Isuzu and Hino shift core functions to Thailand and Indonesia

Isuzu targets one million units by 2015 through expanded pickup sales

2012/10/25

Summary

 This report will outline Isuzu's and Hino Motors' (Hino) business strategies.

 Both companies are planning to transfer their core business function from Japan to Thailand and Indonesia due to shrinking commercial vehicle (CV) markets in developed countries including Japan, increasing demands in emerging markets, diversities between needs in developed and emerging countries, persistent strong yen, and the rise of Chinese and Korean manufacturers.

 Isuzu has already set up a complete business structure for Light Commercial Vehicles (LCVs) such as pickup trucks, from development, production and sales to export in Thailand. Hino has placed Thailand as its hub for medium duty trucks in the ASEAN regions and plans to start production of mid-sized engines.

 Isuzu will center its development and production for CVs for emerging countries in Indonesia. Hino will also base its small trucks for emerging countries in Indonesia and will produce small engines starting in the second half of the FY2012.

 With these enhancements to emerging market business under way, Isuzu has set a target for sales volume of one million units and for sales revenue of 130 billion JPY for FY2015. Hino has set a target for sales volume of 196K units and for sales revenue of 75 billion JPY for FY2014.



Global CV market
(GVW basis, source: Hino)
Global CV market


Isuzu has mid-term plan to establish Global Three Core Business Organization

 Isuzu is planning to change its Japan-based company structure to a global operation by dispersing its main function to Thailand and Indonesia. LCVs such as pickup trucks will be based in Thailand. Isuzu Thailand has already developed the D-Max, a model fully remodeled in 2011, and expanded its annual LCV production capacity to 400K units with the construction of a new plant. Isuzu is constructing a new plant in Indonesia in preparation to make Indonesia the base location for CVs for emerging markets. The Japanese company will also start production of LCVs in China as well as the development of heavy-duty trucks, transferring some production capabilities from Japan. Locations in Japan will act as a mother plant for manufacturing parts which require craftsmanship and will also develop base-model engineering.

 These activities are a part of Isuzu's mid-term business plan for FY2011 to FY2013 announced in November 2011. The plan revealed Isuzu's intention to aim "at excellence in respecting the environment to meet social demand, maximize vehicles in operation and minimize life-cycle costs to meet customer's needs" to develop "eco-friendly product" and "product meeting specific needs of emerging market". The company is also intent on "setting up a growth strategy for emerging markets with aggressive resource input to establish manufacturing operations and maintain business in advanced markets."

 It is also planning to increase its local procurement rate for parts used for CVs manufactured outside of Japan from the current 20% to 40% by FY2015 and achieving 70% to 80% in the future. Isuzu will also increase the rate of overseas sourced parts in use for vehicles in Japan from the current 3% to 10% making this the company's standard to reduce all production costs.

Isuzu's Global Three Core Business Organization

Function Development Production
CVs LCVs Heavy-
duty
trucks
Medium-
duty
trucks
Light-
duty
trucks
LCV
Japan Base
operations
for
developed
market
CVs
* Mother plant for
parts requiring
craftsmanship
* Increase efficiency/value
added products
* Launch next-
generation products
Specialized in
engineering of
base models
Isuzu -
Indonesia Base
operations
for
emerging
market
CVs
* Base operation for
parts requiring
craftsmanship for
emerging markets
* Enhance sales/
export expansion
Development
of emerging
market-specific
products
(new plant)
- Produce models
for emerging
markets
(new plant)
Light-
duty
trucks
(new
plant)
-
Thailand Base
operations
for LCVs
* Self-sustained function
* Expansion of
foreign markets
* Expansion of
model lineups
- Engineering
function
(base and
specialized
model)
Isuzu
Thailand
(China) Supporting
operations
for CVs
* Comprehensive
lineup of CVs/
industrial engines
* Strengthen
development/
procurement function
* Enhance partner
collaborations
Support
heavy-duty
truck
engineering
- Partially
transfer
functions
from Japan
to produce
products
locally
(new location)
Produced at
Qingling
Motors
Jiangxi
Isuzu
(new
plant)
(India) Supporting
operations
for LCVs
* Production/
establishment of
sales networks
* Launch low cost
LCVs/emerging
market-specific
products
- - - - SML Isuzu To
establish
a new
plant
(partially
transferred
from
Thailand)

 

