In a significant and potentially risky move in an Indian market that global automakers use as a test-bed for smaller, no-frills cars, Toyota Motor Corp is betting on pricier premium models, offering better safety and quality.
The Japanese automaker has been in India for almost two decades, but has failed to displace rivals Maruti Suzuki and Hyundai Motor, which together control around two-thirds of a market skewed towards cars costing less than $7,000.
Now, Toyota aims to buck that trend by focussing on quality over quantity.
Naomi Ishii, managing director of Toyota's India unit Toyota Kirloskar Motor, reckons providing dual air bags as standard features will sell core models like the family-friendly Innova MPV and upmarket Fortuner sport utility vehicle - and also help boost Toyota's 5% share of the world's sixth-largest auto market.
"We don't want to ... just introduce a price-competitive car," Ishii said, at Toyota's India headquarters in Bengaluru.
"In case we introduce a smaller car, it should have very advanced features in safety, fuel efficiency and exhaust emissions. The price might be higher, but we can show this is the direction," he added.
Ishii, 50, was brought in from Japan last year to head up the Indian operations and form a mid- to long-term strategy for the market.
As the India strategy takes shape, Toyota's two new launches in the next three years will aim at the higher end, where wealthier middle-class Indians want safety and quality rather than just a brash sound system.
People familiar with the company say Toyota will launch a compact utility vehicle and a sedan -- most likely the Vios, to compete with Honda Motor's popular City.
Ishii declined to comment on the specific launches.
Industry consultant IHS predicts Toyota could sell up to 30,000 of the sedans a year, and up to 50,000 of the compact utility vehicles.
Toyota could be shifting its focus to the premium segment ahead of introducing its mini-car affiliate Daihatsu Motor to India, said Kaushik Madhavan, automotive head at Frost & Sullivan.
"As a brand, Toyota's not expected to play in the lower segment, but it could have an offering from a different name," he said.
Toyota and Daihatsu dominate in Indonesia, another big emerging market. Ishii does not rule out working with Daihatsu to crack India's lower-end car segment, but said there are no immediate plans.
THE 'TOYOTA WAY'
A straight-shooter, according to employees, Ishii is reinforcing the "Toyota Way", delegating more responsibility to staff, encouraging them to set targets, identify problems and provide solutions.
He sees most of Toyota's existing product range in the premium segment, and doesn't want to lose any of the company's 1.1 million customers, who, he says, increasingly want more eco-friendly and technologically advanced cars.
Some customers may want these features in smaller cars, and Toyota will address that in its future product planning for India, he added. But, N. Raja, head of sales and marketing at Toyota Kirloskar, said the company will not launch a car priced below Rs. 500,000 ($7,555).
Maruti's top-seller, the Alto, starts at just Rs. 250,000, while Renault has launched its Kwid mini-car priced from Rs. 270,000.
"REALLY HAVE TO MODERNISE"
Toyota has struggled in India partly because it has been unable to make more of its parts locally, unlike Suzuki Motor, which has reduced its costs and cut its prices.
Toyota launched its first no-frills car, the Etios sedan, in 2010 and, a year later, the Liva hatchback. In trying to control costs and keep the price low, the company was criticised for compromising on quality and finish. Sales did not take off as expected, hurting plant utilisation levels.
Analysts say that a wealthier population, and government plans to tighten safety and emissions rules should help Toyota. However, a shift upmarket is not without risk in a country where low wages mean no-frills cars make up some 60% of total sales.
"Indian consumers perceive Toyota as a brand with quality, and that comes at a cost," Puneet Gupta, senior associate at consultant IHS Automotive, said.
"If Toyota is not in the mass segment ... the big risk is if the market starts growing at 15-20 percent, Toyota may not have the dealer network and supplier back-up that is required," he added.
Ishii wants Toyota to double its Indian customer base by 2020 - suggesting it will need to sell one million cars over the next five years. By then, India is expected to be the world's third-largest market with annual sales of 5 million cars.
Toyota sold 141,347 vehicles in the year to end-March - a fraction of the 1.2 million sold by Maruti.
Last fiscal year, Toyota turned a profit in India, ending three straight years of losses, and held on to its 5% market share.
"The way I see the future of the Indian car market... is that we really have to modernise," Ishii said.
