Forbes India 15th Anniversary Special

Toyota Has One Small Car and Many Big Plans

Toyota finally enters the compact car race in India. At stake is much more than the Indian market

Published: Nov 15, 2010 06:41:16 AM IST
Updated: Nov 24, 2010 04:03:09 PM IST
Toyota Has One Small Car and Many Big Plans
Image: Mallikarjun Katakol for Forbes India
DECIPHERING INDIA Chief Engineer, Yoshini Noritake in Banglore

Hot, grimy, full of noxious fumes and occasionally splattered with dog-piss, the road Yoshinori Noritake was staring at in Bangalore seemed forbidding. The chief engineer now for Toyota’s passenger vehicles division, he tugged uncomfortably at his custom made suit. The Peace Boulevard in Hiroshima seemed a distant dream from another time. But with the precision characteristic of Toyota, the company he works for, he positioned himself at that great icon of Indian democracy — the traffic signal.

Through the chaos, he could see monstrous trucks hold court with quaint auto-rickshaws; government buses enforce the iron hand of the state; faux SUVs air-kiss the real McCoys; taxis in the middle of a mutiny and small cars organising a mobocracy; handcarts, pushcarts and cyclists seemed desperate to secede, but nobody gave a damn really.

Strange place, Noritake thought. Why do Indian drivers change lanes so often? How do they plough through forces that accompany constant acceleration and deceleration? Why do people try and fit cars into every empty space on the road? Why is parking a car tougher in India than driving it? When a car is started after it has been parked on an incline for a night, what happens to its lifespan?

The more Noritake thought, the more he realised how right, how astute, Kazuo Okamoto had been in that meeting — about a small car — four years ago at Toyota City in Japan.

Summons from the Sensei
2005 was a lovely year. People all over the world were bracing for a bull run. India’s domestic consumption and China’s investment boom were being spoken of with awe and envy in corridors that mattered, including Okamoto’s office. The world knew of him as an automobile engineer par excellence. Inside Toyota, everyone knew him as the Keeper of the seal of Corolla — their best-selling model ever. In the forty-odd years it’s been around, Toyota has sold a Corolla every 40 seconds. This, incidentally, makes it the world’s best-selling car ever as well.

The emergence of BRIC countries, especially India was both exciting and disturbing to him. Disturbing because Toyota was a non-entity in these markets and exciting because it seemed as good a time as any to make a fresh play.

He knew Toyota had a problem in emerging markets. Almost every automobile manufacturer in the world had come to terms with the potential of this region. For some like Fiat, it was simply about survival. For others like Ford, it was fait accompli. “If you are not here in the right segments, you’re never going to be a winner,” says Michael Boneham, managing director at Ford India. It took the company 13 years to get its act together in the country with the launch of Figo recently. Ford now sells more than 6,000 units of the model every month.

Then there’s Volkswagen, Toyota’s closest rival. It is the market leader in China, the world’s largest automotive market and among the top five manufacturers by market share in Brazil and France. It was sniping at Toyota’s indomitable position.

Okamoto’s problem was Toyota didn’t have any compact cars in its portfolio at a price point it could sell to customers in emerging markets. That is why he summoned a young Noritake and asked him to assess the potential of a low cost car for emerging markets; something Toyota had never done before. What it did know, like most other manufacturers, was to build cars for the developed world. The developing world was dealt with by delivering watered down copies, which, with hindsight, was not exactly the smartest thing to do. As Carlos Ghosn, CEO of Renault Nissan once said, if you ask designers with Western sensibilities to build a small car, they’ll inevitably come up with something beautiful, but at thrice the price what an emerging market customer can pay.

It was a sentiment Okamoto had come around to believing as well. And he wanted his engineers to figure how to make a good quality, low cost car. “That was my homework from him,” says Noritake. Towards the end of that year, Noritake proposed a rough plan that outlined how things could be done. The plan found its way to Katsuaki Watanabe, then the president of Toyota Motor Company (TMC), who quite liked what he saw and promptly dispatched Noritake to Bangalore in early 2006 for the first time to start work on an entry size family car (EFC).