Product strategies

Developed countries Emerging countries Production to begin
2011 2012-2015
CVs Buses Big minor change - - Big minor change
Heavy-duty trucks Next-generation model Models for emerging countries (developed in China) - * New models for developed countries
* models for emerging countries
Medium-duty trucks Elf/Forward Light/Medium-duty models for emerging countries Launch medium-duty trucks for emerging countries -
Light-duty trucks Launch light-duty trucks for emerging countries -
New light-duty trucks (see note) - Launch new light-duty trucks
LCVs - New D-Max (pickup) and derivative models Remodeling of D-Max Remodeling of derivative models

Note: scheduled to develop one-ton class light-duty truck to be sold in Japan, Thailand, and Indonesia by 2015. A 1.9-liter diesel engine to power this model will also be developed. The engines to be produced in Japan or Thailand will also be mounted on the D-Max for increased fuel economy.

Procurement strategies: to increase the rate of overseas produced parts used in Japan to 10%; local -content ratio to increase to 70-80% outside of Japan

Isuzu is planning to increase the rate of overseas parts used in Japan to 10% (value-basis) by FY2015 (3% for FY2011). With half of its Japan-manufactured vehicles exported, Isuzu plans to manage currency-related risks with this strategy. The company will make low-priced foreign produced parts its benchmark to lower procurement costs in Japan.
Local procurement will also be increased for Isuzu plants outside of Japan. The local-content ratio for CVs of the current 20% is targeted to achieve 40% by FY2013 in Thailand and by FY2015 in Indonesia. Its final goal is to increase the rate up to 70-80% in the future. The local procurement rate for LCVs such as pickup trucks produced in Thailand has already reached 85% by 2011.

Alliance strategies in negotiation with GM; to terminate talks with VW

In its financial announcement for FY2011 made in May 2012, Isuzu revealed that it is in negotiations with regards to a business partnership with GM, but denied any talks regarding a capital alliance. GM owned 49% of the Japanese automakers' share in 1999. However, due to its downturn, GM sold all of its stock in 2006. Isuzu have been negotiating with VW with relation to technical and capital alliance since 2010, but it has terminated the negotiation regarding capital funding.

 



Isuzu's performance target is to achieve sales of 1 million units by 2015

 Isuzu is targeting one million units for its vehicle sales in FY2015 (shipment basis). This exceeds the 2011 sales volume of 568K by 70%. CVs for emerging countries are set at 408K units, 2.2 times the sales from 2011. As for LCVs, the targeted unit is 500K units, 1.7 times the sales for the same year.

On the financial aspect, Isuzu is planning to increase its revenue for FY2013 to 1.85 trillion JPY, an increase of 32% from FY2011 and trading profit to 130 billion JPY, up 33% from the same year.

 

Shipment volumes Revenues and operating profit
Shipment volumes Revenues and trading profits

 

Global shipments

(1,000 units)
FY2008 FY2009 FY2010 FY2011 FY2012
(Outlook)
FY2013
(Planned)
FY2015
(Planned)
Japan CV 55 42 47 59 57 - -
Asia LCV 165 155 202 177 241
CV 31 25 45 48 52
Europe LCV 11 9 14 8 18
CV 25 3 7 10 11
North America CV 6 6 10 14 13
South and Central America LCV 26 16 32 24 28
CV 33 16 25 28 29
Middle East/Africa LCV 67 43 57 49 69
CV 64 34 56 47 54
China LCV 18 13 23 25 27
CV 25 33 58 56 75
Oceania LCV 18 22 18 15 12
CV 9 9 7 9 8
LCV total 306 259 346 299 393 423 500
CV total in developed countries 86 51 64 83 81 84 92
CV total in emerging countries 162 117 188 188 218 322 408
Grand total 554 427 598 568 693 829 1,000

Note: "CV total in developed countries" is the total number of vehicles sold in Japan, Europe, and North America and the total for the rest of the regions in the world is represented as "CV total in emerging countries."

