Local engine, transmission to power Toyota Etios

The new engine and transmission plant being set up by Toyota Kirloskar Auto Parts Pvt Ltd (TKAP) near Bangalore will bring huge cost savings and make the yet-to-be-launched compact car Etios competitive.

Sandeep Singh, deputy managing director of Toyota Kirloskar Motor (TKM), said the new plant will “aggressively push up the localisation content” in the Etios, production of which will start end of this year. The car is expected to hit the market by early 2011.

“Typically, the cost savings would be the import duty (around 7.5% on engine and transmission) and the logistic expense. However, since the volume (of the plant) is not too high, the savings may not be too high. But there will be some savings,” he said.

According to Singh, engines plants in the US with over 400,000 annual capacities are able to produce engines at very low costs. “But we can’t make 400,000 engines here (India) because our Etios production itself is 70,000 units in the first phase.”

On Tuesday, TKM announced that TKAP, which currently produces auto parts for Corolla Altis, Innova and Fortuner, will produce engines and transmissions for Etios at its plants with an investment of Rs 500 crore over 3 years.

The new plant will start production of close to 100,000 engines from late 2012 and around 240,000 transmissions from early 2013.

Since the production will begin after the launch of Etios, Hiroshi Nakagawa, managing director of TKM, said the initial lot of the Etios would have engines and transmissions imported from Japan. “Once we start operation at the new plant we will shift to Indian parts,” he said.

Nakagawa said the company was eventually aiming for 100% localisation of Etios. He said Japanese major was targeting over 20% growth in sales in 2010 to 70,000 cars and sport utility vehicles.

He expects it to double in 2011 with the launch of Etios to 140,000 units. Analysts said such a jump in sales would take TKM’s market share to 5% next year from the current 3%.

“Since the auto market is growing at fast pace, we expect TKM’s share to move go up slightly despite the 100% growth it is forecasting for next year,” said an analyst with a local broking firm, who did not want to be named.