Isuzu: New Thai R&D center develops trucks for emerging markets

Plan to produce light commercial vehicles and low-priced pickups in India

2014/07/18

Summary

mu-X
The D-MAX-based SUV "mu-X" produced in Thailand

Expanding operation bases from one in Japan to three bases globally
According to Isuzu Motors Ltd., sales volume of commercial vehicles is shifting to Asia and other emerging markets. In view of the prevailing market trend, Isuzu is shifting from Japan-centered operations to a "global three core-base operations." The three new bases consist of Japan, Indonesia (operational base for building commercial vehicles for emerging markets) and Thailand (operational base for building light commercial vehicles). Isuzu will localize its vehicle development operations and increase production capacity to meet needs in emerging markets more effectively.

New Thai R&D headquarters for developing commercial vehicles for emerging markets
Isuzu has established a new R&D headquarters in Thailand for developing trucks and commercial vehicles (CVs) for emerging markets. The center became operational in April 2014. Isuzu is also constructing a new CV plant in Indonesia. Production at the new plant will start in 2015 with annual capacity doubled to 50,000 units.

To produce light commercial vehicles including pick-up trucks in India
Isuzu and General Motors Company (GM) have agreed to joint development of next-generation pickup trucks. In the spring of 2016, Isuzu will start production of light commercial vehicles (LCVs) in India as well as Thailand. The company also plans to produce low-priced pickup trucks.

To invest JPY 100 billion in plant and equipment and JPY 25 billion in growth strategy
 Isuzu ended the fiscal year ended in March 2014 (FY 2014 ) with consolidated net sales of JPY 1.76 trillion and operating income of JPY 174.2 billion. This marks increase in revenues and record-high net income for two consecutive years with an operating profit ratio of 9.9%. These figures resulted from brisk sales in Japan and foreign markets, and foreign exchange profits of JPY 25.3 billion. Capital investment of JPY 100 billion is planned for FY 2015 to end in March 2015 along with investment of JPY 25 billion in 'growth strategy expenditure' that will affect current profit and loss. Isuzu is expecting net sales of JPY 1.84 trillion for FY 2015 on account of increase in shipment in Japan and overseas. However, operating income is expected to decline by 5.3% to JPY 165 billion due to the investment in growth strategy.


Related Reports: Isuzu and Hino shift core functions to Thailand and Indonesia (Oct. 2012)



Localizing development and increasing production capacity in emerging markets

 Isuzu established a truck development headquarters in Thailand for developing trucks for emerging markets. The center became operational in April 2014. Isuzu headquarters in Japan will concentrate on basic engineering of trucks. Engineering centers in Thailand and Indonesia will be responsible for the development of CVs for emerging markets, just as the LCV engineering is already transferred to Thailand. Isuzu will launch medium-duty trucks for emerging markets in 2015 at the earliest.

CV business: Strengthening development and production in ASEAN region

R&D headquarters in Thailand for developing trucks for emerging markets  Isuzu Global CV Engineering Center Co., Ltd (IGCE) was established in Thailand for developing trucks for emerging markets. The Center became operational on April 1, 2014.
 IGCE will cooperate with auto parts suppliers in ASEAN, China and other areas as well as Isuzu group companies. This will shorten the decision-making process from summarizing market information to new model launch. IGCE will be able to develop commercial vehicles of high cost efficiency more speedily. These commercial vehicles will meet needs in emerging markets.
 Isuzu regards Indonesia as the company's base for developing and building CVs for emerging markets and is strengthening its operations. The two bases in Thailand and Indonesia will cooperate and play separate roles in CV development.
Increasing capacity in Indonesia  In October 2013, a groundbreaking ceremony was held for constructing a new plant in Indonesia. Isuzu will invest IDR 1.3 trillion to double its production capacity in Indonesia to 50,000 units. Production will start in 2015. Isuzu plans to increase the capacity to 80,000 units in the future. The company will also increase its product lineup to meet various market needs.
Developing medium-duty trucks for emerging markets  In 2011, Isuzu's medium-duty truck for emerging countries was developed mainly in Indonesia and was sold locally in Indonesia. However, the truck had many common parts with its Japanese version. Therefore, Isuzu decided to develop an all-new medium-duty truck that would entirely meet local needs. The new truck will be released in 2015 at the earliest.
 The new truck is being developed as a strategic model that will appeal to people not only in Indonesia but in all emerging markets. Isuzu will collaborate with an affiliated truck manufacturer in China and increase procurement of Chinese parts. This will help lower the truck's price by 20%. Isuzu intends to redesign the truck's structure to enable easy replacement of parts and repairing.

