-venture company has just dropped local prices for its Daihatsu Charade to $US4200, after a huge increase in Chinese production last year outstripped demand.

The Tata Group, India's largest manufacturing company, is months away from releasing the prototype for the $US2200 "people's car". The company has fired robots and hired low-wage labourers to turn modern production processes on their head, and wants the mini-priced vehicle to be an export model for the developing world.
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Volkswagen, which made 660,000 of more than 4 million Chinese cars last year, is monitoring Australia's response to the Polo Classic so it can adjust specifications and prices in later orders. "There's a few dozen in the country now but we will freight a darn sight more than that," said Matthew Wiesner, its dealer development manager in Australia. "It gives the Chinese an opportunity to say they can produce and deliver for a Western market."

A spokesman for China's embassy in Canberra said it was seen as the first time that Chinese cars had entered a Western market.

Two recent deals by American companies should soon see hundreds of thousands of cheaper Chinese cars on American roads.

New York company Visionary Vehicles LLC has signed a deal with Chery Automobile Co, which it says will lead to 250,000 cars being sold in the US by the end of 2007. The company's founder, Malcolm Bricklin, who introduced Subaru to American buyers in 1968, said the Chery cars should sell for 30 per cent less than equivalent models in the market.

American company China Motor has signed agreements with three Chinese car makers and plans to sell compact sedans and utes from $US9000. Detroit-based companies are fighting the move, saying some of the Chinese companies have stolen their designs and ripped off their brands.

http://www.smh.com.au/news/National/New-cars-for-under-5000/2005/01/25/1106415598014.html?oneclick=true

The Beijing auto show is starting to look a lot like auto shows in Detroit or Frankfurt or Geneva, a sign of how China has become one of the world's great industrial powers.

The idiosyncratic, locally built clunkers found in other developing countries, like the Ambassador cars of India, are nearly gone. In their place are sleek models made in China by practically all of the world's multinational automakers -- sedans from Honda, minivans from General Motors and sport utility vehicles from Toyota -- and a range of locally designed cars.

Some of the local cars are cramped and underpowered, like the $4,000 ''minicars'' with minimal safety equipment or seat padding and engines that could belong in a motorcycle. Yet even these come with air bags now, thanks to the government's increasing concern about traffic deaths.

Auto shows, and the cars they flaunt, are windows into countries' souls. On display here is a China where the rich desperately want to live Western styles of life, even if they have mixed views about Western governments. But it is also a China that is trying to become more self-sufficient, with homegrown manufacturers presenting their own designs as well as the cars of their multinational partners.

''They're putting a lot of money into it to come up with a new aesthetic,'' said Ed Wong, a contract auto designer in Shanghai who works for many Chinese automakers. ''Some countries, it took them 20 or 25 years; the Chinese want to compress that.''

Joint ventures between multinationals and Chinese automakers dominate the Chinese market, accounting for more than four-fifths of sales. (More than 120 Chinese automakers share the rest.) But the Shanghai Automotive Industry Corporation, First Automobile Works and the Dongfeng Motor Corporation are learning to put their global partners' knowledge into their own cars.

Their auto-show offerings are less blockish and more sophisticated, making them harder to distinguish from the multinationals' products. One car, a cross between an S.U.V. and a minivan, created by the Chery Automotive Company, drew particular attention as a design as polished and sleek as the Chrysler Pacifica.

''If you look back two years ago, the lines were less resolved,'' said Paul Blokland, the director of Segment Y Automotive Intelligence, an automotive consulting firm based in Bangalore, India.

What is not clear is whether cars made by Chinese companies will become discernibly Chinese. Government regulations in most industrial countries now limit designers' options, restricting vehicle weight to improve fuel economy and requiring that front ends not be too sharp or too rigid to reduce injuries to pedestrians.

China has adopted many of the same safety and environmental regulations, usually choosing the European version because Volkswagen remains the largest automaker here. It has chosen the American standard a few times, and in a couple of cases has drafted its own rules, notably for fuel economy.

''The legislation obviously plays a part in it,'' said Terry Spall, the general manager for Asia at the Motor Industry Research Association, a trade group in Nuneaton, England, that has helped a dozen Chinese automakers set up test tracks and other automotive research sites.

The automaker that is building the most elaborate test facilities and design studios in China is General Motors. Its designers contend that Chinese customers will still have some special tastes, and they want to reflect these tastes in their cars.

G.M. designers and stylists point out that a person's house is the center of Chinese life. The first character of the double Chinese character for a limousine is the same as the first character of the double character for a house. In choosing how to travel, Chinese buyers effectively want to ''bring a piece of house with them,'' said James Shyr, the design director for G.M. China.