Consolidated performances

(JPY in 100 million)
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012
(Planned)
FY2013
(Planned)
Revenue 19,248 14,247 10,809 14,155 14,001 16,300 18,500
Operating profit 1,096 217 110 882 974 1,230 1,300
Ordinary income 1,223 152 114 913 1,029 1,270 -
Net income 760 (269) 84 516 913 810 -

 

 



Isuzu's overseas activities to increase production capacity for pickup trucks in Thailand; to begin development and production of heavy-duty trucks in China

Thailand annual production capacity increased to 400K with start of operation of new plant for pickup trucks

New pickup truck plant The production began at its new plant constructed at its Gateway plant, which produces CVs in Thailand in October 2012. The initial annual production is 80K. This will increase production capacity in Thailand to 400K.
Full remodeling of D-Max Isuzu will launch the fully remodeled D-Max, its best selling pickup in Thailand, in October 2011. The model is now built on a renovated platform with a new exterior. The model is powered by a 2.5/3.0-liter diesel engine with a 5MT/5AT. Developed at Isuzu Thailand.
Consolidation of export tasks  Isuzu Motors International Operations Thailand was made a subsidiary in July 2011 and tasks relating to exports of pickups which were also done in Japan are now consolidated to IMIT.

 

India to locally produce pickup trucks
Production/sales of pickup trucks In August 2012, Isuzu established a new production and sales company for LCV, Isuzu Motors India Pvt. Ltd. in India. The company will begin sales of pickup trucks and start production of vehicles with imported KD kits from Thailand. There are plans to locally develop and produce low cost models reflecting the needs of drivers in India in the future. The company will spend Rs. 10 billion for the construction of a plant with an annual production capacity of 120K. Of the vehicles produced, 80K will be sold in-country and 40K will be exported.
CVs In November 2011, Isuzu increased its stake in SML Isuzu (changed from Swarai Mazda in January) from 4% to 15%. By selling Indian models made with Isuzu parts and dispatching development/sales personnel, the company aims to establish a sales structure to sell 30K vehicles yearly by FY2015.

 

Indonesia to construct new plant

Its local joint venture, Isuzu Astra Motor Indonesia, is constructing a 100 million dollar CV plant in Karawang prefecture, Indonesia. It is expected to begin operations in 2014.

 

China to locally produce pickup trucks/compact diesels engines and develop heavy-duty trucks

Pickup trucks and compact diesel engines In August 2012, Isuzu announced its plan to jointly produce pickup trucks and compact diesel engines with Jiangling Motors Group Co. (JMCG). By reorganizing Jiangling Isuzu Motors Co., Ltd, the companies' joint venture on fifty-fifty basis, a new joint venture tentatively called "Jiangxi Isuzu Motors Co., Ltd." will be set up to produce and sell pickup trucks (D-Max and their variants). The companies will also establish another fifty-fifty based joint venture to manufacture compact diesel engines by restructuring JMCG's wholly owned subsidiary. The company is tentatively called Jiangxi Isuzu Engine. The two joint ventures are expected to receive permits from the Chinese government in August 2013 and the operation is set to start at the beginning of 2014.
CVs Isuzu will also begin local development of heavy-duty trucks and export parts for large engines with Qingling Motors Co., Ltd. Isuzu Qingling (Chongqing) Engineering Co., Ltd. (75% funded by Isuzu and 25% by Qingling Motors) established in August 2012 will develop next-generation heavy-duty trucks in collaboration with each other as well as local suppliers. Isuzu Qingling (Chongqing) Autoparts Co., Ltd. (tentative name. 51% funded by Isuzu and 49% by Qingling Motors) established in the same month as the other joint venture, will produce major engine parts shipped to Qingling and export them to Japan, Thailand and Indonesia.

 

Production of light-duty trucks recommences in western Russia

Recommences production of light-duty trucks In June 2012, Isuzu started manufacturing light-duty trucks, the N-Series (the Elf in Japan) in Ulyanovsk located in western Russia. The Japanese automaker previously produced its vehicles at the Tatarsan plant owned by Sollers, Isuzu's joint venture partner. The production was terminated in Russia in April 2011, because the plant switched its production to Ford's passenger cars. It was originally scheduled to move the production to Vladivostok. The plan was cancelled due to issues with its scalability. The Ulyanovsk plant owned by a Russian carmaker, UAZ, originally produced vehicles for Isuzu before it began production at the Tatarstan plant in 2008.
Increased shareholding in the joint venture Isuzu increased its shareholding in Sollers-Isuzu, its Russian joint venture, in May 2012. After the increase, 45% of the company is owned by Isuzu, Sollers by 50%, and 5% by Sojitsu (the share was 29% by Isuzu, 66% by Sollers and 5% by Sojitsu before the increase).