(Note) According to Isuzu's new mid-term business plan, Isuzu will develop heavy-duty trucks for emerging markets with the support of its Chinese base. The new truck is slated for market launch in 2015 at the latest but no concrete plans are announced as of early July 2014.

Expanding business in Africa and Latin America
South Africa  In October 2013, Isuzu raised its stake in Isuzu Truck South Africa (Pty) Limited (ITSA) aiming for expanding production and sales of commercial vehicles in South Africa with significant growth prospects. Currently ITSA is equally owned by Isuzu and GM South Africa (GMSA). Isuzu purchased shares from GMSA to acquire a 70% ownership.
 Isuzu places southern parts of Africa as a key area for its operations. The company plans to triple sales in nine countries in southern Africa including South Africa, Namibia and Botswana to 10,000 units from results in FY 2014 within five years.
Latin America  Isuzu has been selling a light-duty truck (known as the Elf in Japan) developed for emerging markets since 2011. In July 2013, the truck was also introduced in Latin America with a low price. Isuzu achieved the low price by using Chinese-made parts and using cabs of old models in Japan. Isuzu plans to sell the truck to customers that prefer affordability to durability.
Alternate-fuel vehicles
Heavy-duty CNG trucks  Isuzu will release heavy-duty trucks powered by compressed natural gas (CNG) in Japan in 2015. The CNG fuel reduces CO2 emissions by approximately 20% compared to light oil. Isuzu has already released light- and medium-duty vehicles powered by CNG. CNG was said not to be suitable for heavy-duty trucks because of CNG's limited fuel tank capacity for long distance transportation. Isuzu will increase the engine performance of the heavy-duty truck to achieve cruising range of 500km with a full tank.
 Isuzu plans to make CNG-fueled variants available for the LCVs as well.


 As for LCVs, Isuzu increased its production capacity in Thailand to 400,000 units in 2012. Starting in 2016, Isuzu will produce pickup trucks and derivative sports utility vehicles (SUVs) in India. The company also has plans to produce low-priced pickup trucks by 2020 with a price tag 20 to 30% lower than the D-MAX. Isuzu is currently developing a next-generation pickup truck jointly with GM.

LCV business: Developing next-generation model jointly with GM, also producing CLV in India

Developing next-generation pickup truck jointly with GM  In January 2013, Isuzu and GM agreed to begin talks on joint development of next-generation pickup trucks. GM is the world-leading manufacturer of pickup trucks. GM and Isuzu will form a mega alliance with a combined world share of 25% in the pickup market.
 Isuzu and GM have a long history of collaboration. The D-MAX pickup truck is a sibling to the Chevrolet Colorado. The mu-X SUV that was released in October 2013 is the successor to the MU-7. It is a sibling to the Chevrolet TrailBlazer. The mu-X is referred to by Isuzu as Passenger Pickup Vehicle (PPV).
 The two companies will develop sales networks to sell the jointly-developed pickup truck in promising markets including Africa and the Middle East.
Producing pickup trucks in India  In January 2014, construction of Isuzu's new LCV plant began on a 430,000 square-meter site that it had acquired in Andhra Pradesh State, India. The new plant will annually produce 50,000 units of the D-MAX and its derivative SUV, mu-X, starting in the spring of 2016.
 Isuzu plans to increase the plant's production capacity to 120,000 units a year by 2020. The company then will start production of low-priced pickup trucks that are said to be 20 to 30% cheaper than the D-MAX. Isuzu will sell 80,000 units in the local Indian market where affordability is the main appeal. The remaining 40,000 units will be exported to the Middle East and Africa. Isuzu intends to reduce cost by increasing the local content ratio to 100%. The diesel engines used in the low-priced models will be supplied by GM India.
 Isuzu regards Thailand as its production base of pickup trucks. The Thai-made trucks are exported to a hundred countries today. Hence, Isuzu regards India as a new export base.
Turkey  Isuzu has been exporting the Thai-made D-MAX to Turkey. In March 2014, the company started producing the D-MAX at Anadohu Isuzu plant in Turkey for the local market. The company will invest approximately JPY 200 million and plans to produce 2,000 units in 2014 and 2,500 to 3,000 units in 2015. Isuzu expects that construction industries and self-employed businesses will buy the D-MAX.


