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Apr 18, 2013, 04.54 PM IST | Source: Reuters

Keep calm and carry on in India's slumping car market

Don't tell Hironori Kanayama that investing almost USD 500 million in a market enduring its worst slump for 12 years is a questionable business decision. Honda Motor Co's. India head sees only one way forward: Keep calm and carry on.

Keep calm and carry on in India's slumping car market

Don't tell Hironori Kanayama that investing almost USD 500 million in a market enduring its worst slump for 12 years is a questionable business decision. Honda Motor Co's. India head sees only one way forward: Keep calm and carry on.

Global carmakers such as General Motors Co and Volkswagen AG that have between them poured billions of dollars into factories, product development and marketing in India's once-booming car market are now struggling as slow economic growth, high interest rates and rising fuel prices keep their target customers from parting with their cash.

Still, automakers like Honda say they can only grit their teeth and continue to invest - or risk missing out on what experts expect to be the world's third-biggest car market by 2020 and a foothold in an emerging global small-car export hub.

"If there was any worry, we would never have done this," Kanayama said in an interview in Mumbai. "Of course it's a pity that the economy is sluggish, but it doesn't worry us at all."

Honda said on April 2 - two days after the end of the worst financial year for Indian car sales since 2001 - that it was spending 25 billion rupees to double its output capacity in the country to 240,000 cars per year by 2014.

"The potential is very high here," Kanayama said. "Our investment is based on such long-term projections."

Honda is not alone in appearing to be throwing good money after bad in India's sagging automotive market.

Ford Motor Co is spending USD 1 billion on a new factory even as its current plant runs at only 60 percent of capacity. Maruti Suzuki India Ltd , controlled by Japan's Suzuki Motor Corp, is spending around USD 750 million to add 250,000 cars annually.

Carmakers say India's huge population, low car penetration and rising incomes mean sales can only go up in the long run, while the opportunity to export to Africa and the Middle East makes for a compelling investment case. Sales fell 7 percent in the last fiscal year.

"Clearly we believe the macro conditions are a short-term blip," said Nagesh Basavanahalli, managing director of Fiat SpA and its Chrysler unit in India.

Basavanahalli, who took the reins at the Italian and US carmakers this month, has been tasked with trying to re-launch the Fiat brand and introduce its Jeep and Abarth lines in India even as well-established names like India's own Tata Motors Ltd see sales plummet.

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READ MORE ON  Honda, cars, auto sector, slump

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