 

 



Hino's mid-term plan is to transfer its core operations to Thailand and Indonesia

 Hino is also aiming to expand its business in Thailand and Indonesia. The mid-term business plan for FY2012 - FY2014, announced in April 2012, places the two countries as key markets along with Japan. Hino will also expand the production operations in these countries to serve as the core production site outside of Japan. More details will be explained in the next section.

 To establish a system to produce product meeting the market needs efficiently, the automaker will commit itself to modularizing its development and focus on reformation of manufacturing and transferring its core production function to countries overseas.

Regional strategies

Hino's strategies Market status Market size for 2015
(Year 2007 being 100)
China Steady expansion by its joint venture (expanding market) Domestic OEM dominant market 170
India To be decided, respectively, based on their situations Domestic and European OEM dominant market 160
Brazil European OEM dominant market 160
Oceania, Asia, South and Central America, Africa To focus management resources on the market with the highest priority
* The company positions Thailand, Indonesia, and Malaysia as the key market and Latin America and Africa as the growing market
While Japanese OEMs currently have a strong presence in these regions, the competition with OEMs from other countries is expected to increase 150
Russia To develop areas in the Far East (expanding market) European OEM dominant market 110
North America Establish business foundation North American OEM dominant market 110
Europe To be decided respectively based on their situations European OEM dominant market 80
Japan Home market (key market) to maximize profit Japanese OEM dominant market 60

Hino's strategies

Development Modularize parts and utilize local peripheral parts
Production Reduce lead time, transfer key production functions to overseas, and reform manufacturing
Eco-friendly
technologies
Increase fuel efficiency, comply with emission control regulations, research and develop electric-powered vehicles (PHVs, EVs, FCVs) and alternative fuel vehicles
Sales Provide market-approved specifications meeting local needs and improve end-to-end support system
Reformation of manufacturing and modularization
Reformation of manufacturing Efficient high-mix, low-volume productions, meeting various customer needs
Centralization and dispersing of production investments → efficient manufacturing with KD production in mind
Modularization Modularize large component that were manufactured depending on regions by classifying components into globally common "core components" and peripheral (region-specific) components. It minimizes the number of core components will be manufactured centrally at a knockdown parts production site. Peripheral (region-specific) parts to meet various customer needs will be procured and assembled locally.
Ex.: transaxles for heavy-duty vehicles
Before Now
Over 1,000 transaxles Core components Peripheral components
About ten modules produced centrally at the Koga plant Locally procured and assembled

 

 



Hino to increase production capacity in Thailand and Indonesia; Hino plant to be closed and transferred to Koga, Japan

 Hino will complete enhancement of production capacities in Thailand and Indonesia by FY2015. Machining of engines, which was previously done mostly in Japan, will begin in these countries to serve as the overseas core production sites. The annual production volume for vehicles in Thailand (assembly basis) is 33K units, an increase of 2.5 times from FY2011, and the machining of medium-duty vehicle engines will begin with an annual production volume of 30K units.

 The annual production volume for vehicles in Indonesia (assembly basis) is 82K units, an increase of 1.7 times from FY2011, and the machining of light-duty vehicle engines will begin with an annual production volume of 74K units. In FY2015, the assembly capability as a group is planned to reach 292K units, an increase of 1.6 times from FY2011 and engines, 344K units with an increase of 1.7 times from the same year.

 The Hino plant, where it has its headquarters, will be closed by 2020 when it will have moved to its new Koga plant.

Hino's vehicle/unit production system

Vehicles (1,000 units, based on assembly) Engines (1,000 units, based on machining fabrication)
Produced in close proximity to markets Capacity increases to be implemented primarily locally
FY2011 FY2015 FY2011 FY2015
Japan 78 107 195 214
Thailand 13 33 0 30
Indonesia 47 82 0 74
Others 39 70 8 26
Total 177 292 203 344