 In November 2011, Isuzu Motors announced its Mid-term Business Plan (April 2011 to March 2014). According to Isuzu, all current plans are in line with the mid-term plans as summarized below.

 

Isuzu Motors' mid-term business plan in summary (announced November 2011)

Surrounding Environment
Market recognition  Sales volume is shifting and expanding to Asia and other emerging markets. The rise of Chinese, Korean and Indian manufacturers is causing increasingly severe competitions.
Split needs  Advanced markets: Environmental performances and low emissions, safety, comfort, quietness
 Emerging markets: Robustness, payload, low-quality fuel, only minimum equipment is required
Basic policy
Business organization  Departure from Japan-centered to "global three core" business organization
 Three bases consist of Japan, Indonesia, and Thailand. Three cores each play unique role. Japan will play a mother role, and will be a CV base for advanced markets. Indonesia will be a CV base for emerging markets. Thailand will be a LCV base. They will be supported by China (as a CV support base) and India (as a LCV support base).
Product strategy  To introduce low-priced heavy-duty vehicles for emerging markets by 2015.
 Low-priced medium-duty vehicles have been developed and launched since 2011. These vehicles are developed to cater to local needs.
 Powertrain: Diesel engine downsizing, compliance with alternative fuels.
Development network  Japanese base to concentrate on core engineering activities. To transfer localized model engineering functions from Japan to ASEAN and other areas to develop best products for specific markets.

Sources: Isuzu Motors Mid-term business plan (Apr. 2011-Mar. 2014), announced in November 2011

 

 



Isuzu's global shipment volume

Isuzu Isuzu's CV shipment in FY 2014 marked year-over-year increase in Japan and overseas marking a new record in overseas shipment at 221,000 units. The LCV shipment decreased from 414,000 to 343,000 units y/y due to sluggish sales in Thailand.

 For FY 2015, Isuzu forecasts an increase for both CV and LCV shipments with a new record in overseas CV shipment at 242,000 units. The company expects the total global shipment to reach 700,000 units. It plans to expand sales especially in Latin America, the Middle East, Africa and China.

 

CV/LCV shipment (assembled vehicles, KD sets, etc.)

(in thousands of units)
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
outlook
CV: Japan
CV: Overseas
LCV (All Overseas)
73
203
364
54
194
306
42
127
259
47
206
346
59
211
299
62
214
414
75
221
343
81
242
377
Overseas total 567 500 386 552 509 628 564 619
Shipment total 640 554 427 598 568 690 639 700

(Note) The CV shipment is the quantity shipped by Isuzu Motors in Japan. The LCV shipment is the sum of those shipped from Thailand and those dedicated parts shipped from Japan to assembly plants in China, India and Indonesia.

CV/LCV shipment by region (assembled vehicles and KD sets)
(in thousands of units)
CV LCV (Pickup Truck and SUV)
FY 2012 FY 2013 FY 2014 FY 2015
outlook
FY 2012 FY 2013 FY 2014 FY 2015
outlook
Japan 59 62 75 81 -
North America 14 12 21 21 -
Latin America 28 27 20 24 24 29 23 28
Europe 10 10 11 12 8 18 14 15
Middle East/Africa 47 52 58 67 49 64 67 76
Oceania 9 10 9 10 15 12 15 20
Thailand 48 67 60 57 177 218 168 161
Other Asian countries 51 36 52
China 56 36 42 52 25 22 20 26
Overseas shipment total 211 214 221 242 299 414 343 377
Global shipment total 269 276 296 323 299 414 343 377

Source:Isuzu financial results

 

LCV production in Thailand

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
outlook
Assembled vehicles
and KD combined
229,600 192,019 177,922 237,481 211,242 353,545 300,923 329,000

(Note) Isuzu has been producing medium- and heavy-duty trucks at the Gateway plant. In October 2012, Isuzu completed a second pickup truck manufacturing plant with an annual capacity of 90,000 units. This increased Isuzu's LCV production capacity in Thailand by 30% to 400,000 units a year. Isuzu exports the D-MAX pickup trucks produced in Thailand to one hundred countries.

