For global automakers, the dusty backroads of rural India could be the new El Dorado.
As economic torpor suffocates demand for new cars in India's megacities, incomes are growing faster in small towns and country areas. That's pushing the likes of General Motor and Honda Motor to fan out in search of buyers in places where fewer than 20 people in every thousand own a car – for now.
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Standing firmly in the way are strong home-grown brands. With local services plentiful and repairs cheap, Maruti Suzuki India, Mahindra and Mahindra, and Tata Motors dominate the rural vehicle market where foreign automakers are seen as expensive and distant.
Foreign companies showing cars at the Delhi auto show, starting on Wednesday, have already poured billions of dollars into factories, product development and marketing in India's once-booming car market.
Patrick T. Fallon | Bloomberg | Getty Images
Still, no foreign car maker has a share of more than 6 percent in India's passenger vehicle market aside from South Korea's Hyundai Motor with 15 percent.
Car makers see success in rural areas as vital, as slow economic growth, high interest rates and rising fuel prices mean overall sales are headed for their second straight year of decline. Though the need for rural sales has been recognized, success could yet prove illusory.
Japan's Honda entered India nearly two decades ago but will still have only 170 dealerships by end-March, compared with market-leading Maruti's current 1,300. Of the 60 sales outlets Honda plans to open in India in the fiscal year that starts in April, 43 will be in small towns.
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"It's very easy to travel once in three-four years to a place 100 kilometers away to buy," said Jnaneswar Sen, senior vice president of sales and marketing at Honda India. "It becomes a bit of a hassle for the customer to travel 100 or 150 kilometers every few months to get the car serviced."
Like most foreign carmakers in India, however, Honda is seen as a premium brand, beyond the reach of price-sensitive rural buyers. To expand its potential market, Honda last year launched the entry-level Amaze sedan, which starts at about 520,000 rupees ($8,300) and has helped it nearly double its market share to 4.7 percent.
Smaller towns and cities account for nearly two-thirds of Amaze sales, the company said.