As a build up to that stage, Isuzu will shift from fully imported units to CKD operations “hopefully” during this year. It is in talks with potential partners which include Hindustan Motors (HM). Isuzu is likely to utilise the idle manufacturing capacity at HM’s plant in Tiruvallur, near Chennai. According to an industry source, Isuzu had held talks with HM a few years ago too to assemble its SUV and pick-up truck at the Chennai plant.
For local production, Isuzu will install an optimum annual production capacity of 100,000 units at Sri City, an integrated business city in Andhra Pradesh’s Chittur district. It falls in the planned Chennai-Bangalore corridor. Even though the announced production capacity is 100,000, there could be some further addition as the company plans to sell 80,000 units in the domestic market and export 40,000 units annually from India by March 2016.
Isuzu plans to invest Rs 1,500 crore over five to seven years. It hopes to start with localisation of above 50 percent and reach the ultimate goal of 100 percent localised products over a span of time. This reflects Isuzu’s current mid-term strategy of establishing a presence in emerging markets while maintaining business in advanced markets. The strategy also lists developing eco-friendly products and products meeting specific needs of the emerging market which will also facilitate new market entry. Perhaps that is one of the reasons why Shigeru Wakabayashi, deputy MD, Isuzu Motors India, and his team are putting extra efforts to get feedback to their products from Indian customers and also learn what they want. According to Isuzu’s mid-term corporate plan, a low-cost LCV model is also on the cards.
Isuzu, which is Japan’s first carmaker and a leading commercial vehicle manufacturer, is one of the newest entrants to the Indian market where it has to face well-established players. But that doesn’t seem to bother Wakabayashi. “We have strong confidence that in the coming 10 years, the Indian market will expand dramatically from 3.5, 3.6 million to 10 million or 15 million units annually. In India there are so many customers who have no cars, and in the coming decade, those people will start to have cars,” he says. Though Isuzu has entered both the SUV and pick-up truck segments, it is the pick-up business that the company is more focused on. The 2.5-tonne (GVW) D-Max falls in a segment which sold 110,000 units in 2011-12, where it will compete with small CVs from Tata, Mahindra and Ashok Leyland. These OEMs have well established formidable brands in the market. Analysts feel that the tried-and-tested model from Isuzu may benefit from the growing infrastructure in India.
“The challenge for Isuzu would be to convince buyers to move to the 1-tonne pick-up truck category. With improving road infrastructure and the hub-and-spoke model coming more into play, the D-Max could form a niche one position above mini- trucks and steal some sales of currently sold light trucks in the market,” says Ammar Master of LMC Automotive, Thailand. While doing his research, Wakabayashi learnt that in India more than 54 percent of the population lives in rural areas with most of them having agricultural business as a main source of income. Therefore, the dealership network, which currently stands at two (Hyderabad, Coimbatore), may well be skewed towards Tier 3 towns and semi-urban markets as it grows. Wakabayashi has already started visiting some of the prospective customers in semi-urban areas.
India – the future king among pick-up truck markets?
The low penetration level of cars in India gives hope to every OEM for success in India. Isuzu is no different. It even feels that India can be the world’s largest market for pick-up trucks by 2025 or so. “Within 20 years, Indian could become the biggest pick-up truck market. You have 1.3 billion people. Right now, 54 percent of the population is related to the agriculture business. Your land is so huge, something like the United States,” says Wakabayashi. The US is currently the world’s largest market for pick-up trucks, followed by Thailand. The Asian country also happens to be Isuzu’s single largest market. Last year, it sold nearly 200,000 units in the Thai domestic market. Globally, Isuzu sold 550,000 vehicles last year.
Wakabayashi, who has spent 14 years during multiple terms in Thailand, feels the Indian pick-up truck market could follow the same trend as Thailand. He says, “Thailand is similar to India. More than 40 percent of the population is involved in doing agricultural business. Farmers there have pick-up trucks. I understand more than 40 percent of fruits and vegetable are wasted in transit in India. But if a farmer transports his products himself, this loss will be reduced.”
Isuzu Motors India is now on a drive to set up its dealer network, where dealers will sell both SUVs and pick-ups. Wakabayashi is weighing the options of either appointing a larger number of dealers owning an outlet each or selecting few dealers owning multiple outlets. The second option has worked for Isuzu in Thailand, and it may replicate it in India. Wakabayashi wants to strike long-term partnerships with Indian dealers, like Isuzu has in Thailand, where the company has been present for the last 55 years. “In 55 years, we have 300 outlets and 100 dealers. In these 55 years, the replacement is less than 5 percent. Most dealers have relations for 50 years. In the case of some dealerships, I know the current promoter, his father and also his grandfather,” says Wakabayashi.
Business as an engine maker
Isuzu is also known as a major diesel engine supplier to various global OEMs. In India, it supplies to HM. Overseas, it had supplied, and continues to supply in some cases, to Ford, Mazda, General Motors, Honda, Renault, Saab and Nissan.
