Toyota Motor Corp.'s (7203.TO) Etios sedan made its global debut in India Wednesday, in a challenge to Suzuki Motor Corp.'s (7269.TO) dominance of one of the world's fastest-growing automobile markets.

The 1.5-liter gasoline-powered car will cost INR496,000 ($10,870) for the base variant at showrooms in New Delhi. The top-end version will cost INR686,000. Suzuki's Swift Dzire sedan costs INR488,558 for the base model, while Tata Motors Ltd.'s (TTM) Manza sedan is priced at INR512,732.

Toyota's decision to make the global launch of the Etios in India, where rising incomes of the country's estimated 300 million middle class is fueling demand for new vehicles, reflects the importance of the world's second-fastest growing major economy for auto makers.

Sales growth in India has been helped by the introduction of small cars by new and existing players such as Ford Motor Co. (F), Volkswagen AG (VLKAY), Nissan Motor Co. (NSANY), Hyundai Motor Co. (005380.SE) and Maruti Suzuki India Ltd. (532500.BY).

According to the Society of Indian Automobile Manufacturers, annual car sales could rise to three million units by 2016. A total of 1.53 million cars were sold in the financial year ended March 31, 2010, up 25% from the previous year.

"Etios is definitely a milestone not only for Toyota in India, but for Toyota globally," Toyota President Akio Toyoda said.

He said 70% of parts for the Etios are sourced from vendors in India.

"The major components--engine and transmission--we're preparing to start local production in India in two-and-a-half years from now," Toyoda said. "So, if that is realized, the localization ratio will be 90%."

Toyota, the world's biggest auto maker by sales, will also introduce the Liva, a hatchback based on the Etios platform, in April 2011, said Sandeep Singh, deputy managing director of Toyota Kirloskar Motor Pvt. Ltd.

Toyota Kirloskar is 89%-owned by Toyota, with the remainder held by India's Kirloskar Group.

Analysts said the price of the Etios sedan will likely enable the car to compete with entry-level sedans of Maruti, Ford and Tata Motors as well as the top-end hatchbacks of Volkswagen, Hyundai, Nissan and Maruti.

Aggressive pricing of the Etios sedan and the forthcoming hatchback model could also limit market leader Maruti's ability to increase prices to tackle rising raw material costs.

Maruti is the leader of the small car segment with a 53% share, while it holds 36% of the entry-level sedan segment. Both contribute 35% of the company's operating profit, Srinivas Rao and Amyn Pirani, Mumbai-based analysts at Deutsche Bank, said in a note ahead of Wednesday's launch.

Toyota will produce the Etios sedan at its Bidadi factory complex near Bangalore.

The company produces its Innova multipurpose vehicle, Corolla sedan and Fortuner sport-utility vehicle at Bidadi. It also imports and sells the Land Cruiser and Land Cruiser Prado SUVs, Camry sedan and Prius hybrid car in India.

"With this launch, we will be addressing almost 50% of the Indian passenger vehicle market," said Singh, adding that the company aims to sell 70,000 sedans and small cars from the Etios platform in 2011.

Toyota sales rose 34% to 44,265 vehicles in April-October, giving the auto maker a 3.1% share of the Indian market. In the same period, 1.4 million cars and sport-utility vehicles were sold by all auto makers in India, up 34% from a year earlier.

 
   -- By Santanu Choudhury, Dow Jones Newswires; +91-11-4356-3305; santanu.choudhury@dowjones.com
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