Feb 25, 2013 09:49 AM IST | Source: CNBC-TV18

No rush to grow; hope Budget cheers on rates, mood: Toyota

In this week's edition of The Forbes India Show on CNBC-TV18, Hiroshi Nakagawa, MD and CEO, Toyota India says that the company will grow in India step-by-step and hopes the Budget will reduce interest rates, taxes and cheer consumer sentiment.

Hiroshi Nakagawa, MD and CEO, Toyota India says the Asian auto giant will grow in India step-by-step and hopes the Budget will reduce interest rates, taxes and cheer consumer sentiment.

Toyota India has seen a number of firsts. The most recent is the design and development of the Etios and Liva for India by Indian designers and the rolling out a car-model for under Rs 5 lakh.

Below is an edited transcript of the show on CNBC-TV18

Q: The Etios and Liva are cars designed very much for India. How happy are you with the sales that they have recorded?

A: These models are one of our first that have been designed for India. These models are part of Toyota global range focusing especially on emerging markets. For the first time, we have begun to focus on the Indian consumer and the Indian market. Every aspect of India has been studied for the development of the Etios. Simultaneously we would expand this Etios model to other emerging markets. In terms of Indian market sales, I am very happy as the customers have acknowledged the challenges that we overcame.

Q: When you launched it a year and half ago I think your company said you were looking at 100,000 cars in 2012. Was that target achieved?

A: Yes. Two years ago we launched the Etios. Firstly, we launched a sedan model following a hatchback model and then followed it up with a diesel variant. In total, we achieved the original target of 100,000 cars.

Q: Could you have brought a small car into India a little earlier? You were a pioneer in the Indian market and introduced lots of segments. With the Qualis and the Innova you have really cracked open a new segment. Did you ignore the small car market for too long because that is a fast growing market?

A: Yes. The pioneers in the Indian auto industry are Maruti Suzuki, Tata Motors and Mahindra and Mahindra. We are challengers. We are still small compared to these giants. The Toyota philosophy is to grow step by step.

Q: You saw a gap in the Indian market and you introduced Qualis and Innova and then you decided to move into the small car market. Is that correct?

A: Yes. We have a kind of responsibility towards not only to customers, but also to employees, suppliers and dealers. Once we commit, we have to slowly rise and grow step by step.

Q: What do you feel about the industry today? The year 2012 was difficult. The data for the automobile industry in January revealed a highly negative picture. Toyota saw a 23 percent drop in January. When will things get better?

A: According to my understanding, India is a very promising market offering stable growth in the mid-and long-term. It is difficult to judge from last year or beginning of this year. Though the market is shaky, there is growth. However, interest rates are still high, there are difficulties related to exchange rates and a slowdown in customers’ perception to buy cars.

Q: Do you expect anything from this Budget? What would you want and what do you expect?

A: I have observed that a lot of people visit our outlets but they do not, waiting for the right moment.

Q: How can the government help you turn that interest into a purchase?

A: The government can help by contributing to the increase in the consumer’s buying power. So I look forward to some interest rate adjustment in the Union Budget.

Q: When will you say it is a good Budget?

A: The Budget will be good if it boost the customers’ buying sentiment, supports with taxation and announces measures that will enhance the auto industry.

Q: Has the downturn in the last two years affected any of your investment plans? You have two factories at the moment. There were reports that you are planning a third factory. Are you planning a third factory, do you have any investment plans in the next year or two years and are these factories running to full capacity?

A: Yes, we built an additional plant after the first reached full capacity. Now the second plant has almost reached full capacity as per plan. Together both plants rollout 310,000 units.

Q: So that is about 100,000 in the first plant and about 200,000 in the second plant?

A: Yes. We have no plan to increase investment or initiate capacity expansion.

Q: Are you planning a third plant? When will the third plant be set up, if you say that your two plants are near full capacity?

A: There are rumours, but we have no plan for a third plant.

Q: Are you going to launch any improvements in the Etios and Liva? A few customers opine that though they are good models, they do not look as luxurious inside. So, are you planning a revamp of these two models?

