Toyota shifts India gears into racing mode

Japanese de-cluttering guru Marie Kondo would approve of Masakazu Yoshimura’s office. The small cabin that serves as the workplace of the 52-year-old managing director of Toyota Kirloskar Motor Ltd (TKML), located at the company’s 432-acre plant in Bidadi near Bengaluru, is optimised for functionality. His barren work desk has just a laptop and a pen. A modest lounge table and chairs jostle for space with a small printer in one corner. At another corner stands a flag with the Indian and Japanese colours — the Tricolour and the sunrise — emblazoned on two sides.This is the ground zero of a battle Yoshimura was picked to lead in January 2019. His task is clear-cut: align Toyota’s fortunes in India with its international standing. Globally, Toyota is the largest automaker by market capitalisation ($200 billion-plus) and the second largest in sales volume (Volkswagen is ahead). 74032756 In India, its market share by volume is under 5%, despite having had a presence since the mid-1990s. It does well in the premium segment, with utility vehicles Innova and Fortuner leading their respective segments. While Toyota runs a profitable operation here, the global behemoth is not happy with not being a name to reckon with in one of the world’s largest auto markets. It’s Yoshimura’s job to fix that. 74032793 To be fair, Toyota is hardly the only global major who has been humbled in India, a notoriously difficult terrain for automakers.Maruti Suzuki, owned by Japan’s Suzuki Motor Corporation, has cornered roughly half the market. Korea’s Hyundai enjoys about 17% market share. Helped along by complex market dynamics, these two have left a long trail of marquee global auto badges in the mud. General Motors shut shop here. Ford is following suit. Volkswagen is battling losses. Renault and Nissan haven’t made much headway.But, now, Toyota believes it can turn a corner. Young customers behave differently from their parents. The internal combustion engine is making way for electric motors. And a new partnership with Suzuki could see the two companies becoming a tag team in India.Somewhere at the confluence of all this, the company is sensing a big India opportunity. And Yoshimura has started stepping on the gas.Gearing UpYoshimura couldn’t have timed his arrival in India more poorly. Last year was one of the worst for India’s auto industry. Foretelling a broader economic slowdown, passenger vehicles’ sales dipped 11% (April-December 2019). Toyota’s slid 21%. “It has been an enjoyable year,” says Yoshimura with a smile, leaving one wondering if he is being sarcastic. “Tough times make you stronger. If I compare myself with the one 12 months ago, I am a lot stronger today,” he says, speaking English with a slight South African accent, likely acquired during his stint there.Yoshimura’s chief task is to execute a new strategy stemming from the carmaker’s partnership with Suzuki, a global pygmy that rules the India market. In August, Toyota acquired a 4.9% equity stake in Suzuki and subsequently the two companies have outlined a partnership encompassing markets such as India, Europe and Africa. The market where the partnership will be of the most consequence is, of course, India. From Toyota’s perspective, the main change coming off the partnership with Suzuki is that it will gain a substantial presence in smaller vehicles.The company’s experiments with Etios and Liva didn’t exactly thrill the market and are being discontinued. It has now started selling Glanza, which is Maruti’s Baleno with a Toyota badge. In the coming years, it will launch a slew of smaller cars, many from Maruti’s stable.This has necessitated an organisational transformation. Toyota needs to adapt to the needs of a customer purchasing a sub-Rs 10 lakh vehicle.“We can’t change the DNA itself. But possibly we can add,” says Yoshimura. “Think of it like farming and hunting. While farming will help us retain our customers, hunting means you have to go out and find new land to play with. Both are very important to us.” 74032866 The workforce has been reoriented for this. It is set up under three strategic business units headed by vice-president-level executives, shifting from a structure where specific markets were headed by general managers. Each geographic unit will operate as an independent profit centre, with budget, power and accountability to craft their own campaigns and schemes. Sales and marketing functions have been overhauled. “Controlling everything from Bengaluru will not work. We are pushing for decentralisation and regional empowerment,” says Yoshimura.In January, he effected an organisational overhaul. “For three months after Yoshimura san arrived, he visited markets and met dealers unaccompanied to understand India and our road map,” says Naveen Soni, who has just been re-designated as senior vice-president for sales & marketing, moving out of the CSR, corporate affairs and communications role. Raju B Ketkale, who was handling product design and development as well as quality assurance, has been promoted as deputy managing director.Toyota has been late on its digitisation push. Under 10% of its sales comes from queries generated online. In comparison, new entrant MG Motor saw 40% of its ZS EV bookings originating online. A strategy to help the company and its dealers evolve a digital marketing campaign is in the works. “So far, our marketing budget was skewed towards print. As we target younger customers, our budget will be split 50:50 between digital and print,” says Soni.The other challenge that needs urgent solution is Toyota’s relatively small sales and service network. It has just 371 service outlets as against Maruti Suzuki’s It is working on multipronged strategy widen its network.For example, all its dealerships have sales, service and spares (3S) co-located in one place. As pushes for volumes and geographical growth, it wants to be nimbler. It is now rolling out micro 2S ( just service and spares) centres that require lower investment and can be built faster. “Our after-sales service experience is the most important part,” says