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Cheap cars in Asia, expensive gas everywhere

The debut of the $2,500 car is just another reason Americans will pay more at the pump, and highlights a need for some creative urban planning in the developing world.

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By Steve Hargreaves, CNNMoney.com staff writer

Cheap cars in Asia may lead to even worse trafic problems there, and rising gas prices the world over.
India's Tata has just introduced the Nano, a two-cylinder, four-person car with a price tag of $2,500.
The QQ from China's Chery goes for around $4,000.
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NEW YORK (CNNMoney.com) -- The debut of the $2,500 car may be billed as a mobility breakthrough for billions of people in the developing world, but for U.S. motorists it could mean one thing: higher gas prices.

Rising demand from the developing world has long been cited as a main driver behind the runup in oil prices. That demand will only get more intense with staggering growth in car sales - and by extension, gasoline use - in places like India and China.

"We'll get into a situation where we'll have to compete with them for gasoline, $4, $5 a gallon, who knows how high we could go." said Peter Beutel, an oil analyst at the consultancy Cameron Hanover.

He says that time could come much sooner than 2015, when light vehicle sales in India are expected to total over 3 million - doubling 2006 sales - according to J.D. Power & Associates. In China they're expected to nearly triple - to over 17 million - roughly on par with projected sales in the United States.

That huge growth doesn't even begin to scratch the surface of potential car buyers in those countries though. The 2 billion-plus combined populations of India and China could one day dwarf the 300 million potential car buyers in the U.S.

China is expected to nearly quadruple its fuel consumption for motor vehicles by 2030, according to the Energy information Agency. In India it's expected to rise nearly three-fold.

By comparison, growth in the U.S. is only expected to be about 40 percent, although fuel use in the U.S. will still be more than twice that of China thanks largely to the bigger vehicles we drive.

Sales of all types of cars and trucks are growing in India and China - as they are in other developing economies like Mexico, Brazil and throughout the Middle East.

But small, super-cheap cars are important because they are marketed to people who don't have cars. Earlier this year India's Tata motors introduced the Nano, a two-cylinder, four-person sedan that gets 50 miles per gallon and is priced at $2,500. China's Chery car company has the slightly more expensive QQ, and Nissan and Renault are reportedly considering similar tiny models.

While the vehicles are efficient - certainly more efficient than gas-guzzling SUV so popular in the U.S. - experts say their effect on gas consumption will nonetheless be significant for two reasons.

First, the people that buy them will mostly be trading in motor scooters, which get much better gas mileage especially due to their ability to whiz through Asia's traffic-clogged streets, said Lee Schipper, a fellow at EMBARQ, the World Resources Institute's Center for Sustainable Transport.

Second, these cars are seen as gateway vehicles. The ultimate goal of the car companies is to move the consumer up the supply chain into bigger - and less efficient - rides.

Environmentalist are uneasy criticizing countries that are basically following the development model of the West. But in addition to raising gas prices for everyone, they say the rate of growth will put the countries' roads under serious stress, make cities less livable, and add to pollution.

We've become utterly auto dependent and now we're trapped in our car," said John DeCicco, an automotive strategies fellow at Environmental Defense. He sees cheap cars creating a vast new constituency for cars and road expansion.

India's Tata, which builds the Nano, did not respond to an email seeking comment. China's Chery could not be reached.

But Gloria Bergquist, a spokeswoman for the Alliance of Automobile Manufacturers, said cars in developing counties are far more efficient than cars in the U.S. were just 20 years ago. She also defended the automobiles role in society.

"Modern life couldn't exist without the mobility automobiles provide," said Bergquist. "Access to jobs, healthcare...they really form the basis of our quality of life."

The mobility cars afford is not just relegated to developed nations as evidenced by the skyrocketing sales projections. The Chinese, Indians, Brazilians and others want these things too.

But if they're going to follow the West's development model, some argue that maybe it's better they use cars that get 50 miles a gallon.

"It was going to happen anyway, and I'd rather see them in these than in vehicles that get 20 miles a gallon," said Michael Robinet, vice president of global vehicle forecasts the research firm CSM Worldwide.

Robinet also wasn't convinced these cars will compete directly with U.S. drivers for gasoline, as refining blends often vary country to country and refining bottlenecks in the U.S. are a big reason gas prices are so high.

But the the speed at which customers in developing nations are snapping up these cars, and the sheer size of the market, come with an urban planning challenge commensurate in scope.

"If they go too fast down the road of cars, it will take decades before they are finally able to calm the traffic," said Schipper.  To top of page

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