Q&A: Hiroshi Nakagawa, MD, Toyota Kirloskar Motor


Hiroshi NakagawaAfter the tsunami and earthquake in Japan, which saw production levels at Toyota Kirloskar Motor (TKM) dipping by 70 per cent for nearly a month, the company is steadily getting back on its feet. While Rs 300 crore is being infused to enhance capacity by 40 per cent at the existing plants in Bidadi, Karnataka, the much-awaited small car from the Toyota fold, Liva, will hit the streets by the end of the month. Managing Director Hiroshi Nakagawa tells Sharmistha Mukherjee, with developed countries offering limited growth potential, emerging markets such as India is “our hope for the future”. Edited excerpts :

With markets across the world showing slow signs of recovery, how are sales faring for Toyota globally?
Globally, Toyota is facing a difficult situation. In mature markets, such as Europe and Japan, there is little possibility of growth. Our focus is to encourage sales activity in Brazil, India, Russia and China. Developed markets worldwide are mostly stable, at times showing some signs of growth. Our hope for the future is India and other emerging markets.

In India, the automobile industry grew by a mere seven per cent last month, the slowest in two years. What is the outlook for Toyota in the country?
The rate of growth has definitely slowed down, but strong demand still exists. Last year, the industry grew by 30 per cent. In the first five months of this year, sales have grown by 17 per cent. The rise in petrol prices and interest rates has impacted car sales. But over the mid-term, we see a lot of opportunity in the market in India.

The crisis in Japan compelled TKM to slash production by 70 per cent for nearly a month. Would the loss affect your sales target?
We had earlier said we would sell 150,000 units in 2011 on the back of demand for cars from the Etios family. We lost around 10,000 units due to the production cut in April-May. Now our operations are normal. We are looking at ending the year by selling 140,000 units, which would translate into a growth of 65-70 per cent over last year.

Are you considering sourcing from alternate facilities to de-risk component supply from Japan?
There is no change in our sourcing policy. Our operations were impacted due to the crisis in Japan, but nobody can forecast such calamities. No such thing had happened in the last 100 years. We source IC chip and some electronic components from Japan. But we also have suppliers in Taiwan, Indonesia and Thailand. TKM has decided to improve localisation levels of the cars we sell in India. But this decision was taken much before the crisis happened in Japan.

With improved localisation levels in Toyota cars, how much would sourcing go up from India?
The Etios already has high localisation level of 70 per cent. The cars in the family are price sensitive and we are working on increasing localisation content further. TKM is setting up facilities to manufacture engines and transmissions locally. While the engine plant will become operational by the middle of next year, the transmissions plant will be functional by mid-2013. After that, the localisation content in Etios and Liva would be around 90 per cent. The idea is to maximise localisation levels in other models. Innova, Corolla and Fortuner have local content of about 50 per cent at present.

You have a waiting period on the Etios, which stretches to over two months. How would you cater to the demand for Liva once it is launched later this month?
The Etios had a waiting of six-seven months when we launched the car in December. We ramped up capacity and started a second shift at our second plant end of March. The Etios now has a waiting period of eight weeks, which will come down to below a month by the end of June. We are adjusting our model mix as per customer demand to reduce the waiting period on our cars. We don’t want the customer to wait and so we decided to launch Liva in June instead of April.

TKM is investing Rs 300 crore to increase capacity by 40 per cent to 210,000 units, which would be commissioned by mid 2012.