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Carmakers jazz up their compacts in India

Maruti Suzuki India's compact Vitara Brezza SUV at the Delhi Auto Expo on Feb. 3

NEW DELHI -- Automakers are aiming to win over India's growing middle class with snazzier, and pricier, compact cars.

     Traditionally, the Indian auto market has been dominated by small, entry-level models priced between 300,000 and 400,000 rupees ($4,800 and $6,400). But as incomes rise, consumers -- many of them young -- are setting their sights higher. At the moment, the 500,000 to 700,000 rupee price range seems to be a sweet spot in a market that is growing nearly 10% a year overall.

     The shift is apparent at the Delhi Auto Expo 2016, the country's largest motor show, which opened to the media on Wednesday. Major players, including market leader Maruti Suzuki India and Germany's Volkswagen, are showing new models designed to cater to today's customer preferences. Maruti Suzuki is promoting its smallest SUV yet -- the Vitara Brezza, which is less than 4 meters long.

     The locally designed model is the Suzuki Motor group's first SUV exclusively for India. It will retail for -- you guessed it -- 500,000 to 700,000 rupees. "The kinds of vehicles that sell well in India are diversifying rapidly," said Toshihiro Suzuki, president of the Japanese parent.

     Compacts are popular in India partly because of the low excise tax rate of 12%. This applies to vehicles that measure 4 meters long or less and have small engines. But consumers want more than the hatchbacks that have been the norm in this segment. So automakers are rolling out SUVs and sedans that still meet the size criteria.

     Volkswagen has introduced its first sedan under 4 meters in length. "The Volkswagen Ameo, our made-in-India and made-for-India car line ... [is] among the most important car lines for us at this motor show," said Michael Mayer, director of Volkswagen Passenger Cars India. "This gives us an opportunity to break into new customer segments." 

     Some automakers are moving even further upmarket. Toyota Motor's exhibit centers on the latest edition of its Innova minivan. The Japanese company is targeting customers who are willing to spend 1 million rupees and up. 

     Rival Honda Motor said it will release a 1.5-liter, seven-seat SUV called the BR-V by the end of the year. Luxury manufacturers such as Germany's Daimler are also strengthening their lineups.

     India offers global automakers hope in a generally sluggish global market. Sales of new vehicles in the country rose about 9% on the year in the April-December period, topping 2 million units. In the seven years since the global financial crisis, the selection of cars available there has roughly doubled. More India-only models are likely on the way.

     Meanwhile, local giant Tata Motors is sprucing up its lineup of affordable cars. A new hatchback introduced at the motor show is expected to retail for about 400,000 rupees. Tata, too, hopes to snag more middle-class customers, who account for an estimated 20% of the Indian population of 1.2 billion.  

Greening process

As the Indian market grows, however, new challenges are cropping up. Competition becomes ever more intense. Stricter environmental regulations are another hurdle.  

     Typically, automakers have paid little heed to the planet-friendliness of the cars they sell in India. After all, the rules were relatively lax. But New Delhi has one of the world's worst cases of PM2.5 air pollution, and officials are getting serious about dealing with the problem.

     The city introduced some measures in the second half of last year, including a ban on registrations of new diesel cars with engines larger than 2 liters. Earlier this year, it experimented with an "odd-even rule." Vehicles with odd- and even-numbered plates were allowed on the streets on alternate days.

     New, nationwide environmental regulations are also set to kick in. In 2017, the government plans to impose fuel efficiency standards similar to those in the U.S. New emissions standards, expected to be set in 2020 rather than 2021 as initially planned, are likely to be as strict as those in the European Union. 

     Japanese automakers with advanced green technologies see an opportunity. Honda on Wednesday said it will start selling the hybrid version of its Accord sedan in India this year. Toyota is set to release the latest edition of its mainstay Prius hybrid.

     Still, carmakers will need to improve their conventional gasoline vehicles. "Costs will rise in response to the environmental regulations," one automaker official said. It is hard to say how much of the extra expense can be passed on to consumers. 

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