Amid a slump in sales, Toyota Kirloskar has started reducing inventory levels with dealers in a strategy devised to retain dealerships. The move is aimed at reducing the inventory carrying cost of dealers.
In the past, manufacturers, such as Volkswagen and Nissan, have lost dealers due to poor performance of their products in the domestic market. At present, Toyota offers a 3% margin to dealers for small cars and 6% for bigger ones likes Innova.
The Japanese company has reduced dealer inventory to 15-20 days against an industry average of 45- 60 days. As a result, the inventory carrying cost of dealers between April 2014 and May 2015 came down by 40-50%. The company has also reduced its inventory pertaining to spare parts to the same levels.
“We have reduced the inventory carrying cost of our dealers. We are also not pushing in extra cars to our dealers, which increases the cost of maintenance. We have a sell-one-buy-one policy. As far as spare parts are concerned, we have the capacity to supply our dealers twice a day, but we only do it when there is demand,” said N Raja, senior vice-president, sales & marketing, Toyota Kirloskar Motor. The company is focussing on non-Metros and has expanded its dealerships by 12 in 2015 so far. At present, Toyota has 332 dealerships in the domestic market.
After a tepid performance in 2014, the Etios series started to show some growth in volumes from January. In the April-to-June period, sales of Etios sedan increased 20% to 7,525 units against 6,292 during the same period last year.
Volumes for the Liva hatchback, on the other hand, rose marginally by 5.86% to 5,382 units from 5,084 units during the same period in last year.
“This is a survival strategy for Toyota and these corrections are needed to improve operational efficiencies. Reduction in inventory will impact the profitability of dealers positively. As a result, dealers will stay focussed as well because they have also made huge investments,” said Amit Kaushik, associate director, HIS Automotive.
“It is a short-term measure and will help OEMs in challenging times,” said Sridhar Venkatachari, partner, Grant Thornton India LLP.