Small or low-cost cars are a tough nut for manufacturers to crack. Margins are thin and what works in emerging markets may not work as well in mature markets. Hence the efforts of manufacturers to develop low-cost car strategies – with products pitched squarely at growing demand in emerging markets.
It’s not straightforward. Emerging markets are pretty diverse, from both a demand and supply perspective. With that in mind, you need to be able to enter these markets with something that is right for that particular market; the right product at the right production cost – with a plausible volume projection plan – and the right sticker price (after all taxes). A thought through manufacturing, distribution and brand positioning strategy has to be married to the simple and seductive urge to get product in urgently to meet growing demand. And if you can learn, through local assembly operations, about the local supplier industry, get some lessons and insights that are more broadly relevant, great.
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Rushing in for first-mover advantage can work, of course (look at the GM and VW joint ventures in China; that hasn’t been a place to hang around), but it isn’t always a successful strategy if not well executed. I was reminded of that when looking at India last week and the news that Toyota has finally developed a mass-market car – the Etios – just for that market.
Is Toyota a little late to this game in India? It’s a debatable question, but others – Fiat and Renault spring to mind – have perhaps rushed in and had their fingers burned. Fiat has found that a collaborative deal with Tata Motors has brought it much less benefit than it had expected, sales of Fiats distributed via Tata in India lagging well under forecasts. Whatever has gone wrong, Fiat is now looking to learn from mistakes and change a few things – though it is treading carefully over its arrangement with Tata.
Renault made the fatal error of introducing, while working with Mahindra, a car in India – the Logan – blessed with dimensions that took it over a crucial tax threshold and made it very expensive. As the unhappy mess unfurled, relations with Mahindra suffered, too.
Toyota has clearly not rushed in to India. It has a fairly modest local manufacturing base and is now launching the Etios small sedan – clearly conceived to be competitive against market leading Suzuki-Maruti products, while also positioning Toyota as a relatively upscale brand in this segment (for a bigger margin). Now might be the right time for that strategy, with the Indian market larger than a few years ago and becoming more used to new makes and models. A new plant has been built, dedicated to Etios and thus crystallising the manufacturing strategy for the new model.
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By GlobalDataRevealing the painstaking preparations for this car, Etios chief engineer, Yoshinori Noritake, said at the New Delhi Show at the beginning of this year: “I visited many Indian cities and homes to learn the market and to hear from the consumer directly. Over four years, more than 2,000 engineers have been involved in the development [of Etios].”
An Etios hatchback and diesel engine are to follow, enabling Toyota to further meet market needs with the range and build volume and interest further out. Is it a good car, well-executed and at the right price? We’ll see. The sales numbers won’t lie, but Toyota certainly hasn’t rushed things and that suggests it hasn’t cut corners with preparation to launch a key model in a key market. It may even have learned from others’ mistakes.
INDIA: Toyota Etios to debut on 1 December
NEW DELHI SHOW: Toyota reveals its emerging markets car
Low-Cost Cars – a global review of markets, programmes and makers
