Renault plans to manufacture a new small vehicle to be sold in emerging markets, beginning with India.

Renault will have to build engines in India for the new vehicle to be competitive in this country, which already is an increasingly crowded market for small vehicles. Suzuki, Hyundai, GM and Tata, the market leader in India, are all manufacturing engines in this country, a move which helps them keep the prices down.

By building its engines in India, Renault will be able to avoid the effects of currency fluctuations and cut shipping costs. Since May the Indian rupee has dropped more than 10% against the US dollar. The French automaker plans to build in 2015 its cheapest vehicle in its lineup, at a price between $3,279 and $6,500, according to Marc Nassif, managing director of Renault India.

“India is slated to be the biggest small-car market in the next couple of years,” said Rakesh Batra, who heads the automotive practice in India for consulting firm Ernst & Young LLP.

Although auto sales in India have dropped 12% in May, for the seventh straight month, analysts believe that this decline is temporary. Small care sales are expected to take the largest share of the overall auto sales in India in the following years, although demand for sedans and SUVs continues to increase. Small vehicles accounted for three quarters of the total of 1.9 million vehicles sold in the region in the financial year ended March.



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