Close [X]

Toyota : The Etios story

img
img
img
img

In 1989, Toyota launched the Lexus at the top end of the market. In 2005, it came out with the IMV platform on which were launched the Innova multi-purpose vehicle, the Fortuner sports utility vehicle and the Hilux pickup truck.

Both proved to be game changers for the world’s largest car maker. The Lexus gave it an entry into the luxury market, while the IMV vehicles helped it grow in the emerging markets of Asia, Africa and South America.


No less important will be the launch of the Etios in India some time towards the end of the year, says Toyota Kirloskar Motor Pvt Ltd (Toyota’s 89:11 joint venture with the Kirolskars) Deputy Managing Director Sandeep Singh. The reasons are elementary: It will help Toyota gain critical mass in a large market (estimated size: 3 million in 2010-11), and the platform could yield more cars for other emerging markets in the days to come. 

Fuel efficiency and the cost of ownership, experts will tell you, make or break a car in India. This is why Maruti Suzuki has done so well in the country. Singh says that the life of all Toyota parts is long, which reduces the need for replacements. “We have proved that Toyota cars require very low maintenance. That’s why their resale value is the highest. For a five-year old Innova, the erosion in value is just 30 to 40 per cent. A 10-year old Qualis fetches 50 per cent of the original value; a five-year old Qualis can get 70 to 80 per cent.”

The right price
Much will also depend on the price tag Toyota puts on the Etios. The car maker has so far kept the rice under wraps. Singh says the hatchback will be targeted at young executives with a take home salary of Rs 30,000 to Rs 50,000 per month, and the sedan at those with a salary of Rs 75,000 per month and above. Experts say that Toyota, because of its brand equity, can command a premium, though it can’t be very high. “Toyota does command a premium of 5 to 7 per cent over others,” says Synovate India Associate Director & Head of Motoresearch Sumit Arora. “But the example of the Honda Jazz shows that consumers are not willing to pay a hefty premium for a hatchback.”

But even Toyota knows that there are limits to strategic pricing. That’s what deters it from launching a small car in India, though it does have in its portfolio the Yaris and the Daihatsu range. “Toyota is not looking to develop a low-cost car for India at this moment because it believes that, given the standards it wants to maintain, it is very difficult to develop a car at those prices,” says Singh. Toyota knows this means that it will have to play second fiddle to rivals like Maruti Suzuki for several years. But it is willing to wait.

The most vital link in the Etios gameplan is the Toyota dealer. The company has raised the number of dealers from 40 to 60 and the number of sale and service points from 82 to 150 in the last two years. The numbers might look small but, Singh claims, cover almost 85 per cent of the market. Apart from land, a Toyota dealership can cost as much as Rs 30 crore. To keep the dealers happy, Toyota gives them higher profit margins of 4 per cent on cars (industry norm is 3 to 3.5 per cent) and 18 to 20 per cent on spares (industry: 15 per cent). Eighty per cent of the owners bring their cars to a Toyota authorised station for service in the warranty period (industry: 50 to 60 per cent), which falls to 70 per cent after the warranty (industry: 30 to 40 per cent). This keeps the cash registers ringing.

Also, conversion of footfalls in Toyota dealerships is 32 per cent, way above the industry average of 20 per cent. All prospective customers are required to take a test drive, though 70 to 80 per cent actually do that — this way customers can feel the difference in the drive quality. Still, claims Singh, this is better than the industry practice of 30-40 per cent. All cars meant for test drives are replaced within two years. “We train everybody in the dealership, even the doorman and the attendant who serves tea,” says Singh.

Still, Singh says that breakeven for a Toyota dealer can take up to seven years, higher than the industry norm of four to five years. The missing link here, according to Singh, is the appreciation in the value of the asset. Most of the initial Toyota dealers were encouraged to set up large dealerships in the fringes of the city, away from downtown, to keep the real estate cost down. Many of them, Singh says, have now come inside the fast-expanding city. “So far, only one dealer has left us, and 99 per cent of our dealers have expanded,” says Singh. The dealers are important for another reason: Till date, Toyota has sold 460,000 vehicles in India to around 320,000 customers. This base will be tapped for the Etios. “We hope to get 50 per cent of the Etios volumes from our existing customers,” says Singh.

The customer, says Singh, is central in Toyota’s worldview. The company therefore no longer talks about market share targets. It clearly is a long-term player.