Hino Motors: To produce core parts in Japan and peripheral parts by region

Investments to plants in Japan, Thailand and Indonesia

2014/07/24

Summary

Global unit sales This report focuses on Hino Motors' recent movements and production strategy. Hino is carrying out the global production innovation to manufacture a wide variety of products in small quantities more efficiently. Plants in Japan will concentrate on producing globally common "core parts." Market-specific peripheral parts will be produced in regional core production bases in Thailand and Indonesia. At the same time, Hino is seeking highest efficiency in meeting diverse needs by a modular approach.

 In Japan, Hino is constructing a new Koga Plant. Hino first started construction of a factory for producing knockdown (KD) parts at the Koga Plant and launched its operations in May 2012. The KD production was transferred from the Hino Plant. Hino is also constructing a new machining plant in Nitta Plant that produces units. The new machining plant will start operations in the first half of FY2015. Outside Japan, Hino is beefing up plants in Thailand and Indonesia.

 Hino will invest JPY 89 billion in plant and equipment in FY 2015, up 34.4% year-over-year (y/y), to refurbish the Koga and Nitta plants in Japan. The company will invest JPY 52 billion in R&D, up 12.3% y/y, to promote modularization, development of regionally best-fit vehicles, and safety systems.


Related reports:
Isuzu: New Thai R&D center develops trucks for emerging markets (Jul. 2014)
Isuzu and Hino shift core functions to Thailand and Indonesia (Oct. 2012)



Manufacturing innovation for efficient high-mix low-volume production

 Hino aspires to provide global markets with products that meet diverse needs among customers. Toward this goal, the company is establishing a new global production structure and is promoting development of vehicles under the concept of modularization. Vehicles that are developed and produced by the new approach will be released within FY 2015 at the earliest.

Manufacturing innovation at Hino

Global production structure  Hino has been exporting completely knocked down (CKD) parts as well as fully assembled vehicles to markets outside Japan. From now on, Hino will be exporting globally common core parts to Thailand, Indonesia and other regional production bases. Market-specific peripheral parts will be procured or produced locally and assembled into complete vehicles at the regional core plants. The assembled vehicles will be exported to final destination markets.
 The number of common core parts in the upstream process will be reduced significantly. The diversity of peripheral parts in the downstream process will be maintained to meet customer needs for wide range of model variants.
Modular approach for vehicle production
(Note)
 Standard modules are produced and combined to produce vehicles according to customer needs.
 Some passenger car manufacturers pre-assemble certain parts into a large module. The modular approach being adopted by Hino is unique in that:
* Modules are formed in consideration of roles split between plants in Japan and those overseas (with emphasis on easy combination and assembly among modules).
* The modular approach at Hino is aimed at meeting diverse customer needs in timely manner. For this reason, parts are assembled into smaller modules.

Source: Hino's Mid-term Business plan Apr. 26, 2012; Nikkan Jidosha Newspaper Jul. 15, and Nov. 30, 2013/Apr. 26, 2014.
(Note) A new model produced by the new approach will be launched by the end of the fiscal year ending in March 2015. Details of the new approach will be unveiled when the new model is released.

 

 



Refurbishing plants in Japan as part of global production restructuring plan

 Hino is constructing a new plant at the Koga plant and expanding the Nitta plant in Japan in line with its global production restructuring plan.

Koga Plant (Koga City, Ibaragi Prefecture)

Positioning  The new plant will serve as a base for increasing Hino's production and for increasing vehicle sales chiefly in foreign markets. It will also play the role of "mother plant" to transmit Japan's highly developed manufacturing technologies to Hino's plants across the world.
Oct-11  Groundbreaking ceremony of Koga plant
May-12  The KD parts factory became operational.
2014  Production of axle modules starts.
2015  Assembly of heavy- and medium-duty trucks will be transferred in phases from the Hino plant to the Koga plant. The Koga plant will start full operations in 2016.
Nitta Plant (Ota City, Gunma Prefecture)
Positioning  Engine, transmission and differential gear carrier production will be consolidated to the  Nitta plant. The entire manufacturing process from casting, machining, to heat treatment will be performed at this plant. The plant will also play the role of a supply base of in-house casting materials (engine blocks and other pre-machined castings) to overseas plants.
Machining factory  In January 2013, a groundbreaking ceremony was held for the new machining factory (referred to as a differential center). It will start operations in the first half of FY 2015. Production of large, medium, and small differentials is currently performed at the Hino and Nitta plants, but will be consolidated to the Nitta plant.