The first character of the double character for a sedan, a four-door car, is the same as the first character of the double character for a sedan chair, or palanquin. G.M. already tries to make the rear seats of its cars as much like two chairs as possible, as in a palanquin, on the theory that it should be possible for two adults to sit in comfort in the back. Back seats are just as likely to hold the car's owner as they are a bunch of children, because chauffeurs only cost a couple of hundred dollars a month and getting a driver's license is an extremely bureaucratic process.

The long-term goal for G.M. is to tailor sedans for the Chinese market with thicker pillars supporting the rear corners of the roof, a design that should convey stability as well as privacy for rear-seat occupants.

''It's not good enough to give Chinese consumers what are essentially copies of our products in the United States, Europe and other markets,'' said Phil Murtaugh, the chairman and chief executive of G. M. China.

Ford is starting to have some success in China with campaigns that appeal to a bold level of ostentation. In an ad for the Mondeo sedan, put together by the J. Walter Thompson advertising agency, people put on sunglasses to look at the car, treating it with admiration bordering on reverence.

Chinese drivers commute roughly the same distances to work as American drivers do, and they drive similar distances on intercity trips, which is farther than for European drivers. Combine this with a culture in which people want their cars to show that they have arrived in the global middle class, and a result is a strong fascination with big and powerful cars, said Tom Doctoroff, the chief executive of the ad agency's China operations.

''A big car, an American-style car with the scale and mass of Jupiter, is a very powerful statement of who that man is,'' Mr. Doctoroff said, noting that most car buyers in China are men.

Sometimes what is missing in a picture can be more interesting than what is present. At the auto show here, and on the skyscraper-lined avenues of China's growing metropolises, pickup trucks and hatchbacks are conspicuously absent.

Market researchers say that pickup trucks look a little like horse-drawn carts, an image too plebeian for China's nouveau riche. Even in rural areas, peasants prosperous enough to buy a vehicle shun pickups for vans that are no more than pickups with long roofs over the beds.

Hatchbacks are also rare, suggesting that Chinese buyers are concerned about leaving their personal belongings exposed in the back. While Chinese streets remain safe by international standards, they are more dangerous than they were a generation ago.

Ford has expanded more slowly here than manufacturers like G.M. and Volkswagen because it is wary the market may fizzle; selling global models has helped it hold down costs.

DaimlerChrysler is most visible here through its Jeeps, which are essentially Cherokee models no longer manufactured in the United States, and Mercedes-Benz sedans.

A Mercedes is practically the same around the world, and DaimlerChrysler, its manufacturer, has not tried to tailor the car to China's market, said Roman Fischer, the chairman of DaimlerChrysler China.

The rule of thumb in China, as in most countries, is that the more luxurious the car, the more identical it is to similarly priced cars around the world.

Occasionally, the local partners of multinational automakers still evoke hints of an earlier era. Auto designers complain that engineers, not marketers or financial experts, still hold much sway in the top rungs of Chinese automakers and are sometimes hesitant to accept new ideas.

Yet with investment and design expertise pouring into China, many executives and designers expect the country to start producing eye-catching car models in the years ahead. ''I really feel China will be the global Detroit,'' Mr. Wong said. ''Give it another 15 or 20 years.''

The Chery Automobile Company, a fast-growing Chinese automaker, said on Monday that it planned to assemble cars in Malaysia, a big overseas step for the expanding Chinese auto industry. But the move is likely to generate fresh controversy about Chinese protection of intellectual property.

Chery has been at the center of disputes with General Motors and Volkswagen over whether it has copied their vehicle designs - accusations that Chery has repeatedly denied.

G.M. responded within hours to news of Chery's Malaysian plans by saying that it would fight to prevent violations of its intellectual property rights wherever they might occur.

The Alado Corporation, a closely held company with links to BSA International, a Malaysian manufacturer of alloy wheels, announced in a statement on Monday that it would first import and later assemble the Chery QQ subcompact car and the Chery B14 minivan in partnership with Chery. The vehicles are to be sold in Malaysia and distributed across Southeast Asia.

A Chery spokesman confirmed that the company would build a factory in Malaysia, but declined to provide any details, including the identity of its joint venture partner. Bloomberg News reported from Kuala Lumpur that two Malaysian newspapers had reported claims by other companies that they, not Alado, had the legal rights to import Chery cars. An Alado spokesman declined to elaborate on the company statement. Chery is based in Wuhu in Anhui Province in eastern China and is owned by the provincial government.

Chery's plans for Malaysia represent the first big attempt in the auto industry to make use of Malaysia's growing willingness to lower trade barriers for automobiles, said Paul Blokland, the director of Segment Y Automotive Intelligence, an automotive consulting company in Bangalore, India.

