Toyota India’s Sales, Fiscal Injuries Self-Inflicted

MUMBAI – Toyota Kirloskar’s failure to keep pace with India’s changing automotive market is being reflected in its bottom line.

The automaker lost Rs1.8 billion ($30 million) in the fiscal year ending in March, its first negative result in 15 years. Sales in 2013 dropped 15.7% from the prior year to 145,132 units and were off another 15.5% to 83,715 year-to-date, WardsAuto data shows.

Toyota’s market share slipped to 4.8% in 2013 and fell to 4.2% through August, and trends indicate further losses of money, sales and share in full-year 2014.

Since launching the Etios sedan in 2010 and the Liva hatchback in 2011, the automaker has come out with a few facelifts but introduced no new models.

Three years ago Toyota saw that rival automakers who played the volume game, such as Maruti Suzuki, Hyundai India and Mahindra & Mahindra, were making money. Industry officials, meanwhile, were projecting car sales reaching 10 million units by 2025.

Under these influences Toyota shifted its focus from the evergreen Corolla and prestigious Camry to the Etios and Liva. Toyota has seen success with the Innova multipurpose vehicle and its precedessor, the Qualis, but management has not focused on these models or their  segment.

Toyota has made other missteps as well:

Local content in its models seldom has exceeded 60% and typically is only 50%. The weakened rupee and rising taxes over the past three years has driven up the cost of imported components, making Toyota models less affordable.

Toyota has misread Indian customers and the variety of their changing preferences. The automaker, accustomed to the homogeneity of buyers in its home market of Japan, has limited itself to marketing standard sedans, SUVs and MPVs.

The automaker has had no experience or expertise in making a low-cost car. Efforts to keep down the cost of the Etios and Liva by cutting back on features and manufacturing shortcuts resulted in  quality below Toyota standards. While the Qualis, Innova and upmarket Corolla were consistent money-makers, Etios and Liva sales and profitability have declined as they have fallen short of buyers’ expectations.

While Etios and Liva deliveries were sliding 15% in the fiscal year ending in March 2013, and 17% the following fiscal year, Society of Indian Auto Manufacturers data shows, Toyota was offering neither entry-level compact sedans nor equally popular smaller SUVs. By contrast, Maruti Suzuki and Honda are designing 7-seat compact SUVs.

New Management, Processes

Toyota has reshuffled its Indian management and is refining its manufacturing practices to again ensure Toyota quality. Naomi Ishii, formerly general manager-strategic planning in Japan, has come to India as managing director. He has started the process for rapid localization of parts and is working to choose the right models in the right segments at the right prices.

Apart from revamping the model mix, Ishii is trying to implement the Toyota Production System more effectively in the automaker’s Indian plants – which are running at 50% of capacity. Its main aim is to prevent waste of material or time in the production process and to ensure reliability and consistency. Two specific areas he mentions are improving the yield from steel and other raw materials and increasing plant efficiency.

Ishii also intends to reverse two years of losses and make the current fiscal-year result profitable by cutting costs 15% to 20% and reaching a break-even level of sales of 125,000 to 150,000 light vehicles. He has been very specific on the cost cuts: no discounts on sales and no salary increases for top management. 

“Etios and Liva have hurt Toyota’s image,” Ishii concedes.  But he also says Toyota’s mid- and long-term product lineup is still under discussion: “Proposals have been submitted to the head office and the decision on the final lineup will take one year.”

By the time decisions are made and implemented, Toyota may have lost further market share and posted additional financial losses. Ishii’s efforts could be diluted even more by rising fuel prices in India and a weaker rupee against the Japanese yen and U.S. dollar.

“Everything we did seems to have gone wrong,” Vice Chairman Vikram Kirloskar says. “Etios and Liva were good both in quality and performance. We do not understand why they did not succeed.”

Top management has not realized that the issues go far beyond models and pricing. They include the portfolio gap; Toyota has no light trucks except the aging Innova and outdated Qualis. Borrowing costs are being neither counted nor controlled.

Even local management is mistaken in hoping sales growth in Northeast India can change Toyota’s fortunes. While deliveries are increasing more than 6% year-on-year in the region’s eight states, the sales and revenue numbers are too small to make any noticeable impact.

There also is an unspoken perception among Toyota executives in India that the home office’s policy of placing greater importance on Indonesia and Thailand is misguided.

In the midst of all these uncertainties and waiting, Ishii is pursuing a positive and hopeful idea of promoting small Toyota hybrid cars in India. But the automaker’s overall strategy does not appear to recognize the need for prompt decisions and immediate implementation.