Toyota India: how they turned it around

by SR on September 7, 2012

Toyota monthly sales in India (thousand units)

Sometime’s one thing is all it takes

How do you turn around a struggling territory? Apparently it’s all about product, and one good product is enough. Before Toyota launched its newly designed low-cost ‘Etios’ model in India on 27 December 2010, it was selling around 6,000 vehicles a monthly, mostly the Innova minivan with a few Fortuner SUVs and Corolla Altis sedans.

The Etios was an immediate hit and Toyota found itself struggling to meet demand initially. As you can see from the chart above, the Etios led to a dramatic pick-up in Toyota’s overall sales. I don’t know what it is about the Etios that Indian customers find attractive, but they clearly like this model. From a strategic perspective the Etios was intended right from the start to be manufactured using local parts and systems rather than using components exported from Japan. At launch, the percentage of locally sourced parts was 70% and Toyota aims to raise this to 90% by 2013.

Toyota's sales of the Etios and its share of the Indian passenger car market

Next up: Brazil

The Etios is important for a number of reasons. One is that it shows that Toyota is finally taking a more flexible approach to local needs rather than taking the “one size fits all” attitude of which it has been accused in the past. The Etios was designed as an emerging car from the ground up and it has been a success. India was a market in which Toyota was doing pretty badly and let’s be honest, it is still a bit player compared to Maruti Suzuki and Hyundai Motor, the two leaders but then again Toyota has nearly doubled its market share in two years due to the Etios.

Sometimes local markets will not be satisfied with a rehashed version of what Japanese consumers like. Europe is a good example of this: US consumers seem to find slightly tweaked versions of essentially Japanese market cars acceptable, but Europeans emphatically do not, which is a major reason for the Japanese lack of success in European markets. Brazil is another (large) market in which Toyota has struggled, with a share of around 3%, far behind leaders Fiat, GM and Volkswagen. The Etios is due to go on sale at the end of 2012 in Brazil and it has a good chance of doing well. It is a modern car, with an all-new engine, a ride and suspension that were made for emerging market roads and is reportedly very comfortable. The competition includes a number of ageing models from other OEMs that will struggle to match the Etios.

Top selling cars in Brazil, January to August 2012

The best seller in Brazil from January to August 2012 is the VW Gol (not the Golf), which is based largely on the Volkswagen group’s AO4 small-car platform that has been in use since 1999, old technology compared to the Etios. The next best seller is the Fiat Uno, the first generation of which was launched in 1983 (!) but the current Brazilian “new” Uno is based on the Fiat Panda, which was launched in 2003 (apparently there are still some older Uno models being sold). It is considerably older than the Etios and was not designed as an emerging market car. The next car is the Fiat Palio, which has been facelifted but the chassis of which still has the original design from 1996. Again, an old car. There are many more like that in the table above. Old technology, passed down from developed markets, not a brand-new car like the Etios specifically designed for developing markets.

So, while I do not expect the Etios to leap to the top of the rankings, I suspect that the product will perform well and that at the planned production rate of 70,000 year they will sell everything that they make if the price is acceptable. 70,000 would put the Etios at around 11th or 12th in the industry, which would be a good result for its first year.

Note on the methodology: as far as I can make out, the Society of Indian Automobile Manufacturers (SIAM) splits its data into ‘passenger cars’ and ‘light commercial’ vehicles. The latter category seems to include SUVs as well as genuine light commercials. BMW, for example, appears to have sold nearly 4,000 vehicles in India in 2011 that come in the ‘light truck’ category, but those are probably SUVs such as the X3 and the X5. On the other hand, I’m pretty sure that the 350,000 or so trucks that Tata Motors sold were genuine light commercial vehicles. All told, ‘passenger car’ sales in 2011 came to 1.95 million units and ‘light truck’ sales to just over 1 million units. I estimate that 225,000 to 250,000 of those would be classified as ‘light vehicles’ in the US or Europe. So the total light vehicle market in 2011 was probably around 2.2 million units. Above we use only the ‘passenger car’ figure because we want comparability between Toyota and its competitors and effectively all of Toyota’s sales in India come from light vehicles.

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