N Raja, deputy managing director, Sales & Service, Toyota Kirloskar Motor, and chairman, Lexus India, speaks to Hormazd Sorabjee on the future of small diesel engines, hybrids going mainstream and the possibility of a compact Toyota SUV.
How would you describe Toyota’s performance last year? What is your growth outlook for 2018?
We saw considerable success with the Innova and the Fortuner in 2017 and overall sales grew by around 5 percent. In fact, we witnessed the best-ever combined sales for the Innova and the Fortuner last year. The plant has a capacity of producing 100,000 units and our total volumes came to 97,000, which means there was plant utilisation of 97 percent. Despite the higher pricing for the Crysta, customers have appreciated the product. We’ve started off 2018 strongly, with a growth of 19 percent in the first month. The industry is touted to expand about 9-10 percent this year and we foresee similar growth.
Did you expect such robust growth for the Innova Crysta? How much of the growth came from existing customers and personal buyers?
Frankly, the Innova Crysta is a dream come true for us. For the first three months, 60 percent of the Crysta buyers were existing Innova customers; the purchase was either an upgrade or an additional car. So we had a strong base with half-a-million potential customers. Interestingly, however, we observed that fleet or institutional buyers accounted for just 3-4 percent of the sales, down significantly from about 15-18 percent for the old Innova, while demand from the personal segment has surged.
Toyota has been struggling in the sub-Rs 10 lakh segment with the Etios. What’s the strategy going forward on this end of the market?
Talking about the product, yes, the challenge areas have been the looks. The interior, particularly the dash, has been one of the key talking points. We faced challenges such as a higher price – we were at a premium due to government’s policies of higher rate for vehicles over four metres in length. But the product has its strengths such as cost of ownership, stability and safety. A positive bit of news was that last year we saw a big transition with the Platinum Etios, with the model witnessing good demand from personal buyers.
Is the transition to BS VI-compliant diesel a challenge for smaller cars due to their low volume and high cost of development for the fuel?
Diesel will continue to be our strength. However, we need to see what will be a threshold volume with the rise in cost in the transition to BS VI. While the share of diesel is surely dropping, the fuel will remain the mainstay for SUV and MPVs. The petrol variant of the Innova and Fortuner accounts for less than 5 percent of overall sales currently. Over the next 2-3 years, we will have to observe the trend for vehicles in the smaller segment. Development costs for BS VI-compliant diesel are still high. We’re not saying diesel may not continue with our small car range, but it’s not been given a green light yet. Ideally, a hybrid could be a good solution, but achieving economies of scale continues to be a challenge.
Do you think hybrids will go mainstream?
Hybrids will be important, not only for us but for the industry as well. If we have to address the challenges our country is facing – the fuel bill, pollution and the factor of bringing in more viability in business – it has to continue with hybrids. We’ll have to work on it to see out the challenges, because with EVs, the main challenge is infrastructure, charging stations, charge times – all this has solutions in hybrid. We are largely dependent on government support in this direction. Today, if electric vehicles are at 12 percent and hybrids are at 43 percent, we’re looking at the government to correct that gap.
SUVs are a rage in India but you’ve got only one in your model range. Don’t you think not having an SUV on the Entry Family Car (EFC) platform is a lost opportunity?
Frankly, it’s a lost opportunity because it should have been there 2-3 years ago. It was a time when the segment was starting to grow, so it would have been the right time for us to get enter. We have our challenges to find an immediate solution to bring more SUVs to India.
While we continue to work on platforms for SUVs, Toyota HQ is very clear on one thing – they want to give us a global platform. After the Etios and Liva, Toyota’s view is not to look at a specific size for SUVs such as a sub-four-metre. We’re hopeful of getting some solutions, but you know the Toyota way: it will take some time.
So if there was to be an SUV, would it be in the Creta segment?
Yes, something like that or even slightly bigger.
As regards Lexus, what’s the way forward? Are you looking at big volumes and will you eventually move to CKD?
Our focus right now is frankly not numbers. We are looking at delivering that customer experience Lexus is famous for. Coming to CKDs, yes, we need to focus on that because hybrid is a challenge due to the high duty. The positive thing is that this end of the market is growing fast and it’s highly competitive, so we have to look at all these options, but only once volumes pick up.
Also read: Toyota Kirloskar Motor sells 11,543 units in February, up 3% YoY