New Delhi: A decade after it entered the country, Toyota Kirloskar Motor Pvt. Ltd, the local unit of the world’s second largest carmaker, said its will spend Rs1,400 crore on a new factory to make a small car for the Indian market, joining the race with several other car makers with similar plans to tap into the largest segment of the car market here.
Tight-lipped: Deputy MD of Toyota Kirloskar K.K. Swamy.
The factory will manufacture the “new strategic small car”, which the Japanese parent is developing from scratch in its home country. And by 2010, both the car and the factory, the company’s second in India, will be ready for production. The factory will be able to produce 100,000 cars when its starts production. Toyota sells a little more than half that number currently with its existing vehicles and it doesn’t have a small car in its Indian portfolio.
“The new car will meet the market demand of Indian consumer. We also plan to export the small car,” said K.K. Swamy, deputy managing director of Toyota Kirloskar, who declined to offer details of the small car. When asked whether it would be in the same segment as the Tata Nano, the world’s cheapest car, or compete with mid-priced small cars, he said, “It would neither be the cheapest or costliest in that segment.”
Swamy was tight-lipped about the specifications that Toyota’s designers and engineers were working to, or any details on what the positioning of the car would be in an already-crowded market. He said the new factory would come up in the vicinity of the existing plant and that, to sell the small car, Toyota would add more dealers. He wasn’t willing to say how many dealers, nor share details of how the project would be funded and how the money would be split between the two partners. In India, the company is a joint venture between Toyota Motor Corp. (which owns 89%) and the Kirloskar Group (11%).
“We are a debt-free company, so raising funds would not be an issue,” said Swamy.
The passenger car market in India is dominated by small cars, which account for more than two-thirds of the 1.5 million passenger vehicles sold here. Small cars, which were first introduced by Maruti Suzuki India Ltd, more than two decades ago, have captured the imagination of users and car makers alike, in part because India is a market obsessed with cheap, or so-called value-for-money rides, that are best offered by smaller, lighter vehicles. While BMW AG may bring in what will be the most expensive small car, the Mini, priced at nearly Rs20 lakh, the Tata Nano, which will sell later this year, is priced at Rs1 lakh. In between, everyone from two-wheeler maker Bajaj Auto Ltd to players such as General Motors Corp. of the US have their own plans for small cars, which also attract lower excise duties in India.
Swamy admitted the Indian consumer wanted “the best at the cheapest”, but would not be drawn into what Toyota’s vision for this small car was.
Toyota, though, would be a relatively late entrant in the small-car segment although the company has been around for a while in India. Its focus in the market has been the sedans such as the Corolla and the Camry and people-carrier Innova. In sedans, it sells less than rival Honda Siel Cars India Ltd, but it’s had much better luck with the Innova, which is its top-seller. It sold around 54,000 vehicles in India in 2007, achieving a turnover of $1 billion (Rs4,000 crore).
One expert said cost management would be key to the company’s success.
“It is a welcome development in line with upcoming trends in emerging markets, particularly towards smaller, more fuel-efficient and affordable vehicles,” said Kapil Arora, partner (automotive sector) at audit and consulting firm Ernst and Young. “The question is how to operationalize the strategy in a cost-effective manner.”
To keep the cost of making the small car low, Toyota plans to source a large proportion of components from India and intends to develop local vendors, instead of asking more of its Japanese vendors to set up operations here. At present, Toyota’s popular brand Innova has a 60% domestic content.
The company is hoping to increase its market share in the Indian market from the current level of around 4% through the proposed launch of the small car. It had earlier stated it wanted to have a 15% market share with a production capacity of 600,000 units by 2015, nearly a 10-fold increase from the current level.
Ammar Master contributed to this story.