Vehicles travel along a busy road in New Delhi June 9, 2010.MUKESH GUPTA/REUTERS
South Korea's Hyundai Motor is to launch its smallest and cheapest car next month to target more first-time buyers and rural motorists in India.
Hyundai is the second-biggest seller of cars in Asia's third-largest economy after Maruti Suzuki, and produces cars at two plants in the southern city of Chennai.
The carmaker faces tough competition to defend its 20 per cent market share as rivals tailor models for the Indian market. Volkswagen, Toyota, Honda, Mercedes and BMW are battling to expand their share of compact cars, which make up 73 per cent of sales in one of the fastest growing car markets in the world.
Arvind Saxena, Hyundai's sales director for India, said the company had depended on sales of higher and mid-range compact cars such as the Santro, i10 and i20. But he said it would now enter the cheaper end of the small vehicle market, where foreign companies are less active.
Mr. Saxena said Hyundai would launch its economy vehicle in the October festival season, when Indian consumers believe big purchases are more auspicious.
Hyundai is not revealing the trading name of the vehicle – so far known only as the HA – but predicts sales of 140,000 in the first year. The carmaker is undeterred by the experience of Tata's ultra-cheap Nano, which has struggled with disappointing sales in spite of fanfare around affordability and technical achievement.
The Korean carmaker said it would focus on design and not try to rival the Nano on cost. Instead, Mr. Saxena envisaged the HA to lure customers away from Maruti's Alto by offering design and interior fixtures aimed at attracting students and young professionals.
"What India has at the moment in this segment is very basic and does not excite young customers," Mr. Saxena told the Financial Times in an interview in Seoul.
Mr. Saxena said the HA should also attract buyers in Hyundai's growing rural market in India. Hyundai's rural sales have risen to 30 per cent of its total Indian business from 19 per cent six years ago.
Other cars launched in the small car category in India this year include Honda Brio, Volkswagen Golf, Maruti Cervo, Mitsubishi Colt, Reva – NXR, Mahindra Renault Sandero, and the Nissan Ultra Low Car.
Hyundai, which is the world's fifth-biggest carmaker by unit sales when counted with its Kia affiliate, has a capacity to build 670,000 cars in Chennai. Domestic sales are growing in comparison to exports from the plants.
The company has also built its network of dealerships to give it rural reach, doubling them to 340 over six years. Each dealership has five outlets spread out over a large area, with a small showroom for two cars and sometimes a workshop.
Identifying challenges to growth, Mr. Saxena said the Indian car market had slowed in the last four months because of high fuel prices and inflation. In July, car sales fell for the first time in three years.
He said Hyundai, like other carmakers in India, was looking increasingly to models using diesel, which is 30 to 35 per cent cheaper than gasoline. Hyundai is investing about $400-million (U.S.) in an Indian diesel engine plant that will be completed by the second half of 2013.