 

Mid-term business plan for FY 2013 to FY 2015

 Hino is in the third year of its mid-term business plan for FY 2013 to FY 2015. The plan was announced in April 2012, and the details are summarized as below.

Outline of Hino Motors mid-term business plan for FY 2013 to FY 2015

World market classification and positioning  Aside from the home market of Japan, Australia and Asia, Latin America and Africa are considered Hino's most important markets. Hino will concentrate its corporate resources there. Hino is predicting a remarkable sales growth especially in the ASEAN region.
 Hino will strengthen its operations in Japan and Australia and Asia (especially in Thailand, Indonesia and Malaysia) as these countries are Hino's "Foundation markets" and the pillars of its profitability. Demand is growing in each market and competition is becoming more fierece with Chinese and Korean manufacturers.
 Latin America is Hino's "Market to develop" and will become the company's next Foundation market. The Middle East and Africa are also its Market to develop and Hino will spur sales in those areas.
 North America is Hino's "Individual market" and China and Russian Far East are the "Markets targeted for sales growth."
Production and supply structure  Japan: To restructure roles of plants in Japan to increase overall supply and help increase capacities in Asia. (Details are already mentioned in early part of the report.)
 Asia: To beef up plants in Thailand and Indonesia as overseas production centers (core parts are supplied from Japan and all the other parts are produced or procured locally).
Thailand:
* Production center for medium-duty trucks in ASEAN region (some of the medium-duty trucks that are produced in Thailand fall under the category of heavy-duty trucks in Japan in terms of deck lengths and payload)
* The plant will perform mid-size engine machining and assembly, as well as  differential gear carrier assembly.
Indonesia:
* Assembly center of light-duty trucks for emerging markets, and medium-duty trucks for Indonesia
* The plant will conduct mid-size engine machining and assembly for ASEAN region, and will produce axle modules.
Environmental initiatives  Electric energy vehicles: Plug-in hybrid vehicle (PHV), electric vehicle (EV), fuel cell vehicles
 Alternate fuel vehicles: Gas-to-Liquids (GTL) vehicles fueled by clean energy made from natural gas; bio fuel vehicles

 

 After the mid-term business plan (FY 2013 to FY 2015) was announced in April 2012, Hino built a new plant in Malaysia and started production in April 2014. The company also entered into Kenyan market and established a service center in Panama that serves Latin American markets. Hino regards Latin America and Africa as "Market to develop" and plans to expand sales in those markets.

Production starts at new plant in Malaysia

Malaysia  Hino built a new plant in Malaysia and started production in April 2014 with an annual capacity of 10,000 units in two-shift operation. The plant will assemble the Hino 500 (known as the Ranger in Japan) and Hino 300 (sold as the Dutro in Japan) trucks and buses. Hino established Hino Motors Manufacturing (Malaysia) Sdn. Bhd. with a 42% equity participation of MBM Resources Bhd. that sells Hino vehicles. Hino regards Malaysia as one of the most important markets in Southeast Asia after Thailand and Indonesia. The new plant will absorb the increasing demand in Malaysia. Before constructing the new plant, Hino trucks and buses were assembled by "Assembly Services" that also assembles Toyota vehicles in Malaysia. The consigned production was discontinued and production was transferred to the new plant.
 The plant will initially assemble trucks and buses using parts that are supplied by the Koga plant in Japan. Hino is esbablishing regional centers  in Indonesia and Thailand. When these plants are completed, parts imported from Japan will be replaced by parts supplied by these centers in phases. These decisions are in line with the company's production and supply optimization plan in the ASEAN region.

 

Strengthening "Market to develop" in Africa and Latin America

Kenya  In June 2013, Hino started selling the Hino 500 series of medium-duty trucks and other trucks in Kenya. The trucks are assembled by Associated Vehicle Assemblers Limited (AVA) that assembles the Land Cruiser for Toyota. The assembled trucks are sold and serviced by a local Toyota sales company whose capital is owned by Toyota Tsusho Corporation.
Latin America  In April 2013, Hino established a servicing center, Hino Motors Ltd. - Latin America Office, in Panama. The center will support Hino's service activities in Latin America and help improve the technical skills of local technicians. It is Hino's second service center outside Japan under its direct management. The first center was established in 2009 in the United Arab Emirates. The center in Panama has started with four employees.
 In view of the increasing number of Hino truck ownerships, the company intends to improve the aftersales services for maximum customer satisfaction. Hino regards Latin America as a "Market to develop" and plans to turn it into a second key market after Australia and Asia.

