Toyota taking fresh look at investment in small car unit

Toyota taking fresh look at investment in small car unit
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First Published: Fri, Apr 03 2009. 12 28 AM IST
Updated: Fri, Apr 03 2009. 12 28 AM IST
Bangalore: The economic slowdown has forced Toyota Kirloskar Motor Pvt. Ltd, the Indian venture of Toyota Motor Corp., the world’s biggest car manufacturer by volumes—to review its plan to invest in a new factory near Bangalore, to roll out a small car for the Indian market.
The company also expects to post losses for the first time in six years, on lower demand for its vehicles and an increase in the cost of imported inputs.
In November, Toyota Kirloskar had said it would invest Rs3,200 crore in a second plant to make a small car near its existing factory in Bidadi, on the outskirts of Bangalore. The new plant, set to be operational in 2010, had a planned capacity to make 100,000 cars a year.
“...the production capacity at the second plant has been reviewed and we are carefully reviewing the investment figure in the light of (the) severe economic downturn,” said Shekar Viswanathan, deputy managing director (commercial) at Toyota Kirloskar, in an email. “However, this will not in any way affect the second plant’s operations.”
The factory will initially produce 70,000 units of the so-called compact vehicle by end-2010. Details of the small car have not been disclosed.
Viswanathan did not elaborate on how much the investment figure would change or when it would be finalized.
In December, parent Toyota Motor had forecast an operating loss for fiscal 2009, the first in 71 years. In February, it declared losses of 164.7 billion yen, or about $1.68 billion (about Rs8,500 crore today) at the rates prevailing then, for the December quarter.
The Japanese currency has appreciated 33% against the rupee between 1 August and now, making imports from that country much more expensive in India and thus increasing costs of production here.
Toyota Kirloskar also imports parts from Thailand, paid for in the US currency, which has appreciated 21.6% since August. For instance, the company imports 30% of parts by value for its Innova utility vehicle and 55% for the Corolla Altis car, according to a company spokesperson. It imports completely built units of the sport utility vehicle Prado and Camry, its upper-end sedan.
The increase in costs and a slowdown in automobile demand is affecting profitability at the firm here in India, Viswanathan had said in an interview. “This year (fiscal year ending March 2010) we are not going to be profitable in India,” he told Mint on 31 March.
Toyota Kirloskar’s senior management is set to take a 10-15% pay cut effective April, following pay cuts in Japan, the UK and the US.
Toyota Motor, which entered the Indian market through a joint venture with the Kirloskar Group in 2000, has been profitable since 2004. With buyers delaying vehicle purchases, Toyota Kirloskar, which produced a daily average of 200 vehicles, including the Innova and the Corolla, cut it to less than one-third, or 60 vehicles, in December.
In March, the plant made 150-160 vehicles a day, but it was difficult to forecast sales for the weeks ahead. “In terms of demand, I do think April- May will be muted…,” said Viswanathan. “It’s very difficult to isolate and say you know this month is going to be good, this month is going to be bad.”
Sales of passenger vehicles, which includes cars, utility vehicles and multi-utility vehicles, are expected to have grown up to 3.5% year-on-year (y-o-y), to 1.59 million units for 2008-09, said V.G. Ramakrishnan, senior director (automotive and transportation) at consulting firm Frost and Sullivan India Pvt. Ltd. Y-o-y growth was 13-14% over the last couple of years.
For 2008-09, Ramakrishnan projects a growth of 7.5-8% on the back of brisk sales of Tata Motors Ltd’s recently launched ultra low-cost car, the Nano.
He expects profitability of all car makers to slide on subdued demand, more so for multinationals with large imports.
Toyota’s compact car next year could help it buffer this impact, but if the firm slows investments on the small car plant, it “will probably not be in a market that is a growth market”, said Ramakrishnan. “The small car is a market that is still continuing to grow.”
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First Published: Fri, Apr 03 2009. 12 28 AM IST