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Ford to Invest $1 Billion in New India Car Plant

An employee works inside a plant of Ford Motor Co. in Maraimalar Nagar, about 50 km (31 miles) from the southern Indian city of Chennai February 5, 2010.
An employee works inside a plant of Ford Motor Co. in Maraimalar Nagar, about 50 km (31 miles) from the southern Indian city of Chennai February 5, 2010.

U.S. car maker Ford will invest nearly $1 billion to establish a new automobile plant in India. Ford is the latest in a series of foreign automakers that are seeking to take advantage of one of the world’s fastest growing passenger car markets.

Ford’s proposed new plant in the western state of Gujarat is expected to produce about 240,000 vehicles every year and employ about 5,000 people. It is expected to be open by 2014.

This will be the company’s second plant in India. It already has one in the southern city of Chennai, where capacity is also being expanded.

Ford is not the only automaker to be expanding production facilities in India. Japanese carmaker Toyota announced this week that it will invest $220 million to boost its production.

The Society of Indian Automobile Manufacturers estimates that automakers will invest more than $15 billion over the next two to three years in India with an eye to capturing a larger share of the second fastest growing market in the world.

The growth is happening as a rapidly expanding economy propels millions into the middle class. Car sales rose by nearly 30 per cent last year. But despite the burgeoning sales, the number of cars in India compared to the billion plus population is still very low.

“If you look at the penetration of the Indian market, the Indian penetration is about 10 cars to a 1,000 people," noted Vishnu Mathur, who heads the Society of Indian Automobile Manufacturers. "In some of the developed countries like U.S. and Europe it is as high as 500. So there is a huge, very high headroom that is available in this country for vehicle sales, and that is the potential that is being looked at by all the international companies when they look at investments in India."

Most foreign automakers are rolling out compact cars from their Indian plants. These low cost cars not only dominate the Indian market - demand for them is growing in several other countries. Companies such as Hyundai and Ford are also exporting compact cars from India to Europe, Russia and Latin America.

Foreign auto companies are not just producing cars in India. They have also begun to invest in design and research centers.

The development of the world’s cheapest car, the Nano, by India’s Tata group brought attention to the country’s skills in designing cars. Mathur says India has come to be known as a land of frugal engineering.

“We know how to make cars in a much more competitive manner," Mathur said. "In fact, most of the vehicles which have been designed and developed in India, the overall development cost of these vehicles has been a fraction of what it happens in other countries like U.S. and Europe.”

For global automakers, growing sales in countries like India are helping to make up for slumping sales in many developed countries. Ford’s top official in India, Michael Boneham, says the company will aggressively expand in markets with the most growth potential.