 

Environmental initiatives

 Environmental initiatives are one of the important issues in Hino's current mid-term business plan. Hino released the world's first large commercial hybrid bus in 1991. Today, hybrid versions are available with the Dutro light-duty truck, the Ranger medium-duty truck and large buses. The company believes commercial EVs will be suitable for short-distance use such as delivery vans and community buses.

 

Plug-in hybrid bus
Plug-in hybrid bus based on Hino Melpha midsize bus
(at Tokyo Motor Show 2013)
Hino Poncho Mini EV bus
Hino Poncho Mini electric bus with a compact body on a light-duty commercial EV platform

 

Development of electrified vehicles

Electric refrigeration system  Hino and Denso Corporation jointly have developed the world's first electric refrigeration system using hybrid technologies. The system was exhibited at the Tokyo Truck Show held in October 2013. The new system has been available for the heavy-duty truck Hino Profia since  February 2014. The hybrid system is shared with the light-duty truck Hino Dutro.
 A refrigerator truck usually uses an auxiliary or main engine to drive the compressor of the refrigerator. The new refrigeration system does not use the hybrid system to drive the vehicle. The hybrid power is used entirely to drive the refrigeration system. This leads to high freezing and refrigerating performances while reducing the vehicle's fuel consumption overall (by approximately JPY 5 million in six years span). Hino aims to sell 180 units of the Profia with the electric refrigeration system in the first year of release.
PHV bus  In October 2013, Hino developed a diesel plug-in hybrid bus based on the Hino Melpha medium-size bus. It is fitted with 40kWh lithium-ion battery and 175kW motor. The plug-in hybrid bus was exhibited at the 2013 Tokyo Motor Show and is slated for market launch in 2015 to 2016.
 When used as a school bus or community bus in urban areas or for short-distance travel, the bus runs in electric mode to up to 15km. When used for long-distance transportation or when climbing uphill, the bus is driven by the diesel engine and the motor in hybrid mode. The bus can also be used as an emergency power source. With 100 liters of diesel fuel in the tank, the bus can keep a gymnasium or disaster shelter lit for 30 hours (assuming 20 units of 400W mercury lamps).
Electric  light-duty truck  In February 2013, Hino developed a light-duty front-wheel drive (FWD) electric truck with a very low floor. It is powered by a compact motor mounted under the cab. The lithium-ion battery is mounted in a frame under the floor. Other electric units are stowed away under the cab. This unique EV platform is the key to the low-floor layout that was unachievable in a rear-wheel drive truck.
 In March 2013, a joint proving test of the electric truck started with Yamato Transport, Hino and Toyota. A refrigerator van was fitted on the flat platform as a cooled delivery van. The truck is powered by 28kWh lithium-ion battery. It has a payload capacity of 1 ton and the maximum speed of 60km/h (controlled by a speed limiter). The electric truck can run up to 100km after a full charge.
Hino Poncho Mini  This is a concept model with a compact bus body fitted on the light-duty FWD EV platform. The 11-seater model was exhibited at the 2013 Tokyo Motor Show.

 

 



Global unit sales: to increase sales outside Japan through FY 2015

 Hino's global unit sales bottomed in FY 2010 after the Lehman Brothers' financial crisis. They picked up and rose to a new all-time high in FY 2014 with 52,000 units sold in Japan and 114,000 units sold overseas with a global total of 166,000 units.

 Asia is the largest market for Hino, and the sales in Latin America, Africa and the Middle East are increasing. Hino sees those markets as "Markets to develop." The Thai market is likely to remain sluggish through FY 2015. However, the company predicts its overseas sales will expand from 114,000 units in FY 2014 to 127,000 units in FY 2015 due to sales increase in other markets.