After many years of protecting Proton, a government-controlled automaker, Malaysia is now starting to yield to pressure from other Southeast Asian nations to lower steep import duties on assembled cars. "Chery is taking advantage of Malaysia having to open up," Mr. Blokland said, adding that two small Malaysian makers of very small, inexpensive cars, Inokom and Perodua, were likely to be more affected than Proton, which builds larger models.

More than 300,000 passenger cars are sold annually in Malaysia, making it the largest market for cars in Southeast Asia. But Malaysia trails Thailand in overall light-vehicle sales because the pickup truck market is much smaller in Malaysia than in Thailand.

G.M. complained more than a year ago to China's Ministry of Commerce that the Chery QQ too closely resembled the Daewoo Matiz and the essentially identical Chevrolet Spark, a subcompact introduced last winter in China. G.M. holds a controlling stake in Daewoo.

Rob Leggat, the vice president for corporate affairs of the G.M. Daewoo Auto and Technology Company, said in a statement that while G.M. had not been in touch with Chery and Alado to confirm their plans in Malaysia, "we can reiterate that we have serious concerns about the abuse of our intellectual property rights relating to the Matiz/Spark."

He added that, "we would have those same concerns and we would work just as aggressively to protect our intellectual property rights regardless of where in the world the abuse takes place."

Chery is preparing to assemble cars in Iran from kits shipped there. That venture has been controversial because the car being produced has some similarities to the Seat Toledo, a Volkswagen model.

The Shanghai Automobile Industry Corporation, which has separate auto assembly joint ventures with G.M. and Volkswagen, recently sold its 20 percent stake in Chery after strong protests from G.M., which contended that Shanghai Automobile's many ties represented a conflict of interest.

Volkswagen had no immediate comment on Chery's plans to enter the Malaysian market. Alado said in its statement that it would initially import fully assembled Chery QQ cars, but planned as early as next year to assemble QQ cars and B14 minivans with Chery, using Chinese and Malaysian parts. The goal, Alado said, would be for 40 percent of the cost of the vehicles to be incurred in Malaysia, to qualify for trade preferences in shipping them to other Southeast Asian nations.

A Chinese automaker will begin assembling cars in Malaysia with a local partner there, the two companies said on Monday, in the biggest step overseas yet by the growing Chinese auto industry. But the move is likely to generate new controversy about Chinese protection of intellectual property.

The automaker involved, Chery Automobile, has been at the center of disputes with General Motors and Volkswagen over whether Chery has copied their vehicle designs, allegations that Chery has repeatedly denied.

GM responded within hours to news of Chery's Malaysia plans by saying that it would fight to prevent violations of its intellectual property rights wherever they might occur.

Alado, which is a closely held company with links to BSA International, a Malaysian manufacturer of alloy wheels, announced on Monday that it would import and later assemble the Chery QQ subcompact car and the Chery B14 minivan in partnership with Chery. The vehicles are to be sold in Malaysia and distributed across Southeast Asia.

The goal, Alado said, will be for 40 percent of the cost of the vehicles to be incurred in Malaysia, to qualify for trade preferences in shipping them to other Southeast Asian nations.

A Chery spokesman confirmed that the company would build the factory in Malaysia but declined to provide any details. Chery is based in Wuhu in Anhui Province and is owned by the provincial government.

The plans by Alado and Chery represent the first big step in the auto industry to make use of Malaysia's growing willingness to lower trade barriers for automobiles, said Paul Blokland, the director of Segment Y Automotive Intelligence, an automotive consulting company in Bangalore, India.

After many years of protecting Proton, a state-controlled automaker, Malaysia is now starting to yield to pressure from other Southeast Asian nations to dismantle steep import duties on assembled cars.

"Chery is taking advantage of Malaysia having to open up," Blokland said, adding that two small Malaysian makers of small, inexpensive cars, Inokom and Perodua, were likely to be more affected than Proton, which builds larger models.

Malaysia is the largest market for passenger cars in Southeast Asia, with more than 300,000 a year sold. But Malaysia trails Thailand in overall light vehicle sales because the pickup truck market is much smaller in Malaysia than in Thailand.

GM complained more than a year ago to China's Ministry of Commerce that the Chery QQ too closely resembled the Daewoo Matiz and the essentially identical Chevrolet Spark minicar introduced last winter in China.

GM holds a controlling stake in Daewoo.

Rob Leggat, vice president for corporate affairs of GM Daewoo Auto & Technology, said in a statement that while GM had not been in touch with Chery and Alado to confirm their plans in Malaysia, "we can reiterate that we have serious concerns about the abuse of our intellectual property rights relating to the Matiz/Spark."

Chery is also preparing to assemble cars in Iran from kits shipped there. That venture has been controversial because the car being produced has similarities to the Seat Toledo, a Volkswagen model.

Volkswagen had no immediate comment on Chery's plans to begin assembling and selling cars in Malaysia.