How Late is Too Late for Toyota?
Etios can prove to be a Fortune Changer for Toyota in the Indian Market. But there are Challenges Galore that are Hell-Bent on Proving why the Jap’s Slow-Coach Small-Car Strategy may work Against It.
Early this year, Akio Toyoda, the chieftain of Toyota became the bad guy for doing the right thing – recalling 8.5 million vehicles over safety concerns. First, he was abused across continents. Then, after being verbally clobbered by the US Congress, he was slapped a fine of $16.4 million. Beat his audacity – Toyota paid the fine without submission of any wrongdoing on May 18, 2010. Since then, there have been (f)acts that have gone much against popular expectations. First, the Japanese carmaker announced a fresh round of recalls on November 4, 2010 (of 135,600 Passo and iQ cars in Japan and Europe to fix the vehicles’ power-steering system). Second, Toyota’s financials have remained sound despite the pepper sprays. During the first half of a trouble-marred 2010, the company sold 3.72 million vehicles worldwide – an increase of 18.7% as compared to the same period a year back. As far as earnings were concerned, it recorded an unexpected 15.5% y-o-y rise in topline to touch $117.45 billion during H1, 2010, with bottomline improving drastically (from a loss of $679 million during H1 2009, to $3.51 billion). There was more good news to follow.
While the company’s m-cap remains close to the $120 billion mark (the same as it was 12 months back), the investors have found a new reason to smile about. On November 5, 2010, the company announced an increase in net income target for FY2010-11 to $4.3 billion. The secret – as experts agree – is Toyota’s new low-cost model for emerging markets, which begins with the Etios launch in India in early December 2010.
Many suggest that Etios may face the same fate as the Toyopet did way back in 1957, when Toyota tried to introduce it in US. The suffix “pet” suggested that it was the small, compact sedan that Americans were yearning for. What followed however, was shocking. In three years, the Toyopet had sold only 1,913 units and the company was forced to withdraw the failed car from US. The sentiment in India is similar today. In the present times, it is understood that a compact car (the A2 segment) is likely to work wonders in the Indian auto market. For the records, 72.8% of the 9,22,281 units of passenger cars sold in India till September during FY2010-11, belonged to this very segment. So can the Etios do for Toyota what the Altos and the Swifts did for Maruti or what the Santros and i10s did for Hyundai? Etios is the next big step which can establish Toyota’s dominance globally, and for a long time to come. Call it clever, but it starts with the toughest of acid tests – convince the Indian consumer. But the biggest question is – can it?
To imagine that the magic could happen overnight would be foolish. While Maruti today accounts for 55.03% of the sales in this category, having sold 369,466 units in the A2 segment during Q1 & Q2, FY2010-11 alone, the #2 Hyundai has 22.74% of the segment, with sales of 152,664 units during the same period. More so, both have been celebrated brands for over two decades for the price-sensitive Indians. Toyota on the other hand, is simply recognised as a brand in just the Rs.1 million-plus bracket, which includes the A4 segment (where it holds an 18.99% share; data for Q1-Q2, FY2010-11) and the Utility Vehicle (UV) segment (22.31% share). And even if Toyota manages to challenge the might of the Marutis and the Hyundais in the sub-Rs.0.5 million platform, finding the right price level, while maintaining decent margins will pose a challenge to Toyota, as Hiroshi Nakagawa, MD, Toyota Kirloskar confesses to B&E, “Pricing will surely play a very strategic role in the success of the compact car Etios, as convincing the value-conscious Indian consumer is the toughest task in the world.”
But if the Spark & Beat could save GM’s day in India, and if Figo could come to broaden Ford’s consumer base, why discount out Toyota? Out of the 46,603 units sold in India by GM during the past two quarters, 74.52% belonged to the A2 segment. And of the 48,002 units sold by Ford India, 79.54% were from the same category. It is largely the entry into the A2 segment by GM (in 2006 with the Spark) and Ford (in 2010 with the Figo) that boosted their Indian market shares in the passenger vehicle category, which currently stand at 5.32% and 4.02% respectively. Perhaps the Etios will help improve Toyota’s low market share (of 0.57%) in the Indian passenger vehicle market too!
While the company’s m-cap remains close to the $120 billion mark (the same as it was 12 months back), the investors have found a new reason to smile about. On November 5, 2010, the company announced an increase in net income target for FY2010-11 to $4.3 billion. The secret – as experts agree – is Toyota’s new low-cost model for emerging markets, which begins with the Etios launch in India in early December 2010.
Many suggest that Etios may face the same fate as the Toyopet did way back in 1957, when Toyota tried to introduce it in US. The suffix “pet” suggested that it was the small, compact sedan that Americans were yearning for. What followed however, was shocking. In three years, the Toyopet had sold only 1,913 units and the company was forced to withdraw the failed car from US. The sentiment in India is similar today. In the present times, it is understood that a compact car (the A2 segment) is likely to work wonders in the Indian auto market. For the records, 72.8% of the 9,22,281 units of passenger cars sold in India till September during FY2010-11, belonged to this very segment. So can the Etios do for Toyota what the Altos and the Swifts did for Maruti or what the Santros and i10s did for Hyundai? Etios is the next big step which can establish Toyota’s dominance globally, and for a long time to come. Call it clever, but it starts with the toughest of acid tests – convince the Indian consumer. But the biggest question is – can it?
To imagine that the magic could happen overnight would be foolish. While Maruti today accounts for 55.03% of the sales in this category, having sold 369,466 units in the A2 segment during Q1 & Q2, FY2010-11 alone, the #2 Hyundai has 22.74% of the segment, with sales of 152,664 units during the same period. More so, both have been celebrated brands for over two decades for the price-sensitive Indians. Toyota on the other hand, is simply recognised as a brand in just the Rs.1 million-plus bracket, which includes the A4 segment (where it holds an 18.99% share; data for Q1-Q2, FY2010-11) and the Utility Vehicle (UV) segment (22.31% share). And even if Toyota manages to challenge the might of the Marutis and the Hyundais in the sub-Rs.0.5 million platform, finding the right price level, while maintaining decent margins will pose a challenge to Toyota, as Hiroshi Nakagawa, MD, Toyota Kirloskar confesses to B&E, “Pricing will surely play a very strategic role in the success of the compact car Etios, as convincing the value-conscious Indian consumer is the toughest task in the world.”
But if the Spark & Beat could save GM’s day in India, and if Figo could come to broaden Ford’s consumer base, why discount out Toyota? Out of the 46,603 units sold in India by GM during the past two quarters, 74.52% belonged to the A2 segment. And of the 48,002 units sold by Ford India, 79.54% were from the same category. It is largely the entry into the A2 segment by GM (in 2006 with the Spark) and Ford (in 2010 with the Figo) that boosted their Indian market shares in the passenger vehicle category, which currently stand at 5.32% and 4.02% respectively. Perhaps the Etios will help improve Toyota’s low market share (of 0.57%) in the Indian passenger vehicle market too!
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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