There can be few other areas anywhere in the world that are industrialising so rapidly.
India's car makers see glut
"Do you notice any changes?" grins Dr Thomas Dahlem, the technical director for Volkswagen India, as I am ushered into his office at the car maker's new factory. It is just 10 months since I last came to write a story on Chakan, the town between Mumbai and Pune that is fast becoming India's Detroit. What was then just a concrete foundation in a churned-up wasteland is now a gleaming Volkswagen plant.
In the vast 43,000 square metre hall outside Dr Dahlem's office, experts from plants in Germany, the Czech Republic and Spain hover around the assembly line, bringing the plant's 500 Indian workers up to speed on the "Volkswagen Production System". In less than a month - a year ahead of schedule - the first Skoda Fabia will roll out of the gates. That will be big news. Angela Merkel, the German chancellor, may even fly in for the launch.
But for Chakan, it's just one more plant. Two minutes drive away, Mercedes-Benz began producing luxury cars and lorries from its new facility at the end of last month; General Motors (GM) began producing its Chevrolet Spark from nearby Talegaon back in September, and in November, Tata and Fiat began producing the Fiat Linea in Ranjangaon. There is more to come: Renault and Bajaj plan to produce their low-cost cars here, and plants are on the way from China's Sany Heavy Industry, Korea's Hyundai Heavy Industries, America's International Truck and Engine Corporation, as well as dozens of international and domestic car-component manufacturers. When all the planned plants are built, this part of Maharashtra state alone will be making 1.8 million cars a year - more than Britain.
There can be few other areas anywhere in the world that are industrialising so rapidly. Dr Dahlem says: "If you drive between Pune and Chakan it's amazing what's happened in the last one year. Every week you see a new announcement of housing that's come up." But something else has changed since I last visited; no one is sure any more that all this capacity is needed. Last year, India's five-year run of rising car sales came abruptly to a halt. Sales have now fallen year-on-year for six out of the past eight months, and India's Society of Automotive Manufacturers expects sales of four wheelers in the country to be just two million in the year to the end of this month, down from 2.03 million the previous year.
But the industry has already installed capacity of 2.8 million, so the glut is going to get worse over the next few years. Dr Arindam Bhattacharya, a partner at Boston Consulting Group in India, says: "There have been a lot of new players and new capacity in India, attracted by growth, which would in any case have led to some overcapacity. But the demand slowdown due to the financial crisis has accentuated the overcapacity problem."
Silvain Bilaine, the managing director of Renault India, made the decision in mid-December to freeze work on the new plant in Chennai it was planning with Nissan and Mahindra. At 400,000 cars a year, the Chennai plant would have been India's largest new project. "Some people will suffer," Mr Bilaine warns. "India has three major plants not running at capacity, and next year another five lakh (500,000) cars will be available in capacity with no extra market."
Honda also slammed the brakes on its new plant in the state of Rajasthan at the same time as Renault. But for other international car makers, the slowdown has come too late. GM is perhaps the hardest hit. With its new plant in Talegaon, it can now produce 225,000 cars a year, but this year it expects to sell 72,000 at best, meaning it is operating at under a third of its full capacity. Last month, GM announced that its India business would no longer be "self-funding" this year; the first time since 2004 it has needed cash from its parent company.
Others also have new capacity coming on. By next year, Ford will double production capacity at its Chennai plant to 200,000 and Toyota will bring on a new 100,000-capacity small-car plant near Bangalore. The problem would be still more severe if the US$2,500 (Dh9,182) Tata Nano had hit full production at the end of last year, as originally planned. Tata will take bookings for the first few Nanos next month, but won't produce in significant numbers until its new plant at Sanand in Gujarat starts up at the end of this year, adding a further 250,000 cars to India's capacity.
Inside Volkswagen's hangar, none of this matters yet. Dr Dahlem is focused on ironing out the last few glitches to worry about what market that first batch of Fabia's will find. It is difficult not to be impressed by the cleanliness and order he's achieved: it's as if an outpost of Wolfsburg, Volkswagen's hometown, has been improbably established in the chaos of India. "I would lie if I said I hadn't had headaches or sleepless nights," Dr Dahlem says of the task.
He is now working to bring the plant up to Volkswagen's international standards before the launch next month, and workers are busy testing Skoda Fabias that have been produced in test runs. "There are still some slight defects," Dr Dahlem says. "We have still a few things to improve. But we will do it." This is nothing to do with the quality of India's engineers, who, he says, are excellent. "We have found quite a lot of capable people in India. In some countries around the world, it's more difficult because you don't get the engineers with the experience. India has quite good standards; the workers at the shop floor level and also the specialists you can find here."
There are 500,000 students in the nearby city of Pune, many of whom study engineering or another technical subject. This is part of Chakan's attraction as a car-making hub: India has huge domestic market potential, but also boasts an abundance of low-cost component manufacturers, and a deep well of engineering expertise. Indian manufacturers Tata Motors and Mahindra are starting to target international markets. Korea's Hyundai has pioneered manufacturing for export, selling its Indian-made I10 model in 97 countries.
But it's still the domestic market potential that international car companies are targeting. Only about eight out of every thousand Indians own a car, according to the Society of Indian Auto Manufacturers, and in a country of 1.4 billion people, even a small improvement in this ratio translates into massive sales growth. "In the medium term, I don't think there will be too much capacity," says Paul Blokland of Segment Y, a car consultancy based in India. "We are still at the dawn of motorisation in India."
On the whiteboard in one of the training rooms at Volkswagen, someone has written out how production in the plant is set up to respond constantly to VW's sales data. "We try to produce to the average rate of customer demand," Dr Dahlem explains proudly. "This is the advantage of the new plant here - precise." But he brushes away my suggestion that this will mean a delay in reaching capacity. "We will follow our plans. When we come to full capacity, we believe that we will be right on the spot, on the right point: the economy comes back and we can sell our cars."