Small. It’s The New Big.

Indeed, the Nano, which has only one windshield wiper, has more in common with the bare-bones econo-boxes that baby boomers drove during the '70s energy crisis. The children of the boomers wouldn't know what to make of a car like that. "To Gen Y kids, something without power windows or door locks is not a real car," says Jim Lentz, president of Toyota's U.S. sales arm. "Most wouldn't know what this crank thing in the door does. It's like a rotary phone."

What this new generation does get is small as a way to reduce its carbon car-print. After all, these little runabouts are powered by tiny engines that burn less gasoline and spew fewer greenhouse gases. The irony, though, is that as millions of small cars clog the planet, they'll only add to global warming and increase demand for oil. GM chairman Rick Wagoner recently warned that the world is already consuming 1,000 barrels of oil per second, and demand is on track to rise 70 percent more by 2030. The motorization of emerging economies is driving that demand. By 2015, 100 million households in the developing world will be able to afford cars priced between the Nano and the $6,000 Renault Logan, predicts the Boston Consulting Group. Governments are already grappling with how to put the brakes on runaway energy use. In the United States, George W. Bush just signed legislation that will boost mandatory mileage on new cars to an average of 35mpg by 2020, up from about 25mpg today. In Europe, regulators are looking at requiring cars to reduce emissions of carbon dioxide (the prime global-warming gas) by up to 25 percent by 2012.

But the West can enact all the green-leaning laws it wants. That won't stop the emerging world's yearning for the freedom of the open road. And that growing automotive appetite could create a climate calamity, environmentalists warn. "Even if they are very clean cars, collectively it will lead to emissions that will only add to local pollution," Indian climatologist Rajendra K. Pachauri tells NEWSWEEK. Pachauri, chairman of the Intergovernmental Panel on Climate Change—which shared the Nobel Peace Prize with Al Gore last year—is critical of the climate consequences of the Nano: "Before we unleash this kind of animal on the streets of India, we ought to explore the public-transportation options." To rein in car ownership, Pachauri suggests that drivers pay a carbon toll to gain access to the roads. The Nano, he says, "is clearly a carbon-intensive option. We need to impose a price on that carbon."

Others hope the rise of the small car in emerging economies will accelerate alternative-fuel vehicles elsewhere. "We'll be driving $40,000 electric vehicles or hydrogen-powered cars while people in India and China are using the remaining gasoline," says Wolkonowicz. "This push for alternate-fuel vehicles in the developed world is not coming a moment too soon, because the motorization of the Third World is coming at a very rapid pace."

That came clearly into focus when Indian motor mogul Ratan Tata upstaged the Detroit Auto Show by rolling out his "people's car" in New Delhi on Jan. 10. Introducing his car to the theme from "2001: A Space Odyssey," Tata hyped its "disruptive innovation" as the equivalent of the Wright brothers' first flight. At first glance, the stubby little car doesn't look like much: no radio or air conditioning, a top speed of about 95 kilometers per hour and a motorcycle-like engine. What has captured the world's attention is the Nano's spartan simplicity. There are no tubes in the tires, to save weight and money. To ease assembly, body panels are glued instead of welded. The wheels are hooked onto the body in a fashion that one rival compared to a child's little red wagon. "We look closely at anything we regard as a breakthrough," says GM product-planning VP John Smith, with photos and diagrams of the Nano spread out in his Detroit office. "You can look at these, but I can't let you have them."

Rivals eager to develop their own low-cost small cars find they simply can't look away from the Nano, even as they dismiss it as far too crude for Western tastes. "It's not so much the vehicle itself," says Chrysler trend watcher Steve Bartoli, "it's the thought process that went into it that's more provocative." Until Tata rolled out his new model, nobody believed anyone could produce a $2,500 car. Now they're jumping on the Nano wagon. Chrysler is looking at developing a racy little car called the Dodge Hornet with China's Chery Automobile. GM vice chairman Bob Lutz says his company could engineer a Nano competitor with its Chinese partner Wuling. And GM is already working on a new car that would rival Renault's $6,000 Logan, says Smith. In fact, GM recently canceled plans for a new line of big V-8 engines and is pouring that money into developing small cars. "We're spending a lot of money on the low end of the business," says Smith.