Toyota Kirloskar India plans to increase localization of Etios, Liva, Innova and Fortuner
Toyota Kirloskar India’s top selling cars like the Etios sedan, the Liva hatchback, Innova MPV and the Fortuner SUV will see increased localization in the coming years. Currently, Toyota is facing pressure due to the sharp depreciation of the Indian rupee vis-a-vis the US dollar. The pressure is mainly due to the large amount of components that are imported by the Japanese automaker for its big volume cars like the Etios, Liva and Innova. Currently, the localization level on the Etios and the Liva stands at 70%, which Toyota plans to raise to 90% by March 2013.
Eventually, Toyota would try to achieve 100% localization on these cars, which would give it big cost benefits due to local sourcing making the automaker resilient to currency fluctuations. Coming to the Innova and Fortuner, these cars have a localization content of about 50%, which Toyota plant to increase in the coming years. However, the time frame for increasing localization on the Innova and the Fortuner remains unknown. That Toyota is actively looking to increase localization on its hot selling models is a big positive both for the company as well as car buyers in India.
Higher localization levels means lower ownership costs in the long run as the cost of spare parts would go down as import duties on parts would become a non-issue for a large number of parts that require replacement during routine maintenance. This is a major reason why the likes of Tata Motors, Maruti Suzuki and Mahindra produce cars which are quite affordable to maintain over the longer term. Higher localization will potentially allow Toyota to cut prices of its car models and pass on the cost benefits to the customer. This strategy has been adopted by competitor and compatriot Honda, in the past.
Faced with falling sales due to the demand of petrol cars dipping sharply, Honda went on an aggressive localization spree on its best selling car in India, the Honda City sedan. This resulted in the prices of the Honda City being rationalized to levels that stunned competition. Sales of the Honda City revived sharply despite the car having only a petrol engine under its hood. A similar exercise was carried out for the Jazz hatchback, leading to sales perking up after the price cut. The Brio hatchback, right from word go, was heavily localized, allowing Honda to price the car very competitively. So, the essence is that localization can make car makers very competitive and in the coming years, expect Toyota to raise localization levels sharply. Toyota has already got the cogs turning with the new engine manufacturing plant to kick start operations next month.