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Contn. 0 To 33 In 10 Years ''Hop, Step, and Jump''
The man himself would reveal little, but BT's interviews with other senior TKM executives, vendors, and competitors revealed that the joint venture is working on a two-pronged strategy. On the one hand, a portfolio of luxury cars will be brought in as completely built-up units (CBUs), and on the other, a line of locally manufactured cars will be created. TKM's first CBU to roll off the ships possibly next year end will likely be Camry-a mid-sized sedan, which is Toyota's best seller in the US, with sales of 400,000 units in 2000. Once the initial rush for Camry is over, the demand is expected to settle down somewhere between 500 and 1,000 a year. ''We are under no illusion about the market for big cars in India,'' says K.K. Swamy, Deputy Managing Director, TKM. The road that the company is taking for locally-made cars is what Yamazaki describes as a hop, step, and jump plan. The hop, he explains, was the Qualis. The step will be a 1,500-cc variant of the no-frills compact sedan, Corolla, which even after 32 long years in the US, draws more than 250,000 buyers a year. Its appeal: a value-for-money proposition. The jump refers to the much-awaited sub-compact. Known within TKM as the NBC (new basic car), the small car that has everything riding on it will compete with Maruti's Zen, Hyundai's Santro, Fiat's Palio, Tata Engineering's Indica, and the Daewoo Matiz. There's very little indication of pricing from Toyota, but it is apparent that the car-no matter how good-will have to be priced within the small car band, which is Rs 3.5 lakh to Rs 4.5 lakh. Just like it did in the case of Qualis, Toyota will leverage its legendary reputation for quality and service to dislodge competition. ''The pricing will be what the consumers are willing to pay,'' acknowledges Yamazaki. Over the next three years, $400 million will be spent on the NBC project to create enough dies and model-specific machinery to create a capacity of 1 lakh a year as part of phase one. At present, the much-maligned Maruti 800 is the only car that sells more than a lakh a year. ''(The NBC) will have an entirely new engine. That is the biggest hint I can give you,'' says Yamazaki. When BT visited the Bidadi plant, Kazuhiko Takarada, Deputy Managing Director, TKM, and his team of 100 engineers were busy sending the design team in Toyota City, Japan, details of the Indian road, fuel and weather conditions, and the driving habits. Based on these inputs, the NBC will be custom-made for India. It's a given that the air-conditioning and suspension systems will be specific to the local market. What remains to be seen, however, is the differentiation in terms of design and fuel economy. From what BT could gather, the new car-likely to be built on the existing platform of Yaris, a 1,300-cc sub-compact getting rave reviews in Europe-will sport a powerplant in the 1,000 cc to 1,300 cc range. The final choice will depend on what kind of a response Fiat's Palio, which comes in two engine sizes of 1.2 litre and 1.6 litre, and Tata Engineering's Indica v2 (petrol) get. ''It is not that we don't know what we are doing,'' reasons TKM Swamy. ''It's just that we are working on a number of options simultaneously.'' It won't be easy picking and choosing the right kind of platform for India, given that Toyota has 160 active models on its plate, and about a dozen new get added every year. It is also likely the NBC may not be built on the Yaris platform after all. Industry grapevine has it that TKM is testing Sirion-an 1,000-cc car from Daihatsu, a company Toyota acquired in 1998-at the Automotive Research Association of India (ARAI) facility in Pune. But the fact that Yaris variants Vitz and Platz-both have 1.3 litre engines-are undergoing extensive testing in Europe, tilts the scales in favour of a Yaris clone. In any case, it will be 2004, before the NBC hits Indian roads.
