Toyota steps on the gas for small cars

There was a common India link to two important announcements made by Toyota earlier this month on October 4, it announced that it was setting up an internal company with its wholly-owned arm, Daihatsu, which would focus on compact vehicles for emerging markets. One did not need a crystal ball to deduce that India would be part of this drive given its rapidly growing status in the global automotive arena.

Less than a week later, Toyota was back in the news and this time with another Japanese counterpart to explore a technical collaboration. The ally in this case was Suzuki Motor Corporation whose association with India goes back to the early 1980s when it first set up Maruti, with the Centre that would go on to become a super success story.

Given this backdrop, it was interesting to see two top guns in the form of Akio Toyoda and Osamu Suzuki personally present to break the news of this alliance. As the Toyota President and CEO said, carmakers were required to work on the R&D of advanced and future technologies apart from efforts to tackle environmental and energy issues and ensure safety and security.

Yet, the biggest limitation was the R&D which each company does individually which meant collaboration was the way forward. This is where a candid Toyoda made an interesting point. “At the joint news conference held with Daihatsu earlier this year, I said that Toyota is not really good at creating alliances. Traditionally, Toyota had been fixated on the need to be able to cover all of our own bases,” said Toyoda. “However, as the surrounding environment is changing drastically, we need to have capability to respond to changes in order to survive.”

He also spoke of Daihatsu which would take on a central role in Toyota’s compact car business for emerging markets. “Based on this understanding, we will proceed with discussions about partnership opportunities with Suzuki, while taking applicable regulations into account,” said Toyoda.

Toyota’s India tenure has not been as breathtaking as Suzuki and it will be fair to say that it first blazed a trail with the Qualis and, subsequently, the Innova. Prior to that, it had entered this market in the 1980s along with a clutch of other Japanese automakers to be part of the light commercial vehicle wave. This fizzled out when the Tata 407 literally blew everyone out of the arena.

Toyota’s second innings was better thought out which also put the success of Qualis in perspective while the Innova has emerged the strongest brand from its stable. Yet, the small car quest has been elusive despite an attempt to crack the bastion with the Etios Liva.

In a market dominated by Maruti and Hyundai, Toyota has now decided to step on the gas where Daihatsu will be its key driver. As the company has stated on its website, the joint internal entity to be established in January 2017 will be responsible for compact vehicles in emerging markets, right from product planning to production preparation. It goes on to add that this will be based on Daihatsu’s approach to manufacturing affordable, high-quality products for emerging markets, in which the “potential for growth is high but in which competition is intensifying”.

Daihatsu will basically be responsible for unified development, procurement and production preparation for compact vehicles for emerging markets based on “DNGA”, a Daihatsu vehicle architecture now being defined. Toyota will support these efforts by providing knowledge and resources. Both companies will jointly formulate and share product and business plans. In addition, they will put their existing production bases to mutually effective use.

Daihatsu is expected to take the lead in the internal company, which will bridge areas of both Daihatsu and Toyota. As such, this entity will be positioned differently from the so-called companies of the product-based in-house company system Toyota introduced for its work processes in April 2016. The two will implement a strategy of ‘selection and concentration’ for globally advancing the making of ever-better cars.

There is no question that India will be an integral part of this plan where the lessons from Etios Liva will be critical. It also remains to be seen how issues like branding and retail will be worked out. Finally, whether Suzuki will end up playing a role here is the million dollar question.

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