Half a decade ago, Japanese car brands Honda and Toyota were running neck-to-neck in India. On their radar was a niche car segme—premium sedans/SUVs—and the lack of mass-market products like small cars kept them out of 80% of the domestic market. At the time, demand in key markets such as Europe and the US was still encouraging, and the prospect of limited volumes and high margins in the premium segments in India did not necessitate large investments in either manufacturing or marketing.
However, the world, post the collapse of Lehman Brothers and the subsequent financial meltdown, is a different place today. The last five years has seen only a slow recovery in demand from the developed markets and what is now abundantly clear is that the real growth will largely come from the emerging economies of Asia, Africa and South America. It is broadly agreed that China and India will lead the pack with drivers like favourable demographics, high economic growth and relatively stable governments.
Honda was the first among equals to realise that the currents are shifting and thus moved fast. It had already carved a strong following for its zippy petrol engines and low maintenance tag, while the City sedan emerged a formidable brand by itself and held on to its position as segment leader. It then began the next wave of offence with a clear target—to challenge market leaders Maruti Suzuki and Hyundai after lying low for 15 years. First came the hatchback, the Brio, in 2011, then the diesel engine made its debut in the Amaze compact sedan in 2013. Today, Honda is present across mass segments spanning compact hatchbacks, sedans and MPVs, up till premium SUVs, and models like the Jazz hatch, another mini-car and a compact SUV are now waiting in line.
In line with the global trend, Honda has also started to launch vehicles in India soon after global debut, while few models are even being designed specifically for India. The result: Honda’s market-share in the passenger vehicle market has more than doubled from 3% in FY13 to 7% (April-November FY15). It has also doubled output with the start of a second plant in Rajasthan in February, while a third unit in Gujarat is also on its way.
In the same period, Toyota Kirloskar Motor, which till date relies on premium products like the Innova and Fortuner, saw market share drop from 6.2% in FY13 to 5.5% (April-November FY15), and was struggling in the subdued market last year. In 2010, it launched the Etios hatch and sedan cars for the mass market, but these so far have met with muted demand after initial good response, with mostly fleet (taxi) sales keeping the production lines running. A look at Toyota’s current scenario in India tells us that it has a very limited product offering for the market and will continue to depend majorly on the MPV segment for its growth. The Innova will, thus, continue to bear the heavy burden, of sustaining the entire brand.
Toyota’s lack of presence in the entry level hatchback, subcompact sedan and in subcompact SUV segments keeps it out of key emerging car segments in India, and the carmaker is yet to come up with cars as per the Indian market to make its presence felt. This is significant since the major turnaround for Honda took place when the automaker shifted strategies and decided to develop more India-specific products. But after moving along the same path as Honda for over a decade, today Toyota is coming up to the challenge and drawing up a turnaround strategy.
Indian consumers have traditionally admired Japanese technology starting with the Maruti 800 in the mid-1980s. But the market is far more busy today; there are the Germans, the French, the Italians, the Americans, while the Koreans have already cemented their position. While Honda has been able to leverage on the image of Japanese quality and durability, it now remains to be seen how Toyota carves out its turnaround strategy?