Toyota Kirloskar Motor Pvt. Ltd announced today that the company will no longer produce small cars in the Indian market. The announcement was made by company vice-chairman, Vikram Kirloskar, today in Mumbai, India. Instead, the company will focus on bigger car models in the region.
According to a report by Live Mint, the small car market in India accounts for 50% of cars sold there. However, few manufacturers have been able to enter this production segment. Cars that coss less than RS.4 lakh include the Maruti Suzuki India Ltd’s Alto and WagonR and Hyundai Motor India Ltd’s Eion and i10.
The decision for Toyota to no longer produce small cars in the Indian market was because the game plan for the company in Toyota has changed, according to Kirloskar. Currently, the cheapest car that Toyota offers in India is the Liva Hatchback, which costs RS.4.80 lakh. Kirloskar expressed that Toyota was unable to figure out how to break the cost-barrier in the smaller car segment in India, saying, “Mass market segment is not for Toyota. I think Toyota’s game will be in bigger car segments such as Corollas and Innovas segment. We have tried hard to break the cost-barrier in the small car segment but we have just not been able to do so.”
A consultant and senior research analyst at IHS named, Anil Sharma, added: “I think it’s a very big statement made by the Toyota vice-chairman. It also indicates what their strategy is going to be. It means focusing on pedigree business for more margins. But questions will be raised if they are giving up too early on small car segments.”
Through this move of focusing on producing bigger cars, Toyota hopes to fetch higher profit margins. Kirkloskar reinforced that Toyota’s plan for India is clear, and they play on introducing a significant amount of new models soon, saying, “Toyota will bounce back into the game very shortly. We have a lot of models coming in. If you have studied our journey so far, it has always been cyclical.”
This announcement comes after a market share decline for Toyota in India. Rival company Honda Cars India Ltd had a sales rise in the last fiscal year with the introduction of the Amaze and the City. Toyota’s market share overall decreased from one percentage point to 5.18%. In addition, their sales for vehicles had a sharp drop of 22.2%. The overall market sales for vehicles dropped by 6% during the last fiscal year.
Toyota’s next two models to be released in India will be the Corolla Altis and the Etios crossover. Live Mint reports that Kirloskar’s plants at Bidadi and Bangalore are now going through labor issues. There is currently a stalemate between Toyota management and the company’s labor union after protesting workers refused to return to work after a plant lockout on March 16 ended on March 24. The lockout was done as a safety measure, so the plant would ensure worker safety. Kirloskar said on the stalemate: “We hope to end the stalemate by Monday. It has to be done as soon as possible as we have a couple of new models to be launched during June and July. We already have order backlog for those models, even before we announced the prices for these products. So, we don’t want to be caught on the wrong foot.” Kirloskar stated that Toyota Kirloskar Motor would offer workers a new settlement plan soon, which is said to include an increase of Rs.3,100 in their monthly pay for the year. The workers asked for an increase of at least RS.4,100 in their demands.
For now, Toyota in India has announced their intent to no longer produce small cars in the Indian market. The company will continue to produce models such as the Innova, Fortuner, Corolla, Camry, and Etios, but it also appears that Vikram Kirloskar will have to resolve this major labor issue before production can resume.
By Jeffrey Harris