 

 



Japanese market in FY 2015: Increase expected in both market demand and Isuzu shipment

 The truck market in Japan experienced a downturn in demand in FY 2009 to FY 2010 to around 100,000 units. Demand began to recover in FY 2012and grew to 171,000 units in FY 2014. Increase in sales was due partly to demand associated with the post-disaster reconstruction projects and expansion of public works.

 Judging from orders at hand, Isuzu expects the total demand for trucks in Japan to increase in FY 2015 and Isuzu's shipment to increase from 75,000 to 81,000 units. Isuzu's shipment in Japan accounts for around 10% of its global total shipment. However, the sales in Japan account for 35 to 40% of its global sales figures which indicates significant contribution to the company's financial performance.

 For comparison sake, Hino Motors has a different outlook for FY 2015. Hino predicts that the total demand in Japan will decline for both H/D, M/D trucks and L/D trucks under the impact of the consumption tax hike and labor shortages.

 ☆ There will be a separate report on Hino Motors.

 

Demand and forecasts for trucks in Japan

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
outlook
H/D, M/D trucks (over 4 tons) 62,964 41,622 51,412 59,310 68,535 79,929 Expects
increase
(Note)
L/D trucks (2-3tons) 70,059 48,859 54,469 65,309 75,637 91,520
Total 133,023 90,481 105,881 124,619 144,172 171,449
(Notes) 1. Isuzu has not announced total demand for trucks in FY 2015 although the company expects an increase. Isuzu's shipment in Japan is expected to increase year-over-year from 75,000 units in FY 2014 to 81,000 units in FY 2015.
2. For comparison sake, Hino Motors predicts the total demand in Japan will decline because of the impact of the consumption tax hike and labor shortages. Hino has announced total demand to be 159,000 units, including 73,000 units of medium-duty trucks and 86,000 units of light-duty trucks.

Isuzu's market share

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
H/D, M/D trucks (over 4 tons) 29.7% 32.9% 32.8% 31.1% 33.9% 33.4%
L/D trucks (2-3tons) 39.1% 40.0% 40.2% 40.2% 39.5% 39.6%

Sources:Isuzu's financial results

 

 



Outlook for FY 2015: Increase in net sales; decline in operating income

 Isuzu ended FY 2014 with consolidated net sales of JPY 1.76 trillion marking an increase for two consecutive years. The company marked a new record for two years in a row for operating income at JPY 174.2 billion and ordinary income at JPY 186.6 billion with current net income at JPY 119.3 billion. Overall, Isuzu achieved an operating profit ratio of 9.9%.

 Isuzu plans to continue necessary investment in FY 2015 for further growth according to the strategy of the Mid-term Business Plan that was announced in November 2011. The company plans equipment investment of JPY 100 billion, a y/y increase of 22.1%. The funds will be spent for revamping the aging facilities in Japan and accelerating local production in foreign countries. In addition, Isuzu plans to invest JPY 25 billion (expenditure that will affect the current profit and loss) as "growth strategy expenditure." The strategy expenditure will be spent to construct necessary facilities for developing trucks for emerging markets and to establish new plants in Southeast Asian countries.

 Isuzu is expecting a 4.5% increase in net sales to JPY 1.84 trillion along with a 5.3% decline in operating income to JPY 165 billion due to the prior investment.

Isuzu's consolidated results

(in millions JPY)
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
outlook
Sales Japan
Overseas
533,800
890,900
433,000
647,900
498,600
917,000
558,400
841,700
592,200
1,063,400
630,600
1,130,300
660,000
1,180,000
Total 1,424,708 1,080,928 1,415,544 1,400,074 1,655,588 1,760,858 1,840,000
Operating income
Operating income ratio
Ordinary income
21,651
1.5%
15,236
11,010
1.0%
11,393
88,220
6.2%
91,258
97,373
7.0%
102,893
130,783
7.9%
141,719
174,249
9.9%
186,620
165,000
9.0%
175,000
Net income (26,858) 8,401 51,599 91,256 96,537 119,316 100,000
Capital investment
Depreciation
R&D
66,700
39,600
67,700
25,700
39,500
55,200
29,400
36,400
58,600
33,300
36,000
58,800
57,500
35,600
61,200
81,900
41,600
66,600
100,000
47,000
76,000

Source:Isuzu's financial results

<Automotive Industry Portal MarkLines>