New Rivals for India's Top Auto Spot

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Many New Contenders

Suzuki's investments are vital if the company is to hold on to its dominant share in India's 1.4 million-a-year car market, which is expected to reach nearly 3 million cars a year by 2010, according to the Society of Indian Automobile Manufacturers. Until 2000, Suzuki's Maruti had 80% of the Indian car market, thanks to its affordable and durable 800-cc car. While Maruti was the first to show how successful a small car could be in India's market, since then Tata, Hyundai (HYMTF), Fiat ( FIA), and others have introduced their own small cars, denting Suzuki's supremacy and grabbing market share.

It's not only Tata taking aim at Suzuki. There are many new contenders in the small-car space, which accounts for 70% of the car market in India, compared with just 20% in China. Renault ( RENA.PA), for instance, has tied up with India's two-wheeler major, Bajaj Auto, to launch a $3,000 car by 2009. Toyota (TM), Volkswagen (VLKAY), and Ford (F) also want to enter the small-car segment. BMW has plans to launch its Mini, and General Motors (GM) and Hyundai have small-car plans for their India operations. With nine new car launches over the next two years, auto sales are expected to soar from $34 billion in 2006 to $145 billion by 2016, according to the Indian think tank Strategic Foresight Group.

Puts Pressure on Pricing

Now even those who cannot afford Maruti's cheapest car at $4,810 can aspire to buy one for $2,500. "Most of the new demand will be from buyers at the lower end," says Manish Mathur, principal at A T Kearney. The new competition, says Ramnath Subramaniam, a director at Mumbai's IDFC-Sski Securities, "will put pressure on pricing and dent the bottom line."

Suzuki's Nakanishi dismisses such views. He claims India is "not a market share vs. long-term profit" game for Suzuki. For the past two years, the $3.72 billion Maruti's operating profit margins have hovered in the 13.5% range, compared with the auto industry average in India of around 12%.

—With Ian Rowley in Tokyo

Lakshman is a reporter in BusinessWeek's Mumbai bureau.