The Big Fight Meanwhile, Takarada (he's also the plant incharge) is busy making modifications to the assembly line as a prelude to rolling out Corolla. Given the line's flexibility, TKM will only need to make incremental investments in the range of a few crores of rupees. That will help free up almost a third of the current capacity of 50,000 for Corolla. The expansion and modifications should be in place by the middle of next year, which means that Corolla may enter the fray either late 2002 or early 2003. Competition should be red hot and sizzling by then. At least four more new cars-one each from Maruti, Hyundai, General Motors and Ford-would be on their marks. With little to differentiate in terms of technology, the car makers would be hard-pressed to come up with a USP. On its part, Toyota is hoping that since not much is going into the new car by way of capital, it could be priced around Rs 10 lakh-a tad over Mitsubishi Lancer's. Explains a TKM executive who would not be named: ''The idea is that the C segment buyer should be able to buy the Corolla by reaching just a bit higher.'' Unstated, but implied, in that statement is the realisation that while the Qualis could sneak up on Sumo and win, the game may be totally different this time. For one, there are plenty of world-class cars already in the market, and there is no clear vacuum that Toyota can fill. Instead, it will have to create the right niches. Points out a Mumbai-based merchant banker: ''Getting Qualis to win was easy, let's see how Toyota does with its second and third cars.'' One big reason why the going will get tougher is the impending consolidation in the global-and consequently, Indian-auto industry. Best estimates say that there may be room enough for just six, but gargantuan, players. Already, one can see battle-lines being drawn. General Motors, which owns 20 per cent each in Suzuki and Fiat, and has now snapped up Daewoo for a song, will lead the biggest combine; DaimlerChrysler, which controls a fifth of Hyundai Motors and 37 per cent of Mitsubishi, could also find an ally in Tata Engineering. Ford and Toyota will be on their own, while a free radical like Honda may eventually ally with one of the big players or try to fight by itself. Says Andreas E. Zielke, leader of McKinsey & Co's European Automotive and Assembly Practice: ''In the new order, you may not find everything from product development to manufacturing to marketing under one roof as traditional car companies make way for new types of players.'' In fact, Toyota itself is undergoing a dramatic transformation in Japan. In the recent past it has diversified into telecommunications, financial services, and even e-commerce. While its market share in Japan is back up at 40 per cent after a slight dip, some analysts expect that by 2006, almost a fifth of its profits would come from non-auto businesses. Just the same, car manufacturing will remain Toyota's core activity in the near future. A Global Base That's probably a reason why the Indian plan is not delinked from Toyota's global strategy. Sure, the NBC will mark TKM's transition from a niche player to a volume player in the biggest (80 per cent) segment. More importantly, it will signal the beginning of a shift in strategy for the parent as well. By 2020, all sub-compacts will be made at just one location: India. Why? Toyota reckons that by that time, India will be a major political and economic force, with an annual GDP growth of 5 per cent a year. Therefore, minus some political risks, India will emerge as a major automobile market. Such compartmentalisation of production is already in place in a few of Toyota's vehicle categories. For instance, its luxury car, Lexus, is produced only in Japan, and the manufacture of all sports utility vehicles will soon shift to the US. The base in India will supply to Asian and European markets, the only markets where Toyota expects sub-compacts to have a future. Says Yamazaki: ''There is no doubt that India will be a very important market for us in the years to come.'' If Toyota seems to be in no hurry to unleash its market power, it is because it would rather take time and get it right, than make quick moves and bungle up. Even rivals agree that such a strategy makes sense. Says Dube of Tata Engineering, which itself was a late entrant in the cars business: ''There is nothing wrong in being a late comer. What's more important is how you execute the strategy.'' The point is that Toyota will have to fight the battle in India exactly the way it does elsewhere: with superlative production skills. In India, 43 of its 57 vendors are as far away as Delhi, Chennai, and Pune. But it still manages to source parts only as and when needed (See Toyota's 'Milk Run'). For instance, the maximum raw material inventory the Bidadi shopfloor stocks is an incredible two hours. And no finished product stays on the factory premises for more than 48 hours. The cost implications of such lean manufacturing are huge. If TKM were to only increase its raw materials inventory by half, the impact on the bottomline would be significant. Notes Arindam Bhattacharya, Principal, at Kearney: ''Margins are getting smaller and smaller in the auto industry. To survive, manufacturers have no choice but to run the tightest of ships.'' It is said that if an outsider were to see the e-mails that Toyota's Chairman Hiroshi Okuda keeps sending to the management in India, one would think that he heads the bankrupt Daewoo and not an automotive giant with $20 billion in reserves. The effort in India now is to bring costs down further in line with Toyota's ccc21 (Construction of Cost Competitiveness for the 21st Century) programme. The objective is to hack costs down by a jaw-dropping $8 billion by the end of fiscal 2005. It may be years before Toyota shows any proof of its grand plans working in India. But, as in the case of the Japanese rice in his paddy field, Yamazaki is willing to wait and toil for a rich harvest. |
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