 

Unit sales by region

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
Forecast
Japan 34,737 26,976 30,008 36,915 43,702 52,193 49,500
Asia 33,195 37,690 54,088 60,550 73,875 72,821 127,100
Latin America 10,002 8,638 11,098 11,278 11,503 13,407
North America 5,465 4,279 4,841 6,281 8,223 9,389
Europe 3,197 2,831 4,869 6,233 2,246 2,569
Africa 6,053 6,327
Oceania 5,989 5,063 4,663 4,039 5,207 5,158
Middle East 4,917 2,847 3,329 3,170 3,874 4,377
Overseas total 62,765 61,348 82,888 91,551 110,981 114,048
Total 97,502 88,324 112,896 128,466 154,683 166,241 176,600
Toyota 132,239 125,136 158,685 153,264 185,791 186,614 157,900

Source: Hino's financial results
(Note) Unit sales to Toyota include consigned production for Toyota vehicles(Land Cruiser Prado, FJ Cruiser, Dyna, etc.) and sales of automotive units in Thailand such as rear axles for Toyota's IMV pickup trucks.

 

Market in Japan: All-time high in FY 2014 with increase in market share in Japan for 5 years in a row

 The industry volume and Hino's retail sales in the Japanese truck markets are shown below. Hino's market share increased for five years in a row to 28.9% in FY 2014. Hino holds the highest share with heavy- and medium-duty trucks but is a late-comer in the light-duty truck market with a share below 20% until FY 2011. The share is increasing in the past few years and rose to 22.3% in FY 2014. The company is predicting a 23.3% share for FY 2015.

 Hino's outlook for FY2015 indicates a decline in both industry volume and Hino's sales in Japan. According to Hino, the general decline is due to the labor shortage as well as the repercussion of the last-minute demand spurred by the consumption tax hike.

Industry volume and Hino's sales in Japanese truck market (over 2-3t class truck)

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY2015
Forecast
Industry volume 133,100 90,500 105,900 124,600 144,100 171,400 159,000
Hino's sales 31,800 23,200 27,700 34,600 41,100 49,200 46,400
Hino's market share
Heavy/medium-duty trucks 32.5% 34.8% 34.9% 35.7% 36.1% 36.1% 36.2%
Light-duty trucks 16.3% 17.7% 17.8% 20.6% 21.7% 22.3% 23.3%
All trucks 23.9% 25.6% 26.2% 27.8% 28.7% 28.9% 29.2%

Source: Hino's financial results
(Note) The figures do not match the total for Japan under the "Unit sales by region" since buses are not included.

 

 



Record-high profit in FY 2014; revenue and profit to decline in FY 2015

 Hino reported overall deficits for three consecutive years from FY2009 to FY 2011 but its performance is steadily recovering. The company ended FY 2014 with consolidated net sales of JPY 1.70 trillion, operating income of JPY 112.2 billion, and net income of JPY 89.1 billion. These represent record-highs in net sales and all incomes.

 Compared with FY 2009, Hino reported 1.28-times increase in net sales in Japan and 1.88-times increase in overseas sales in FY 2014. Contract production for Toyota is a major underlying support as they accounted for nearly one third of Hino's total sales.

 As for outlook for FY 2015, Hino is predicting a y/y increase in overseas sales from JPY 535.8 billion in FY 2014 to JPY 550 billion. However, the company expects a decrease in sales in Japan and sales to Toyota. As a result, Hino's consolidated net sales will be JPY 1.6 trillion (down 5.9% y/y) and operating income will be JPY 90 billion (down 19.8% y/y).

 Hino is investing JPY 89 billion in facilities and equipment in FY 2015, up 34.4% y/y, to refurbish its Koga and Nitta plants in Japan. The company will also invest JPY 52 billion, up 12.3% y/y, in research and development for modularization, developing regionally best-fit vehicles and safety systems.

Hino's consolidated results

(in millions of JPY)
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
Forecast
Net sales Japan 452,700 381,200 415,500 469,200 510,700 581,000 560,000
Overseas 285,100 259,100 352,300 394,000 463,600 535,800 550,000
Toyota 331,700 383,200 474,900 451,400 567,100 582,800 490,000
Consolidated 1,069,488 1,023,495 1,242,691 1,314,588 1,541,357 1,699,573 1,600,000
Operating income
Ordinary income
(19,448)
(30,446)
1,132
(1,914)
28,902
25,058
37,527
34,577
65,118
66,922
112,185
109,141
90,000
86,000
Net income (61,839) (3,011) (10,041) 16,303 47,685 89,127 58,000
Capital expenditure
Depreciation
R&D
58,400
47,500
40,900
28,500
45,200
38,100
30,000
45,700
41,100
42,900
43,500
40,400
49,900
40,800
43,400
66,200
37,900
46,300
89,000
41,000
52,000
Exchange rate (JPY/USD) 101 93 86 79 82 100 100

Source: Hino's financial results

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