Bajaj Auto Prepares To Enter India Small Car Market
Forbes.com : January8,2008
MUMBAI - Bajaj Auto , India’s second-largest motorcycle maker, on Tuesday unveiled its concept small car that will be launched in a partnership with Renault and Nissan.
The vehicle, expected to be priced at around $3,000, will launch within the next four years.
Bajaj will develop both diesel and gasoline engines for the vehicle at its plant near the western city of Pune, which will have an initial capacity to manufacture 250,000 auto units.
The company is looking at exporting the vehicle, said Managing Director Rajiv Bajaj said.
At the annual auto fair in New Delhi, where Bajaj Auto (other-otc: BJAUF - news - people ) showcased its vehicle, R. C. Maheshwari, CEO of the company’s commercial vehicle division, said it would launch two light commercial vehicles in 2009.
This will mark Bajaj’s entry into a segment for which demand has been strong in recent years.
Analysts say the company has the cash reserves to pull off the initiative, and for small cars it will benefit from the technology and know-how of the Renault-Nissan alliance.
Bajaj Auto, as with other companies under the Bajaj umbrella, is diversifying its businesses, and this is a move “they have been mulling for the last several years,” said Rahul Surjiani, auto analyst with the Centre for Monitoring the Indian Economy.
“People are shifting to four-wheelers gradually because of rising income levels, and growth in the two-wheeler segment could stagnate in this year,” he added. Passenger vehicles are estimated to grow by 14% for the fiscal year 2007-08, compared to less than 5% for the motorcycle market.
India is the world’s leading market for motorcycles, but with the economy brushing growth rates of 9% for the third year in a row, auto manufacturers are keen to convert customers to four-wheeled vehicles.
While traffic on city roads is already spilling over, vehicle manufacturers are betting that the primary demand for small cars will come from tiny cities and even villages, which aren’t as crowded.
Bajaj Auto’s unveiling ceremony comes ahead of Tata Motors (nyse: TTM - news - people )’ launch of its small car this week.
That vehicle, expected to be priced at around $2,500, will be the most affordable in the Indian market.
Also at the auto show in New Delhi, a Mahindra and Mahindra (other-otc: MAHMF - news - people ) spokesperson was quoted as saying the company would defer investments in its own partnership with Renault (other-otc: RNTSY - news - people ) and Nissan (nasdaq: NSANY - news - people ), but few details were forthcoming.
The initiative was to have sunk $1 billion into a manufacturing facility in southern India. The Indian automaker was apparently unhappy about its foreign partners setting up joint ventures with other domestic companies, such as Bajaj.
Bajaj Auto closed up 0.1% on the Bombay Stock Exchange on Tuesday, at 2538.05 rupees ($64.57).
