The top global automaker Toyota Motor (TM, Financial) is having a hard time in India. The carmaker’s been focusing on promoting the Liva hatchback and the entry-level sedan Etios to woo the Indian audience, but it doesn’t seem to be working. At least that’s what the unprofitable numbers are suggesting. The two cars are somehow not appealing buyers in this economy, who are more inclined towards Honda (HMC, Financial) and Hyundai (HYMTF, Financial) offerings in the similar range. Digging into some numbers would give a better idea regarding why Toyota is struggling in this developing economy.
Behind the numbers
For the fiscal year ended March 2014, Toyota Kirloskar Motor Pvt. Ltd suffered a loss of nearly $30 million in the country. Toyota Kirloskar Motor is the subsidiary wing of the Japanese automaker for producing and selling cars in India. This is highly disappointing for the Asian automaker particularly after establishing a 15-year old history in the country. India’s not a new market for Toyota. So what’s not working for the company?
Deepesh Rathore of Emerging Market Automotive Advisory has an answer to this:
“Toyota’s only pain points in India are Liva and Etios”
The two models, Liva and Etios, on which the company is banking heavily to boost its India sales isn’t fetching numbers. These cars haven’t received warm reception from the Indian population that has loved other heavy duty models carrying the Toyota nameplate. The carmaker’s made good money out of the iconic Qualis, Innova, and the popular Corolla sedan that competes with Honda Civic, Hyundai Elantra.
Toyota had expected to capitalize on economies of scale using localization efforts and selling it in masses. This is exactly what didn’t work for the automaker. Localizing the product was like compromising the high quality and standard for which the company had earned a good reputation. With the Qualis, Innova, and Corolla buyers got value for their money where Toyota has massively stressed on the quality of the car as well the price at which it would be offered. But with Etios and Liva it caught the wrong foot by localizing its make to widen margins. The result is that the look and feel of the two cars are not at par with other industry offerings. Quite obviously the target audience lost interest.
Tapping the growth market
Toyota must rethink on its strategy to tap the Indian market. The Etios and Liva car launches were part of the automaker’s game plan of making bulk sales in the market. India is estimated to become a 10 million passenger car market by 2025, which is around five times the existing market size. Thus carmakers are fighting tooth and nail, formulating strategies, and unveiling new models to tighten foothold in this market that is poised to become one of the major automotive hotspots in the near future. And so is Toyota.
However, competition is getting tougher in the Indian economy. The passenger car market has numerous players. Tata Motors (TTM, Financial), Maruti Suzuki, and Hyundai are the biggies of this budding market. Other players including Honda, Toyota, Volkswagen (VLKAY, Financial), General Motors (GM, Financial) have much lower market share. However since the car ownership rate is less than 50 per 1,000 people in the country, there lies tremendous scope. Toyota is an established name in the market, though it’s currently facing headwinds. But getting the strategies right and focusing on the quality would bring better results to the company. India could be a price sensitive market, but it’s certainly changing with time. With rising competition, better features, attractive specifications, people aren’t ready to compromise on quality.
Parting thoughts
The past fiscal year may not have been a good one for Toyota, but it has surely got the pulse of the market now. Localization is not a solution for long term growth, and having understood that let’s wait for some time to see what Toyota has to offer in the future.