Visions and roles of different plants

Plant Role
Japan: Produce vehicles for domestic and non-Asian countries, and support market expansion in Asia Koga Plant
(new)
* Manufacturing plant for heavy- and medium-duty vehicles
* KD export base
* Modularized assembly of heavy- and medium-duty vehicles
* Axle and drive shaft assembly
* Center for KD packing
Nitta plant
(expansion considered)
* Unit plant * Integrated production of engines, transmissions, and differential gear carriers
Asia: establish core regional production center (local parts to be mostly localized) Indonesia * Production center for light-duty trucks (market-best fit models) for emerging markets * Center for machining and assembling small engines for the ASEAN region
* Production center for light-duty trucks (market-best fit models)
* Assembly of medium-duty vehicles for Indonesia
Thailand * Core production center for medium-trucks for the ASEAN region * Center for machining and assembling mid-sized engines
* Center for assembling differential gear carrier
* Production center for light- and medium-duty trucks
(Note) 1. With the construction of the Koga plant, the Hino plant will be closed over time, but the headquarters function will remain in Hino. Because the Hino plant is located in a residential area, it faced environmental and scalability issues. Therefore, Hino has decided to relocate the plant to the new Koga plant built on land twice the (660K square meters) size of the Hino plant.
2. Medium-sized engines will be built in Thailand, and small engines in Indonesia. These medium-sized and small engines will be supplied mutually. Moreover, the machining of large-sized engines will be done at the plants in Thailand, and that of medium-sized engines in Indonesia, being equipped with general-purpose lines. Hino aims to establish a mutually complemented system for engines between Japan, Thailand, and Indonesia.

 

Schedules for plants

Plant 2012 2013 2014 FY2015 and beyond
Koga Plant
(new)
KD center Axle modules Vehicle assembly
(by 2020)
Nitta plant
(expansion in consideration)
Differential gear center Machining and assembly of large engines
Indonesia Machining of small engines Axle modules Increase machining capacity for small engines
Thailand Machining of heavy- and medium-duty differential gears Machining of large and medium-size engines Machining of light-duty differential gears

 

Construction of joint venture in Malaysia

The production of Hino model in Malaysia will start from the first half of 2014. Hino established a joint venture, Hino Motors Manufacturing Malaysia, with MBM Resource Berhad, which invested in an Isuzu brand sales subsidiary, with Hino holding 58% of the share. A plant is set to be constructed in Negeri Sembilan near Malaysia's capital, Kuala Lumpur. About 3,450 million JPY will be spent for this project. The plant will manufacture 10K trucks and buses annually.

 

 



Hino's performance target: to achieve sales volume of 196K vehicles with margin of 5% in FY2014

 With expected growth in emerging markets, Hino targets a global sales volume of 196K units in FY2014. That is an increase of 1.5 times (128K units) from FY2011. The target revenue for FY2014 is 1.68 trillion JPY, up 27% from FY2011, and the operating profit is 75 billion JPY, up 27% as well. If the target is met, the operating profit will reach 4.5%, but Hino's final goal is 5%.

Global sales volume Revenues and operating profit
Global sales volume Revenues and trading profits

Global sales volume

(units)
FY2008 FY2009 FY2010 FY2011 FY2012
(Planned)
FY2013
(Planned)
FY2014
(Planned)
Trucks and buses in Japan 34,796 25,903 30,008 36,915 39,000 - -
Overseas Asia 33,195 37,690 54,088 60,550 -
South and Central America 10,002 8,638 11,098 11,278
Oceania 5,989 5,063 4,841 4,039
North America 5,465 4,279 4,869 6,281
Europe/Africa 3,197 2,831 4,663 6,233
Middle East 4,917 2,847 3,329 3,170
Overseas total 62,765 61,348 82,888 91,551 114,000
Total 97,561 87,251 112,896 128,466 153,000 176,000 196,000
Vehicles made for Toyota 120,271 125,136 158,685 153,264 178,500 - -

 

Consolidated performances

(1 million JPY)
FY2008 FY2009 FY2010 FY2011 FY2012
(Planned)
FY2013
(Planned)
FY2014
(Planned)
Revenue Japan 452,700 381,200 415,500 469,200 480,000 -
Overseas 285,100 259,100 352,300 394,000 470,000
Toyota 331,700 383,200 474,900 451,400 530,000
Total 1,069,488 1,023,495 1,242,691 1,314,588 1,480,000 1,560,000 1,680,000
Operating profit (19,448) 1,132 28,902 37,527 47,000 60,000 75,000
Trading margin -1.8% 0.1% 2.3% 2.9% 3.2% 3.8% 4.5%
Ordinary income (30,446) (1,914) 25,058 34,577 45,000 -
Net income (61,839) (3,011) (10,041) 16,303 28,000

Note: The long term goal for its trading margin is 5%.


Source: Isuzu Mid-term Business Plan (November 2011), Hino-Motors Mid-Term Corporate Plan (April 2012), press releases from both companies, and news reports

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