Posted by: qmaxim | December 29, 2010

Toyota Etios launches in India – Can Quality sell?

Last month Toyota in India  launched  much awaited Etios sedan with great fanfare. It has a 1.5 l gasoline engine with basic model  priced at about 5 lakhs. It is the first offering built ground up for emerging markets like India.It was a collaborative effort between Indian affilate Toyota Kirloskar Motors (TKM) and Toyota Japan. In other words, it is not a stripped down version of successful model. Publicity blitz included visit to India of  Toyota President Mr. Akio Toyoda, full page advertisement in newspapers and TV commercials. This is being manufactured in a brand new factory Toyota has built near Bangalore with a capacity of 70,000 cars per year. With this launch Toyota hopes to address  overall 50% of the  Indian market though the model in particular targets about 18% of the market.

Though the Indian market has been growing at a  healthy pace with most manufacturers reporting double digit growth, (last year market grew by 25%) it is going to face stiff competition from likes of  Maruti Sazuki India (MSI), Volkswagen AG India, Nissan Motors, Hyundai motors, GM, etc. Price is similar to Maruti Suzuki’s offering Swift DZire which also costs about 5 lakhs. Toyota officials took potshots at the  competition, and as expected, got immediate reaction from the competition. Market leader took out full page advertisements on the day of launch gloating  that they have come on top in the J D Power associates’ quality rating surveys. Honda Scooter India has announced its intention to launch a car in the same segment in 2011 called  Brio hatchback. It is going to use its two wheeler vendors to
source parts to hold down costs.

Is Toyota likely to come on top of the market?

They face several formidable challenges. They have put great emphasis on Quality in their advertisements which they have called  Quality
revolution. Quality has different meaning for different people- there  is no common definition of quality . What ultimately matters is customer’s perception of quality. Toyota is not a house hold name unlike other brands (like Tata), so it is going to be tough call to stand out among completion.

Their renewed emphasis on Quality (back to basics) is understandable. Recently, Toyota  has revealed that it would repair cooling pumps in about 650,000 of its Prius gasoline-electric cars worldwide. The latest recall, follows a global recall of 397,000 Prius hybrids in February to fix problems with antilock-braking systems. They have also decided not to contest fines imposed by US authorities  related to legacy safety issues of  other models made since 2005 and   pay fine totalling  US$49 million. All this bad publicity has lead to Toyota falling to second or third position in US market.  To further strengthen Quality they have also appointed Chief Quality Officer in USA. Well,  old style quality is back in fashionable again. (But, according Toyota’s  guiding principles quality is inbuilt at every stage of process and everyone is responsible for quality)

In India also they have to  overcome several challenges. Prices of many commodities like Steel, Aluminium, Rubber are on the upswing again. So are interest rates and petroleum prices and there is a liquidity crunch in economy. Import costs particularly from Japan are also likely  to go up with Yen trading at record levels of 83.5 to a  US$. As per Deputy M.D. of  Toyota in India Mr Sandeep Singh, presently  70% of the parts are sourced from Indian vendors. They  will build  transmissions in India in 2012 and engines in 2013.They have to do all this and more to make local operation profitable as quickly as possible. Apart from implementing Lean concepts & local sourcing, they may also implement moves to reduce breakeven point of the factory.  Like for example, working on  making engine assembly process more compact which is being tried out by the Japanese parent at present.

Keeping in view  the thoroughness with which they have gone through in building operations and gradual ramp up so far, they are likely to succeed. Initial response to the model has been good,  but they have announced that they are not in  a too much of a hurry to reach the sales target. They seem to have learnt their lessons from their own and others’ experience particularly that of  Tata Nano.

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