There is no stability in government policy: MD of Toyota Kirloskar

Toyota Kirloskar Motor, which started making cars in India in 1999, is set to increase production capacity at its plant in Bidadi, near Bangalore, to 310,000 units by March 2013. Toyota is also preparing to launch the Camry in India in August. Managing Director Hiroshi Nakagawa chatted with K.R. Balasubramanyam of Business Today about Toyota's future in India and the challenges it faces. He was joined by Sandeep Singh, Toyota Kirloskar's Deputy Managing Director who oversees marketing. Edited excerpts from the conversation:
 
How is it going for Toyota in India?
Nakagawa: I am here in Bangalore, India, for four and half years. So far, our business in India is doing well. This is a promising market, with some fluctuations. Talking about overall global market, and overall Toyota operation, Japan, the US and Europe are big markets, but these markets are stabilising from almost no growth. Globally, Toyota is focusing on emerging markets especially India, China and South American countries like Brazil. Of course, I am in charge of India business and have a huge pressure from the headquarters (laughs), but I enjoy the pressure very much.
 
How much does India contribute to your global revenues?
Nakagawa: Not so much. The overall sales of Toyota last year were close to eight million and India's was 131,000. Volume- and contribution-wise, India is not big, but in terms of the speed of growth, India is a big contributor.
 
What are your plans for expansion?
Nakagawa: Our basic policy is to move step by step, because the car business is a business of scale. We need to hire people in huge numbers. We have already reached 6,000 plus. Also, we need good supplier and dealer networks. We are a bit conservative compared to other car manufacturers. We should take care of suppliers, dealers and employees nicely.

At the same time, our history is just 10 years plus in India. We are a very young company (laughs) and we have now got enough experience in India - the market, roads, and customers. Honestly, India is one of the difficult markets, challenging because every customer is very conscious of the cost. You have both good roads and not-so-good roads.

We have gained knowledge from the customer experience over the last decade, and this is our Toyota way. End of the day, we follow the step-by-step approach to customer satisfaction. Now, we have introduced Etios and Liva in the mass market. We are going mainstream with 10 years of experience. We are very happy about Etios and Liva. It has shaped up better than our original target. But we will keep on raising the bar on quality.
 
Are you planning for a vehicle just for the rural segment?
Nakagawa, with input from Sandeep Singh: No. Toyota focuses on meeting all requirements in one vehicle. For instance, Etios is for both goods and bad roads. From day one, Qualis was meant also for semi-urban and rural areas. The Innova is used everywhere. All our products are suitable for urban, semi-urban and rural areas. They are rugged and reliable, and are meeting customer expectations. If you look at Fortuner, too, the demand from semi-urban areas is huge, especially from farmers, traders and politicians.

Today, the agricultural economy is doing very well. Many big farmers are buying vehicles like Innova and Fortuner. In fact, we were also a little surprised. Because of Etios, we had to expand ourselves and open dealerships in semi-urban areas. We got demand not only for Etios, but also Innova and Fortuner.
 
There is a perception that your dealer network is not large enough.
Sandeep Singh: We are expanding rapidly in semi-urban and rural areas. Because Etios and Liva are mass market vehicles, we need to get closer to the customer and quickly. Two years ago, we had 90-odd dealers. Today we have 173, and by March next year, we will have 225 outlets.
 
You have a long waiting period.
Sandeep Singh: The waiting period is actually coming down as we have increased capacity for Innova and Fortuner. Innova sales have recorded 40 per cent growth. The waiting period for it has dropped from nearly five months to two months. Innova production will go up 35 per cent.

We have two plants at Bidadi. By March next year, we will increase the production capacity at our first plant from 90,000 vehicles to 100,000 vehicles and at the second plant from 120,000 to 210,000. Together, the capacity will go up from 210,000 to 310,000.
 
How do your Bangalore plants compare with other Toyota plants on efficiency?
Nakagawa: Both our plants at Bidadi have reached an efficiency level of 95 per cent. That is very high. In Japan also, the efficiency level is 95 or 96. We have reached the highest level of efficiency.

We cannot compare only on the basis of efficiency ratio. Our operations level is one of the best. Quality is one of the highest. We periodically receive the audit from the headquarters of Toyota, Japan. According to Toyota's shipping quality audit, this is the best plant compared to other plants worldwide. That means we deliver the highest quality vehicles to customers.
 
Any plans to bring Lexus to India as a 'completely built up' (CBU) unit?
Nakagawa: Yes. That is very much under discussion. We have not yet reached a conclusion.
 
What about getting the Land Cruiser and Prado in semi knocked down form?
Nakagawa: They will continue to be imported as CBUs. But we will produce Camry from this year. We will import components and assemble it here. By the end of July, we will start assembling the Camry here and launch it in August. Some portion will be localised. In India, the market for Camry is very small.

We will also import our hybrid vehicle, Prius in small numbers, as per customer orders.
 
To what extent have you localised your vehicles?
Nakagawa: One good example of localisation is Etios. Our latest localisation ratio is 70 per cent for Etios. By the end of this year - March 2013 - we will reach 90 per cent localisation in Etios and Liva petrol variants. Then the remaining 10 per cent. I am very keen on localising more and more.

Our final goal is 100 per cent localisation, but the difficulty remains. You will still require some advanced material like a sensor or a chip. No manufacturer has achieved 100 per cent. Localisation, however, is different for each model. In Innova and Fortuner, the average localisation is 50 per cent, and we want to take it higher.
 
You import a lot. What is the effect of the rupee's downslide?
Nakagawa: Of late, one of our challenges is the weakening Indian rupee. Today, it is Rs 54.50 to the US dollar. We import a lot. So we have to maximise localisation. That is good for business and good for our customers as well.

On the other hand, I sincerely ask the government: please control the forex rate. Otherwise, not only the car business but other businesses too will be affected. In most of the materials, especially oil imports, Indians will lose out. This is not only hurting us but affecting the country as a whole.
 
What about your product mix in terms of petrol and diesel cars?
Sandeep Singh: In the passenger car segment, in Corolla, we are almost 50: 50 in petrol and diesel car sales.

In the case of Etios and Liva, we are 70 per cent diesel and 30 per cent petrol, whereas the market demand is 85 for diesel and 15 for petrol. We are able to buck that trend also. We have done many activities in terms of educating customers on what vehicle to buy. The trend had started where everyone wanted a diesel car. Even if one drove 25 km a day, he wanted a diesel car. We have been able to educate people, and so our ratio is better than the competition. It is a challenge. I am sure the government will do something to address this.
 
Are you able to adjust your production according to market dynamics?
Nakagawa: To adjust, you need to plan well in advance. But every day there is some kind of statement. There is no stability in policy. That is what the main cause of concern is.
 
What about exports from India?
Nakagawa: We just started Etios exports to South Africa. Now we are going to deliver to customers there. We hope to get a good response there. Our main focus is the Indian market.
 
Any new vehicles for the mass segment?
Nakagawa: We are focusing on Etios and Liva for the mass market. Except Camry, we have no plans for this year.
 
What challenges do you see in the coming days?
Nakagawa: It is going to be about how to train and educate and create nice people in our organisation. Only quality people can provide quality products, quality services, quality parts. At all our touch points, we must deliver a good experience - the Toyota experience - to customers. For that, we must generate quality people. That is the biggest challenge we are facing.

Sandeep Singh: Today the biggest challenge is manpower. We can produce good quality vehicles, good systems and processes, but at the end of the day, it has to be delivered by people. That is where we are focusing.