Toyota strengthens margins, pressure still on revenues

Balaji Narayan, General Manager, Sales Toyota Kirloskar Motor India and Shekar Viswanathan, Vice Chairman & Whole-time Director, Toyota Kirloskar Motor India at the launch of Toyota Innova Crysta in Mumbai. Photo: PTI
The decline in Toyota’s sales volume last year has failed to dent the company’s margins. The automobile company’s profit as a percent of sales in the year ended March 31, is likely to be at an all-time high, although revenue has taken a beating.

Toyota’s sales in India dipped nine per cent to 128,494 vehicles in 2015-16. The slow decline between April and December accelerated after the Supreme Court ordered on December 16, 2015, a ban on sales of diesel vehicles with engines larger than 2,000cc in the National Capital Region. The ban affected 8-10 per cent of Toyota’s domestic sales. Exports, too, slid 16 per cent to 14,786 vehicles in 2015-16.

Toyota has been getting its act together after labour unrest led the company to declare a temporary lockout early in 2014. This coincided with industry-wide declining sales and a weakening rupee making imported raw materials expensive.

The crisis forced Toyota to review its operations and employee relationships. “The company was eager to maintain margins. A profit improvement committee was instituted,” said an executive at the company’s plant on the outskirts of Bengaluru.

The importance of profits was not easily recognised by all. The company, therefore, changed the language of communication from financial numbers to business-friendly concepts.  

“The purpose was to show role at the individual level and how he can make a difference. Mindsets were sharply tweaked to ensure a constant focus on return,” the executive said.

The company made efforts for employees to believe output had to be more than input since money, time and resources were being invested.

“Our aim is to be a sustainably profitable company, so that we can help our employees achieve better standards of living, pay regular tax to the exchequer, and carry out incremental corporate social responsibility activities,” said Shekar Viswanathan, vice-chairman and whole-time director, Toyota Kirloskar Motor.

MEASURES TAKEN
  • The company changed the language of communication from financial numbers to business-friendly concepts
  • It made efforts for staff to believe that output had to be more than input since money, time and resources were being invested
  • It said it had shaved Rs 1 crore off its monthly energy costs by being more efficient
  • Another was to identify workers not involved in any meaningful operations since half the capacity was idling
  • A panel of directors meets every month to monitor performance, including profits and costs

The firm said it had shaved Rs 1 crore off its monthly energy costs by making manufacturing more efficient. Last year, the firm brought down the energy cost per vehicle by 13 per cent to Rs 539 and Rs 624 at its two plants. Energy consumption is monitored daily.  Another key measure was to identify workers not involved in any meaningful operations since half the capacity was idling. “These employees were used as a bench and many were re-skilled. Recruitment was halted and replacements identified from the bench,” said an executive.

A committee of directors meets every month to monitor performance, including profits and costs. This committee uses the previous month’s actual cost of production as a reference. Sales are easily measured.

“If any corrective measure is required, it is taken immediately,” the executive said. But declining sales are not a healthy sign. Capacity utilisation declined from 51 per cent in 2014-15 to 47 per cent in 2015-16. “Customer expectation has rapidly increased and we could not catch up,” said Akhito Tachibana, managing director.

A bet on the small car market did not deliver. Sales of the Liva declined about 15 per cent in 2015-16 as the Indian car market grew over seven per cent. Sales of the Eitos  compact sedan though grew over 17 per cent, riding the taxi boom. The recent launch of the Innova Crysta, a full model change, has delivered and Toyota’s sales rose six per cent in May, after nine months of declines. The successful hybrid experiment is limited to Toyota’s premium sedans.

“We need to make every effort everywhere. There is no shortcut. Sales teams need to sell other vehicles. We need to enhance cost reduction in our plant and among suppliers to survive,” said Tachibana. In January, parent Toyota Motor Corporation decided to raise its stake in Daihatsu, another Japanese car maker, to 100 per cent. The process is likely to be completed later this year. Toyota will likely use the Daihatsu platform to expand its presence in the Indian small car market.

 

“Daihatsu has the capability to develop smaller vehicles with lower cost and more attractive features. But I have no information which country they will look at,” said Tachibana.

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