Although the broad contours of the proposed agreement with Ashok Leyland to build a range of small cars is yet to be outlined, Nissan's intention is clear - counter Volkwagen's plans with Suzuki to target the compact car segment.
Nissan is currently in a sourcing pact with Suzuki for the compact car, Pixo (known here as the Maruti A-star), which it sells in the European market. This pact, however, may not get extended after its expiry in 2012, as Germany-based Volkswagen, which has its own set of aggressive plans with Suzuki (it recently bought a 20 per cent stake in it), would likely block the latter's plans with Nissan.
The demand for small and fuel-efficient cars had zoomed in the European region as well as across key markets of the globe over the past few years. Nissan would perhaps be left with just one small car, Micra, in Europe when the deal with Suzuki draws to an end.
"Already questions were being raised about Nissan's continuation of sourcing cars from Suzuki, following the Japanese company selling one-fifth of itself to VW. Nissan had to go in for a new partner who could provide the opportunity to build new compact cars at cheaper costs, which would take on VW's future plans with Suzuki," said a research analyst with a reputed international firm.
According to reports, Volkswagen had already outlined 'dozens' of projects with Suzuki which primarily involved joint development of compact cars and sourcing of technology for making compact engines used in such small cars.
Osamu Suzuki, chairman and chief executive, Suzuki Motor Corporation, had recently stated that both VW and Suzuki had agreed to develop a competitive small car, the discussion for which had already begun.
Nissan had, only last year, raised its sourcing target from Suzuki to 54,000 units per annum of the Pixo, up from 30,000 units planned earlier, thanks to a robust demand for 'city cars' (a category under which the Pixo is sold) in Europe.
The Pixo, an inexpensive model built and sold by Suzuki as Alto internationally (except in India, as noted earlier) sells a notch below the Micra in Europe, with the only rivals in that price range being Kia Picanto and Hyundai's i10 in the higher range. Even the base variants of the Alto are more expensive than the Pixo by almost 12 per cent.
The Pixo helped plug the alarming gap between the entry level model, the Micra, and the level below that, to cash in on the growing preference for small cars by European buyers after the economic slump.
Currently, VW does not have a presence in the low-cost segment.
"Nissan's plans with Chennai-based Ashok Leyland is directed at developing low-cost cars which would eventually fill the void of Pixo once the deal with Suzuki comes to an end. The company does not have a competitive model of its own as of today below the Micra," stated a senior executive from a Japanese car manufacturer.
Ashok Leyland has never made cars. It has been a commercial vehicle manufacturing company for the 55 years of its existence. Before forging an alliance with British Leyland, it was called Ashok Motors and it had assembled Austin Cars in 1948.
Nissan will be launching the all-new Micra in India in the price band of Rs 3.8-5 lakh in the next two months, which will be slightly above the Maruti A-star and even the Pixo.
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