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Japan disaster affects Indian car production
Outlook India, 28 May '11
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As Japanese auto players battle the aftermath of the earthquake and tsunami that hit their country in March, the global pecking order is set for an overhaul.

Last year, Toyota topped the global sales rankings with 8.42 million units, followed by GM with 8.39 million units and Volkswagen with 7.14 million units. This year, Toyota is expected to tumble to third place. General Motors (GM) is set to wrest back the No. 1 spot from Toyota, a position it lost to the Japanese carmaker in 2008.

"Normal production (for Toyota) is not expected to resume until November, and so total output is expected to lie somewhere between 6.5 and 7 million units, enough for third place," says Mr. Paul Blokland, Managing Director, Segment Y, an automotive research firm.

Toyota Kirloskar Motors (TKM) and Honda Siel Cars (HSCI), the India subsidiaries of Toyota and Honda, respectively, have announced production cuts in the wake of disruptions in component supplies from Japan. Toyota has said it will cut production by 70% between April 24th and June 4th at its two plants outside Bangalore. The company says production will drop by 10,000 units during this period.

The two plants, which have an annual capacity of 150,000 units, churn out the Etios sedan, multi-utility vehicle Innova, premium sedan Corolla Altis and sport-utility vehicle Fortuner. Toyota Kirloskar also sells the Prius hybrid and Camry sedans in India, but these are imported as completely built units (CBU).

Honda Siel will halve production at its plant in Greater Noida, where it manufactures the City, Civic and Accord sedans and Jazz hatchback, beginning May. "Honda is making every effort to work towards a full recovery after July," the company said in a statement. Last fiscal year, it produced 60,400 vehicles at the plant and recorded average monthly sales of slightly over 5,000 units. A 50% cut for May, June and July would thus result in a decline of 7,500 units.

Bad Times

The calamity could not have struck at a worse time for the two companies. Both have plans to launch small cars in India. This is a critical step as this segment constitutes 70% of the country's car market and neither player has a small car in its portfolio. However, the parts shortage has the potential to upset the launch plans.

Honda's small car, the Brio, was set for an October launch, while Toyota was planning to unveil the Etios Liva, the hatchback model of its sedan Etios, in June.

The Japanese players' supply problems are expected to benefit their rivals. Even before the natural disaster in Japan, all Toyota vehicles manufactured in India had a waiting period of one to three months. That is likely to go up, to the advantage of its competitors.

"We believe the biggest beneficiaries will be Volkswagen and Ford. Hyundai could also benefit as its new Verna directly competes with Honda's City," says another analyst from a consultancy firm.

While both the Japanese carmakers are putting up a brave face, their sales will continue to take a hit if the problem in Japan is not fixed in the projected time frame. "There is still a lot of uncertainty over when production for the auto industry can return to normal. We suspect the impact may be longer than most people expect," says media source. Over the long term, though, the two may be able to regain some lost ground.

The parts shortage is also likely to impact the growth of the Indian passenger vehicle industry as a whole, adds analyst from consultancy firm. "The shortage may knock off 2% growth in the Indian passenger car market this fiscal. We expect the market to grow at 11%-12.5% in 2011-12," he explains. Last fiscal, passenger car sales stood at a little over 2.5 million units, registering almost 30% growth over the previous year. It will take some doing to match that growth anytime soon.