Toyota Motor Corporation (TMC) has traditionally given the big three US car makers?General Motors, Ford and Chrysler? sleepless nights. But in India, the Japanese auto giant has been caught napping. Toyota Kirloskar Motor (TKM), the Indian subsidiary of TMC, in which the Kirloskar group has a 11% stake, has been slow to improve its marketshare even though it set up a base in the country way back in 1997.
When other vehicle-makers such as Korean carmaker Hyundai increased visibility in the Indian car market by entering the volume-driven small car segment, TKM sat back and watched. Some say it was deliberate. Despite a presence in India for more than ten years, the company could garner only a 3% marketshare. That?s not really surprising, given that its product portfolio has been limited to the Corolla, Innova and the newly-launched Fortuner, besides its launch vehicle Qualis. The Camry and Landcruiser came in through the completely built unit route.
But TKM is now predicting faster growth and is hoping to prove itself in India as it has worldwide. Hiroshi Nakagawa, managing director, TKM, says 2010 will be a turning point for the company in India, with the launch of its much awaited Etios?in both hatchback and sedan versions. TKM had earlier said it would achieve a marketshare of 10% by 2010. But since things have not gone quite according to plan, the carmaker is somewhat cautious about giving out forecasts on marketshare.
?TKM is working to grab appreciable marketshare in India, particularly through the launch of the small car Etios,? observes Nakagawa, who adds that ?India would be a major growth driver for Toyota from now on.? As Abdul Majeed, leader, auto practice of PricewaterhouseCoopers (PwC), points out, ?If any carmaker wants to play a major role in the global auto market, it should have small cars in its portfolio.?
Around 1.2-1.3 million cars of the total 2-million units of vehicles sold in India are in the small car segment. Without doubt, Etios will help expand Toyota?s sales volumes in India, but TKM needs to offer some more models in the small car segment to acquire sizeable marketshare.
Indeed, given that the bigger car markets, namely Japan, the US and the EU, are seeing stagnant demand, TKM needs to get its act together in India, which is a promising market. Observes Nakagawa, ?The country is just around the ?start-up? stage. Like for any other automobile player, India is an attractive market for Toyota, too.?
In India there are 16 cars per 1,000 people while Japan boasts of a ratio of 593 cars per 1,000 people. The comparison may not be valid, but the short point is that the car market in India will grow at around 10% against the global growth rate of 5%. Toyota?s global head Akio Toyodo is optimistic about the Asian market, and India in particular. Toyoda believes that Asian countries will lead Toyota?s growth in the future.
While it may not have sold as many cars as it would have liked to, TKM?s multi-purpose vehicles (MPVs) Innova and Qualis have been big hits. Qualis created waves in the MPV segment when it was launched in 2000, selling a record 1.42 lakh vehicles and redefining the MPV segment in the country. The vehicle remained a key driver of growth in the MPV segment, helping the marketshare of the segment in the automobile industry grow from less than the 9% to over 11% in a span of four years between 2000 and 2004. The company eventually phased out Qualis in 2004, even though there was good demand for the vehicle, particularly in the taxi segment. The Qualis was replaced by Innova, from the unique innovative international multipurpose vehicle (IMV) platform of Toyota. The Innova was a slow starter, but the vehicle steadily increased its sales, creating a different experience for customers. Now Innova is the key growth driver for TKM with a marketshare of 31% in the MPV segment. According to Sandeep Singh, TKM?s deputy managing director, the company has sold around 2.26 lakh Innovas in the last five years.
The TKM has had to deal with multiple lock-outs at its facility in Bangalore: the last strike was in 2006 and although it ended within 13 days, it hurt the firm?s business. TKM has also taken a major hit due to the global economic recession in 2008 that dragged down sales volumes. On its plant in Bangalore, which employs 3,700 people, the company had invested around Rs 1,500 crore.
TKM is in the process of investing another Rs 3,300 crore to build a second car factory, expected to be up and running by the end of 2010. The new plant will make its first compact car for India, Etios, and will have a production capacity of 70,000 units per annum which can be scaled up to 2 lakh units, if required. The compact car will also be exported. Toyota?s preparations for the small car launch in India later this year has become a major talking point internationally, but its global rival GM appears unfazed. ?The Etios launch will not affect the business of other carmakers, particularly GM,? P Balendran, vice-president (corporate affairs) observes, adding that the launch would only widen the small car market in India and increase the choices for prospective small car buyers. Asked whether GM was taking any special efforts to tackle the Etios, he said, ?We are not worried about any company launching small cars. We have a strong portfolio with successful models like the Spark, Beat and Aveo.?
Meanwhile, TKM has been chalking out a long-term plan for India; it is in the process of finding a solution to make engines because currently, it imports engines for all its models assembled in India. TKM imports engines for its locally made Innova, Fortuner and Corolla from its engine manufacturing facilities in Thailand and Japan, while engines for the compact car will be imported from Japan. Nakagawa says the company will consider setting up an engine plant once it increases sales volumes. That apart, TKM may also establish an R&D facility in India following its competitors Maruti Suzuki and GM. ?Currently, we import technical expertise from Japan, but we would now consider establishing an R&D centre in India. That plan is at the discussion stage,? says Nakagawa.
Currently, TKM sources components from 67 domestic suppliers to assemble the Innova, Corolla and Fortuner models and Nakagawa says the supplier base will increase to 101 once the company starts producing Etios. The local content in Etios is expected to be about 75%.
Vaishali Jajoo, auto analyst at Angel Securities, believes importing auto components has traditionally resulted in huge costs for auto companies, especially when the local currency has weakened. ?TKM will import fewer components now that it has expanded its component supplier base in India and this would help it to price the Etios competitively,? she feels.
Indeed, TKM may have beefed up its dealer network by doubling the number of dealerships to 150, but at the end of the day, it will need to price the car attractively. Otherwise, Etios may not turn out to be the kind of success that TKM?s hoping it will be.