MUMBAI, India — General Motors Corp. said it will open a second factory in India, as the U.S. auto maker shifts resources from its home market to Asia, where it is seeking to capture a greater share of the region's first-time car buyers.
Under terms of an agreement signed with the Maharashtra state government and disclosed Thursday, GM will build a 13 billion rupee ($279.3 million) plant in the Pune district in western India. The new plant, a joint venture with the state government, will be used to build a small passenger car, according to Rajeev Chaba, president and managing director of GM India. GM is targeting the end of 2007 to begin production and could eventually make as many as 140,000 small cars a year at the plant, more than doubling current capacity in India.
Although GM didn't specify the car model, analysts expect it will produce the Chevrolet Spark, a sporty economy car. The Spark could appeal to India's emerging middle class while supporting GM's plans to boost its share of the Indian passenger car market from the current 3%, analysts say.
The increased investment in India also highlights how Asia figures big in GM's bet on its future. As GM closes factories in the U.S. and downsizes its work force there, it is growing fast in China and other Asian markets. Growth in Asia could help GM fend off competition from Toyota Motor Corp., which has aggressive growth plans and could threaten the U.S. company's status as the world's largest auto maker by production.
With India's economy expanding 6% to 8% a year recently, the country boasts one of the world's fastest growing car markets. There were 1.1 million passenger vehicles sold in India in the fiscal year ended March 31. The total is still small compared with 3.8 million new cars sold last year in China, the world's other one-billion-person economy, but analysts say India's growth is poised to accelerate. A big reason is that more of the country's increasingly affluent middle class — many of them linked to a booming technology industry — are deciding to buy cars for the first time.
GM is among a handful of foreign auto makers rushing to tap that new demand. Last week, Italy's Fiat SpA and Tata Motors Ltd., India's largest truck maker, said they would join forces to build passenger cars and auto parts in India. The planned joint venture would build 100,000 passenger cars and 250,000 engines and transmissions a year for both the Fiat and Tata brands.
GM's new expansion plan comes after it backed away from an acquisition of Daewoo Motors India Ltd.'s car assembly unit from that company's principal lenders. Talks to acquire the unit broke down amid differences with creditors in India. GM's new plant aims to fill a gap in its Indian car line up. While it has been selling its mid-sized Optra and Aveo in India, GM has lacked a car that could appeal to more price-conscious consumers. As a result, Maruti Udyog Ltd., controlled by Japan's Suzuki Motor Corp., and South Korea's Hyundai Motor Co., both of which sell popular small cars, have seized big chunks of the Indian car market.
"GM's existing plant doesn't have the capacity to cater to the [high] volume car segment," said Ashutosh Goel, auto analyst at Edelweiss Securities Pvt. in Mumbai. "It needs additional capacity."
—Binny Sabharwal contributed to this article.
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