Now called the Etios, it is ready to roll from showrooms in India for emerging markets across the world on December 1. Toyota believes its engineers have built a ‘Corolla’ that will see the company through the rest of this century.

Click On the Image for more details

Toyota Has One Small Car and Many Big Plans

Passage to India
Since the time Noritake took his first flight to India in 2006, he’s visited the country at least 60 times. “I thought India is a warm country, but was surprised to see snow in the North,” he says. Kochi surprised him as well because he never imagined he’d see Chinese fishing nets there.

Toyota Has One Small Car and Many Big Plans

 

But the backwaters also remind him of home, where he spent his boyhood days watching ships sail by. Over time though, he figured the circadian rhythms of Indian life. “I prefer roti instead of steamed rice with curry,” he says. Another matter altogether he still doesn’t understand why dry days exist.

He now knows Indians try to accommodate as many people as they can into a car. His travels across the length and breadth of the nation showed him how unpredictable roads are. He figured as countries go, this is perhaps the most value-conscious nation in the world. He picked up the subtle nuances as well. For instance, that many Indians take their shoes off once inside the car. In the final reckoning, it translated into protectors on the rails that front seats slide on to prevent injuries.

He even knows how Indians rest their posteriors on a car seat. Engineers tracked that for him with monitors and eventually designed flat bench seats that can comfortably accommodate three adults at the back, points out Sandeep Singh, joint MD at Toyota Kirloskar Motors. They worked on the headliner and door trim to make it easier for large, Indian families. The suspension was moved away from the cabin to create space efficient interiors and luggage areas.

Sure, many automobile companies claim such attention to detail. But what Toyota does well is to take all of these details and use it to build globally viable platforms. Take the Innovative International Multi Purpose Vehicle (IMV) for instance. In 2004, Toyota initiated the project to create a global manufacturing and supply strategy for pickup trucks and multipurpose vehicles. When rolled out, Toyota reckoned it could reach out to 140 countries worldwide. It set up base in Thailand where it built diesel engines. The petrol versions were put together in Indonesia and transmission systems in the Philippines and India. All of this was finally assembled in Thailand. What finally emerged were successful cars like the Innova, Fortuner and the Hi-lux pick-ups. Earlier this year, Toyta announced Thailand’s IMV exports crossed one million vehicles.

Honey, I Shrunk the Costs
Experts believe the Etios platform is designed on similar lines. “Etios is the cheapest vehicle Toyota has built to date. Learning from its development in terms of engineering, sourcing and keeping costs down could very well be applied to the development of future Toyota platforms,” says Ammar Master, senior analyst at JD Power Asia, a research and consulting firm.

To get here, Toyota’s engineers have had to question every assumption they’ve worked on until now. As Noritake puts it, there are several things that go into a car, which often doesn’t stand up to close scrutiny. Some parts he says are over-engineered. The focus then shifts to simplifying the design until it does just what it is meant to do — nothing more, nothing less.
For instance, does the car need to be as agile as European cars that need to negotiate tricky roads of the kind found in the Alps? Short answer, no! So why build cars on the back of standards that incorporate these demands as well. Instead, why not set targets for each component to perform in conditions specific only to India? When engineered from that perspective, wastage drops dramatically and directly impacts the cost involved.
Toyota Has One Small Car and Many Big Plans

At Toyota’s factory in India, there’s a machine that only a few have access to. Built by Toyoda Gosei, an ancillary manufacturer for Toyota, this is just the fifth machine of its kind to be built, especially for the Etios project. Its claim to fame is that it uses just 40 percent of the power as compared to others in the market to make bumpers for the car. Says Vikram Kirloskar, vice chairman Toyota Kirloskar Motors (TKM): “They are perfectionists about even the nuts that go into a car.”

Localisation has helped as well. Both the engines and the transmission for the Etios will be manufactured in India. Toyota put in a lot of effort of changing the drawings of the parts that go in the car to suit the skill sets of Indian suppliers who’ve been involved in this project right from the design stage — like Tata Johnson Controls (TJC), a seat manufacturer based out of Pune.

