Toyota Motor Co and Honda Motor Co launched new compact cars to tap the fast-growing and price-sensitive India market as they and other automakers seek to put a dire 2009 behind them.

Toyota, the world's largest automaker is a laggard in India, Asia's third biggest economy, and is facing increasing competition from rivals targeting one of the few bright spots in an industry ravaged by the global financial crisis.

At the Delhi Auto Expo on Tuesday, Honda also unveiled a new compact car, a five-seater model being developed especially for India and the other emerging markets that are quickly replacing major Western markets as a key battleground for auto firms.

India will play a pivotal role in Toyota's global expansion plans and the time has come for us to strategically accelerate our growth here, Toyota Vice-Chairman Kazuo Okamoto told a media conference to mark the launch of its new compact car, Etios.

Volkswagen , Europe's largest car maker, said it too aimed to be a significant player in India.

If you want to be a major player in India in the mass market, small cars are the way to go, said Jochem Heizmann, a member of Volkswagen Group's management board.

Volkswagen last month agreed to buy 20 percent of Suzuki Motor Corp <7269.T> to access its small car expertise and Indian exposure through market leader Maruti Suzuki .

Driven by the world's second-largest population, government incentives and a relatively strong domestic economy, Indian auto sales are set to grow about 16 percent this year to 1.4 million vehicles, after posting double-digit growth through most of 2009.

By comparison, U.S. auto sales due later on Tuesday are expected to show the market there slumping to its worst year since 1982, or possibly 1970.

China is now set to surpass the United States as the world's largest auto market with about 13 million vehicles sold there this year, data this week should show.

Toyota, which has forecast an operating loss of 350 billion yen ($3.8 billion) in the year to March 2010 after the slump in the U.S. market, said more than 2,000 engineers in India and Japan worked for four years on the Etios.

Toyota said the car will go on sale later this year with an annual sales target of 70,000 units. Analysts expect a price tag of less than 500,000 rupees ($10,823).

With the introduction of Etios, we hope to attain a sizeable market share in India in the shortest possible time, said Sandeep Singh, deputy managing director of marketing at Toyota's local unit, Toyota Kirloskar Motor.

CROWDED MARKET

Honda's new family car based on the Honda New Small Concept unveiled in Delhi will hit showrooms in India and Thailand by 2011.

To raise Honda's presence further in this market, a small car like this is necessary, executive vice president Koichi Kondo said. Downsizing and fuel economy are a major trend globally too.

The car, code-named 2CV, will have a maximum engine size of 1.2 liters to meet requirements for lower taxes and is expected to also be priced below 500,000 rupees.

It is one of 10 small cars due to be launched at India's Auto Expo this week.

Shinzo Nakanishi, chief executive officer of Maruti Suzuki, said the entry of so many new models would make it difficult for his company to defend its half share of the Indian market.

This is not an easy job this year with so many new cars being launched, he said. We have to prepare ourselves well for the competition with more products and with better network.

Maruti Suzuki is the market leader with cut-price hatchbacks such as the Maruti 800 and Alto. The mini and compact segments of cars shorter than 4 meters (13 ft 1.4 in) account for three-quarters of India's car market.

The company was another to premiere a new model, a 7-seat family car it said will create a new segment in the country.

Rival Tata Motors , which stormed to global prominence with the purchase of Ford's luxury Jaguar Land Rover brands and the launch of the super-cheap Nano, also launched a 7-seater, one of several new models it unveiled at the show.

The push in India is not limited to passenger cars either. U.S. motorcycle maker Harley-Davidson announced plans to launch 12 models there this year, and VE Commercial Vehicles, a joint venture between Eicher Motors and Volvo , plans to ramp up production capacity to 100,000 units by 2015 as it targets a 15 percent share of the heavy duty truck segment.

SOURCING Center

As well as its growing influence as a market, India is becoming an increasingly important center for building and exporting small, low-cost vehicles.

Volvo, the world's second biggest truck maker, will increase component sourcing from India by five times to $5 billion by 2015, said Bertil Thoren, president of the Volvo Group Alliance Office.

Volkswagen, Europe's largest carmaker, said it will launch its Polo sedan model in India in the second half of 2010, with half the components to be sourced locally, rising to three-quarters in three to four years.

Honda said it will also increase sourcing of parts from India for its new car, including more local steel, aiming to lift local content to 80 percent.

($1=92.27 yen, 46.16 rupees)

(Additional reporting by Devidutta Tripathy and C.J. Kuncheria; Writing by Lincoln Feast; Editing by Anshuman Daga and Mathew Veedon)

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