Yoshimura. More than 40 centres are expected to be built in 2020 in tier-2 and -3 cities. To boost its after-sales service reach, it has piloted Toyota Express Service vans to take service facilities closer to customers in rural and upcountry regions as well as urban hubs such as IT parks, malls and airports. Already, 1,000-plus Toyota vehicles have been serviced by mobile vans.Like most global automakers, Toyota is responding to the millennial aversion to ownership by launching a “mobility as a service” brand. Launched last year globally under the umbrella brand Kinto, it rolled out in India with leasing services. It will launch a subscription service later this year, and a self-drive rental service in 2021. Toyota is also stitching up alliances with Ola and Uber on car-sharing.All-Round DisruptionIn step with the disruption in the auto market globally, India has also seen big shifts. Electric vehicles are gaining ground, albeit slowly. Carmakers are bracing to leapfrog to BS-VI emission norms in April. Despite low penetration of cars — 28 per 1,000 as against China’s 128 per 1,000 — there is already talk of millennials’ willrent-won’t-buy attitude denting demand. Above all, Chinese auto majors are poised to make a big India push, following in the footsteps of MG Motor, which has enjoyed a blockbuster market entry with its Hector SUV.Some observers say these headwinds will loosen Maruti’s grip on the Indian market, ushering in new opportunities. “Maruti is under pressure. BS-VIcompliant powertrains, new technologies and connected cars pose challenges in an industry that is capital intensive,” says Gaurav Vangaal, senior analyst at IHS Markit. New technologies like EVs and connected cars require heavy R&D investment, pushing even global auto giants like Toyota and Volkswagen to collaborate with others. This poses big problems for a small player like Suzuki.Maruti has been pursuing a deep-pocketed partner for a while. In 2000, Detroit giant General Motors raised its equity stake in the company to 20%. It exited in 2008, however, battling bankruptcy. Suzuki paired up with Volkswagen in 2009 but their partnership soured amid cultural clashes and VW’s pursuit for control. In 2015, an arbitration court forced VW to sell back its 19.9% stake to Suzuki. Toyota emerged on the horizon soon after.The Suzuki-Toyota courtship began on a tentative note. It kicked off in 2017 with an MoU to develop affordable hybrids and EVs for the Indian market by 2020. In 2018, the scope was expanded to include a slew of vehicles, from Baleno to Corolla, that could be cross-badged and sold in India (See “Tango With Suzuki”). After the warm-up, the duo exchanged equity last year, with Toyota picking up a 4.9% stake in Suzuki. “(Suzuki chairman)Osamu Suzuki san and (Toyota president Akio) Toyoda san were born in the same town of Japan where there is a culture of helping each other. In fact, that’s the reason why I think there is so much cultural alignment. We will compete and collaborate,” says Yoshimura. Also, Toyota has a rich experience of managing partnerships and alliances with multiple subsidiaries such as Subaru and Daihatsu. 74032904 Experts say that bringing cross-badged products to market within two years of the partnership is a fast move. It’s early days but Glanza has had limited success. In December, according to Frost & Sullivan, Maruti Baleno sold 18,470 units as against 1,620 Toyota Glanzas. “More than cross-badging, sharing of platforms will be beneficial for both,” says Kaushik Madhavan, director, mobility, Frost & Sullivan.Auto industry veterans see the collaboration deepening in the future. “The key driver for Suzuki is access to hybrid technology and a partner to offer additional volumes for its battery production initiative. The win for Toyota is to feed its dealer network with cross-badged products.In the future, we hope to see new products being developed on shared platforms, specially SUVs where Toyota is more successful,” says Felipe Munoz, global auto analyst, Jato.Toyota currently has two plants in Bidadi — one with an annual capacity of 1,00,000 units for making Fortuner and Innova and another with an annual capacity of 2,10,000 that was set up in 2010 for sedans like Corolla. The capacity utilisation for the second plant hovers around 30-40%. Last time it touched 100% was in 2013. “We are hoping that by 2022 we will utilise the capacity to make cars for Suzuki,” says deputy MD Ketkale.However, there are many short-term challenges. For example, most of Suzuki’s cars being made available to Toyota, such as Baleno and Ciaz, overlap with Maruti’s premium Nexa network. “Amid a sales slowdown, Toyota’s dealers are very happy, Nexa ones are unhappy,” says a well-networked dealer. (An email sent to Maruti Suzuki remains unanswered.)Another South India-based Maruti dealer says on the condition of anonymity: “As a brand, Toyota has an edge. Down South, a lot of people are from the Middle East. Anything that Toyota brings gets an instant pick,” he says. He adds that since its launch last summer, Toyota Glanza has eaten into his Maruti Baleno sales.“But we all know that it is beyond anyone’s control. This is being driven from Japan. Recently, to reduce our pain, Maruti increased the dealer margin by 1%,” he says.With Toyota and Suzuki joining hands, the market can expect bolder moves on alternative technology. With Toyota, India will see a differentiated technology play instead of a full throttled bet on EVs. A company that pioneered hybrids in the 1990s, Toyota’s focus has been hybrids and hydrogen fuel cell vehicles and only lately EVs. “Toyota’s strategy is to focus on a mix of technologies. It will calibrate its strategy in each market as the technology evolves,” says Rakesh Batra, auto industry expert. Ecosystem issues such as charging infrastructure, affordability and range are some big factors that will shape the rollouts.As the Hyundai-Kia duo make aggressive Korean bets on the Indian market, Toyota-Suzuki partnership, if handled well, can help the Japanese retain a tight grip on Indian roads.

from Economic Times https://ift.tt/2H5361H