CHENNAI, India (AFP) – Japanese automaker Nissan on Monday tied up with French partner Renault’s Indian venture to build a 902 million dollar plant, joining a race with rivals Toyota and Honda for a slice of the South Asian nation’s expanding car market.
Indian parterner Mahindra and Mahindra will control 50 percent of the venture, with Nissan and Renault sharing the remainder, the three companies said in a joint statement.
The southern city of Chennai, known as India’s Detroit, was chosen as the site of the factory, which will have the capacity to turn out 400,000 cars a year seven years after the start of production in 2009.
Nissan and Renault are latecomers to the Indian car market, which is forecast to expand 10 percent a year to reach two million units in 2010 as an economy expanding nine percent a year boosts the buying power of consumers in the world’s second-most populous nation.
“With income levels rising, upward mobility is increasing,” said K.K. Mittal, a New Delhi-based fund manager at Escorts Asset Management who holds Mahindra shares in his 1.5-billion-rupee portfolio.
“New entrants will boost the auto market by giving a greater choice to the consumer,” he said. “There’s enough space in the market because everyone is looking for the latest car at a reasonable price.”
The Indian car market expanded by 68 percent between 1998 and 2003 to reach 1.04 million vehicles in 2004, according to Renault.
“India is a key market for Renault’s international growth ambitions,” said Renault executive vice president Patrick Pelata in the joint statement.
Honda is already selling its City and Civic models in the country and Toyota’s local range includes the Innova and Corolla. Another Japanese rival Suzuki’s local venture is India’s biggest carmaker, with a market share of about 45 percent.
Nissan joined the alliance to “gain a rapid entry advantage for local manufacturing in India,” said Carlos Tavares, executive vice president of Nissan.
“Nissan was able to evaluate several different options for our first manufacturing base in India but the advantages of working with our Alliance partner and their local Indian partner was compelling,” he said.
Mahindra, Renault and Nissan will invest 40 billion rupees (902 million dollars) in the Chennai factory over seven years.
The 400-hectare (925-acre) plant will provide auto production capacity for each partner, enable the rollout of both cars and sports utility vehicles and include a powertrain facility for Renault and Nissan.
A range of automobiles tailored to the Indian market will be built under the alliance, which will enable Mahindra to move into passenger cars from utility vehicles.
“This is a red letter day in the globalization of the Indian automotive space,” Mahindra group chairman Keshub Mahindra said. “The expansion of our strategic partnership with Renault to include Nissan is designed to bring world-class platforms to the evolved car buyer.”
Chennai’s choice as the location of the new plant strengthens its position as the hub of car and car parts manufacturing in India. The city already hosts Ford and Hyundai, and has been chosen by BMW to locate a plant.
The new plant will likely boost the car parts industry, with about 100 billion rupees of investment expected.
International automakers drove into India after it opened up the vast market to overseas investment as part of sweeping economic reforms launched in 1991 which overturned four decades of semi-socialist policies.
For decades after independence India’s roads were dominated by two ancient models, the Premier Padmini and the Ambassador, produced with technonology dating back to the 1950s.