Working on small contracts for the Tata group, TJC harboured dreams of working with the largest automobile manufacturer in the world. It proactively engaged Toyota, meeting the company’s executives in Japan and presenting them with designs it had developed. Toyota was impressed by the quality of TJC’s work. But the problem was in India, it already had a subsidiary manufacturing seats for its vehicles. But it made an exception for the Etios project and signed on with TJC.

Toyota Has One Small Car and Many Big Plans
Image: Amit Verma
INCREASING ITS INDIA FOOTPRINT A Toyota showroom in Delhi

TJC is now preparing to enter the mass volume segment with the launch of the Etios. “Often, if there is any problem or issue, customers have told me I’m the supplier and it’s my problem. But with Toyota, it is bad news first. Let’s sit together and come out of it without hurting each other,” says Ashok Belani, CEO, TJC.

Noritake calls it the simplified structure for vehicle development. While the basic design itself is the same, whether it is for Japan or India, specifications change depending on the market it ought to cater to. If the Eitos is manufactured for India, the size of the vehicle matters because of congested roads, narrow spaces and parking areas. In China though, the dictum is the bigger the better. “That’s why if we manufacture the EFC we can add certain specifications like performance and we can export to other countries for Asian area, for Eastern Europe or something and also Latin America. It can’t go to Europe right now but they have the potential to add some (specifications),” says Noritake.

As things turn out, the Etios has been designed and developed completely for the Indian market. In many ways than one this reflects the strategy of Akio Toyoda; in 2009, at a news conference after taking over as President of the company, Toyoda, referred to Toyota’s past growth strategy as “growth that is larger than the size of the company.” But he added, “We will place more emphasis on each market. We tried to make full lineups in every region, but from now on we’re going to focus more on necessary lineups for each.” The car was given the final certification only after Akio Toyoda had driven it himself.

Any Takers?
Not surprisingly, competitors are wary. “Toyota is certainly a company to watch out for because whichever market or segment it enters, it completely redefines it in terms of quality, customer satisfaction and cost,” says a rival automaker who did not wish to be identified.

There are critics as well like B.V.R. Subbu, former CEO of Hyundai in India, who argue Toyota will find the going tough because it is the last entrant.

“It is unbecoming of a company which is a global leader to be such a follower in India. Unless they really create on-the-ground capacity, it is unlikely they will be able to compete with the likes of Suzuki or Hyundai or Tata Motors,” he argues.

He is also convinced the Toyota brand name is no longer synonymous with quality after the global recall woes the company has had and Indians will understand that. That, he says, will eventually mean Toyota cannot attempt to price itself higher.

Counters Sandeep Singh of Toyota that the way things are, they are present only in 15 percent of the Indian market. People in semi-urban and rural areas don’t know about Toyota yet he says. Sometimes they don’t know the difference between a Toyota and Tata. Are they the same animal or different entities? “They are going to be our customers,” says Singh. Toyota Has One Small Car and Many Big Plans

But, instead of launching a full scale marketing campaign to announce the coming of the Etios, Toyota visited 25 cities in India carrying with them all cars it currently sells in India: the Innova, Corolla, Camry, Fortuner, Etios and even the Prius.

A few inputs from customers on the Etios convinced Noritake to incorporate changes in the Etios at such a late stage of vehicle development. He claims 60,000 people visited these road shows across 25 locations and 54,000 people articulated their interest in acquiring the Eitos. He says. “We have 54,000 people who intend to buy this car and they don’t even know how much it will cost,” says Singh.

Toyota has beefed up its distribution muscle to handle the expected volumes. From 82 dealers in 2008, Toyota will have 150 dealer outlets by 2010 end. “We are not in a hurry. We are never in a hurry. That is how we are built; never look at market share, always look at what the customer feels about you,” adds Singh.

Coda
As for Yoshinori Noritake he is mostly done. He just has two items on his to-do list. The first one can be taken care quickly. He wants to see the Taj Mahal. The second might a bit longer. “Someday, I would like to see India where streets are full of cars without scratches and damages,” he says.

(This story appears in the 19 November, 2010 issue of Forbes India. To visit our Archives, click here.)