Toyota Motor Co <7203.T>, seeking to draw a line under a dire 2009, is ramping up in India with the launch of a new low-cost compact car to tap the fast-growing market.

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, Honda Motor Co <7267.T> also unveiled a new compact car, a 5-seater model being developed especially for India and 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.

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.

This year, China is due to surpass the United States as the world's largest auto market with about 13 million vehicles sold.

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.

The car will go on sale later this year with 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. It will be one of the 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 premier a new model, a 7-seat family car it said will create a new segment in the country.

The push in India is not limited to passenger cars either, with U.S. motorcycle maker Harley-Davidson announcing plans to launch 12 models there this year, and VE Commercial Vehicles, a joint venture between Eicher Motors and Volvo planning 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.

Honda will increase sourcing of parts from India for its new car. It plans to use Indian steel sheet for the first time when it starts making small cars on the subcontinent next year to lower costs, the Nikkei business daily reported on Tuesday.

($1=92.27 Yen)

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

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