New Delhi, India – India surpassed France, the U.K. and Italy to become the world’s sixth-largest automotive market in 2010 and is expected to be in the top three by 2020, according to a special report by J.D. Power and Associates.

More than 2.7 million light vehicles were sold in India in 2010, up from just 700,000 in 2000. With a population of nearly 1.2 billion, and with increased economic activity and a more consumer-driven culture over the past 20 years, India is expected to reach eleven million light-vehicle sales by 2020. This would make it the third-largest in the world, behind China (expected to reach 35 million light-vehicle sales in 2020) and the United States (expected to reach 17.4 million).

“India has quickly become one of the largest and fastest-growing automotive markets in the world,” said John Humphrey, senior vice-president of global automotive operations at J.D. power and Associates. “This momentum has been driven by a more open and market-driven economy, an empowered and less risk-averse workforce, a more consumer-driven culture, and an emphasis on small-car production.”

In an effort to position India as a global hub for small passenger car production, the government has pursued several policies, including a reduction on the sales tax of small cars and providing financial incentives for automakers to build and export vehicles overseas. Many automakers have been shifting their small-car production operations to India or designing vehicles specifically for the Indian market. In 2010, nearly 80 per cent of all new passenger vehicles sold in India were classified as mini or subcompact cars, while only 24 per cent sold in China and three per cent in the U.S. met these classifications.

The average price per vehicle in India in 2010 was the equivalent of about US$10,000, compared with $17,500 in China and $28,000 in the U.S. The Maruti Suzuki Alto, the bestselling passenger car in India, had an average price of about $6,200. This emphasis on small vehicles has helped sales to grow quickly, but leaves automakers dependent on small car segments where profit margins are traditionally thin.

“Should fuel prices continue to climb globally in the future, and as demand for inexpensive and reliable transportation increases in many of the world’s developing markets, India could find itself well positioned to fulfill the needs of the small car segment,” Humphrey said. “That said, profit margins are thinner in the small car segment, so automakers are going to need to manage their businesses carefully to optimize profits.”

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