So, will Isuzu look at business as an engine supplier too in India? There is no plan yet, but it is “under consideration”. In 2012, Isuzu produced 787,000 engines, taking the cumulative automotive engine production to 23.46 million automotive engines. Isuzu also manufactures marine and industrial engines. In India, Isuzu has a two-pronged strategy to establish itself in the commercial and passenger vehicle space, through two ventures – SML Isuzu and Isuzu Motors India. SML Isuzu will continue to focus on medium and heavy trucks and buses while Isuzu Motors India will cater to the LCV and SUV markets. While Isuzu, Japan’s largest commercial vehicle maker, is a part owner in SML Isuzu, Isuzu Motors India is a fully owned subsidiary.
Indian vendors rated highly
Isuzu sees strong prospects for itself in the light commercial vehicle market, and it sees India being a good sourcing base for components. Wakabayashi has high regard for Indian component vendors, who he sees as “competitive”. “As far as we see, there are so many good and potential suppliers. The quality of their products is much better than expected. Also, the companies are well managed,” says Wakabayashi. He also sees some Indian component suppliers to be 20-30 percent more price- competitive than their peers in Japan.
The key factors of land, vendor and market are in place. It is up to Isuzu and its dealer partners to leverage the opportunity that India offers. It will hope that the India story will be as interesting, if not more, than its Thailand operations 55 years down the line. That will help fulfill Isuzu’s dream to transform into a global business organisation. ?
INTERVIEW WITH SHIGERU WAKABAYASHI, DEPUTY MANAGING DIRECTOR, ISUZU MOTORS INDIA
How does Isuzu plan to penetrate the Indian market? Isuzu is one of the biggest diesel engine manufacturers in the world. It is also a leading commercial vehicle manufacturer and the biggest in Japan. In India, there are many people who do not have cars and the coming decade will see them start to have cars. In India more than 54 percent of the population lives in rural areas and is engaged in agricultural business. If they have money or if they can borrow money to purchase their first car, then we are confident they will prefer to buy light commercial vehicles over small passenger cars. For example, farmers typically use their pick-ups to carry products to a market, where they get a better price. Then on a weekend, they can go driving with their families.
With only two models, you may not have the economies of scale. How do you plan to ramp up the Isuzu portfolio?
That will be studied in the future. But so far, we would like to concentrate on pick-up trucks and SUVs. Especially on pick-up trucks where we see huge potential.
Global OEMs are coming up with compact SUVs. Does Isuzu also have any such plan for India?
We don’t have one. Isuzu is trying to be in a position different from others. We want to play our game in the field in which we are good at. In the sense, we are quite strong in diesel engines. Also, we score on reliability and durability.
Any plan of launching any variant of the MU-7?
No plan so far.
As your business grows, will LCVs be a greater part of your business?
Our plant will have a capacity of around 100,000 units. That is our targeted volume. We see the pick-up truck market (in India) to be bigger than 500,000 units annually by 2020. We have not fixed the sales ratio between pick-ups and SUVs.
What are the challenges and opportunities in the Indian market?
Firstly, we have to be competitive in price. That doesn’t necessarily mean cheaper than competitors. But our product and price should be balanced, which means value for money. For that we have to first go about localisation because in India if you do not localise you cannot compete. Actually, in India, parts and components, when compared with other markets, is quite competitive in price. Therefore, localisation is one of the keys for success. Second is the network. Our market should be in the rural areas. Therefore, we have to create a network in rural areas as well. But the third need is the most important. We should be customer oriented. We have to start from what they require and be satisfied with.
Is SML Isuzu also a potential partner for contract manufacturing?
I don’t think so. We have to prepare for our own manufacturing plant. We cannot prepare in just one year. We also have to develop our supplier base. In that sense, the (CKD) location should be closer to Andhra Pradesh.
Have you identified any vendors?
We are starting to communicate with several suppliers. As far as we see, there are so many good and potential suppliers. They have chance to expand their business to many Japanese OEMs. The quality of their products is much better than expected. Also, the companies are well managed.
What is Isuzu’s message to prospective vendors, dealers?
Isuzu would like to develop a long-term relationship with both vendors and dealers. We have a strong business base in Thailand where we have been doing business for 55 years. In 55 years, we have 300 outlets and 100 dealers.
In these 55 years, the replacement is less than five percent. Most dealers have relations with us for 50 years. We are trying to maintain long-term relations. I have been in Thailand and I know the current promoter of a dealership, his father and grandfather in some cases! We want Indian suppliers who can understand our philosophy and our business. We would like to create a business community where we can grow together.
Would you look at introducing more SUVs?
No. Within 20 years India could become the biggest pick-up truck market. You have 1.3 billion people. Right now 54 percent are related to agriculture business. Your land is so huge, something like the US. India has the potential to be the number one market.
Are you planning to set up an R&D centre?
That is homework for the future. There is so much of talent here and the people have a good command over English.
How are you planning to expand your dealership network?
We are still debating whether we should have a lesser number of dealers owning multiple outlets or many dealers with single outlets. The dealer should be profitable because the market is not always good.