Toyoda Gosei to develop components for ultra low cost cars

October 16th, 2008

Prologue: Toyoda Gosei wants to develop components for ultra low cost cars.

Story: Toyoda Gosei (TG) which has a significant presence in India and supplies to Honda and Toyota has expressed its intention to develop components for ultra low cost (ULC) cars. TG is not the first global supplier which wants to develop components for ULC cars. Bosch had a major hand to play in the development of the Nano and has a good amount of content on Tata’s upcoming ULC car.

In fact, a look at the Nano’s supplier lists throws up names like Behr, Siemens VDO, GKN, ZF, Visteon, Johnson Controls, Federal Mogul, Delphi, Denso and Ficosa. Out of these, Johnson Controls, Ficosa and Visteon are present by virtue of it being a joint-venture partner with Tata AutoComp (TACO) while some others like Behr have joint-ventures with Indian supplier groups. However a large number including Delphi, Denso, Bosch and Siemens VDO have won contracts on their own capabilities. (At the same time, the Nano’s supplier lists also throws up names like Amul Industries, Sharda Motors, Parkash Automotive and Rishabh International. We can go on and on about the Nano’s suppliers but that’s the subject of another post coming soon.)

In the last two years, as the Nano has metamorphosed from “what crap!” to “holy shit” (for other carmakers), the global supplier community’s interest in supplying to low cost cars has increased. While Bosch realized that the Nano was a great opportunity for growth, rival Continental has been slow in grasping that. However, with the acquisition of Siemens VDO, Continental does have significant content on the Nano.Others like PlasticOmnium find the Nano as very interesting and are secretly putting two and two together figuring out ways to join the party.

But is it really a party? Both Bosch and Continental estimates that low cost cars (both have different definitions of low cost cars) will account for a serious percentage of their business in ten years time. However, no supplier is willing to put their neck out on profitability numbers. Sure the ULC segment is attractive (diversification, learning, volumes, business growth, insulation from cycles etc etc), the pitfalls are many.

Epilogue: With razor-thin margins being the name of the ULC volume game, the key to success for any global supplier is to develop components at a very low cost. Typically this means that a large part of the development activity needs to be carried out in the local market for which the component is being developed. Case in point is Bosch whose Bangalore center played an important part in developing components for the Tata Nano.