The economic slowdown in the US and Europe has literally opened up a lucrative avenue for Indian car manufacturers. Rising costs, higher interest rates, the liquidity crunch and soaring oil prices have forced buyers there to shift from bigger cars to smaller, more economical vehicles. Consequently, there has been a spurt in global demand for Made-in-India small cars, mainly the Hyundai i10, Santro, Getz, Maruti Alto, Estilo and M800.

According to the Society of Indian Automobile Manufacturers, the export of compact cars has gone up by a significant 47.3% in April-August this year at 1,02,423 units, against 69,545 units in the same period last year. The export of compact cars constitutes 83.17% of total passenger car shipments from the country. ?Since most premium cars are bought on credit, due to the liquidity crunch and high interest rates now, people overseas prefer smaller cars,? explains an industry expert.

?The low cost of labour is the biggest advantage that India has over other global manufacturers. While labour accounts for a mere 6-10% of the total cost for major car exporters from India, in markets like the US and Europe, it is as high as 30-35%. This makes Indian vehicles highly cost-competitive,? says Piyush Parag, a research analyst at Religare.

?Even the government?s reduction of excise duty on smaller cars from 16% to 12% has helped major exporters like Hyundai Motor India and Maruti Suzuki India keep their costs low,? adds Vaishali Jajoo, a senior auto analyst at Angel Broking.

Little wonder, then, that Indian automakers have one of the highest operating margins in the world. For instance, Maruti Suzuki?s operating margin was 16.67% for the quarter ended June 2008, compared to 2.83% at GM, the leading car manufacturer in the US, for the year ended December 2007. This, despite raw material costs soaring by 25-30% during this period. In India, Hyundai, Toyota and Honda had similarly low operating margins at 9.78%, 9.35% and 10.20%, respectively.

Thanks to growing overseas demand, companies like Hyundai and Maruti have set high export targets and are working on models specifically for export markets. While Hyundai will soon launch the i20, which would replace the Getz in Europe and Latin America, Maruti will shortly unveil the A-Star for exportto Europe.