A: Toyota’s culture calls for continuous improvement or Kaizen. So, every moment and chance we get, we try to improve our models.

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Q: Will you launch variants of the Etios and the Liva?

A: At the moment, we are focusing on the current variants of Etios and Liva.

Q: You created a segment with the Qualis and then the Innova in what has now become the sport utility vehicle (SUV) or the multi-utility vehicle segment and the Fortuner has come in as a leader in the SUV segment. But a number of companies have launched compact SUVs- the Ertiga from Maruti, Ford has launched the EcoSport and Chevrolet has on offer the Enjoy. Do you have any plans to enter the compact SUV segment?

A: At this moment, we are focusing on Etios and Liva and other recent models. We have no such plans at this moment.

Q: There are rumours that you will bring the Rush into India?

A: It is very much a rumour.

Q: Six months ago you started manufacturing the Camry in India with a petrol engine. Why didn’t you consider a diesel engine as necessary given Indians love for diesel?

A: I know that Indian people love diesel models, but unfortunately there is no diesel variant of the Camry.

Q: There is a lot of furore in India demanding an end to the price-difference between diesel and petrol and over the years there is likely to be a phasing out of this difference. How is that affecting your marketing plans?

A: The difference in diesel and petrol prices has been caused by subsidies offered by the government which has led to the creation of a huge deficit in Budget and has turned the condition of the economy unhealthy.

In Japan, the situation was similar, but finally the difference in the price of diesel and petrol significantly narrowed and started to become market driven. We expect that in the mid-or long-term, the difference will vanish in India and prices will be market-driven.

Q: How does that affect your market strategy?

A: All our operations are highly flexible and we continuously attempt to adjust to market conditions as quickly and efficiently as possible.

Q: Are you concerned about Nissan’s plans to launch the Datsun brand?

A: Yes. A challenge of this kind new creates new customers and new markets. But for us the challenge is mainly to focus on the the B-segment and above. The A segment is huge but as customers from the A-segment shift to the B-segment and customers from the B-segment people shift to the C-segment, that challenge will impact our business.

Q: Let us talk about the D-segment or the luxury car segment which that is small but doing pretty well in India. Is the Lexus coming to India?

A: We are continuing the feasibility study for the launch Lexus. But the high import duty and luxury tax are key impediments.

Q: Your hybrid model, Prius, which remains the favourite around the world, has not done well in India neither has Honda Civic hybrid model. Is it only due to government policy? What are the reasons for these models not taking off?

A: The hybrid models have been well-accepted by the police. But the price of the turned exorbitant due to higher import duty and a few taxes.

Q: But other countries around the world provide concessions to electric cars. So, have you explained to the government about your hybrid model being the need of the hour because it’s environmentally friendly and possibly the future of the auto industry? Have you received any response from the government?

A: I was honoured to attend the launch of hybrid and electric vehicle (EV) policy by Prime Minister Manmohan Singh. Based on this policy, the government has finalised a new industry policy for the hybrid and EV sector. I look forward to the conclusion of the formulation of the policy. Vikram Kirloskar, vice-chairman, Toyota Kirloskar Motor, is one of the members of the policy-making committee.

Q: The government now says they will mandate that a certain percentage of profit should go into corporate social responsibility (CSR). You already do quite a bit of CSR. How do you see this mandated CSR spending?

A: CSR activity is very much important for us. This our responsibility as citizens. We increase our CSR activities but at the same time, I think government guidance on CSR is not suitable. We spend a fixed amount on CSR despite the amount of profit we make every year..

Q: What percentage of your profit is spent on CSR?

A: We spend a considerable amount of our profit on CSR.

Q: One of the concerns in the Indian engineering industry is the lack of trained manpower. The workforce is large, but the lack of trained manpower could turn into a bottleneck. Do you face that problem at Toyota and what are you doing to resolve it?

A: Human resource development is one of our biggest challenges in India. At our Indian operations, there are a variety of training and education systems. Indians are aggressive learners and when they are given opportunities, they become highly skilled engineers and workers.

Q: Do you have to train your workforce further or do they come fully-trained?

A: Once a person joins Toyota, from the bottom we train, teach, guide and improve.

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