Toyota’s India Announcement Belies a Greater Shift for Japanese Automakers

Toyota said Thursday that it would begin selling the Etios, a compact sedan and hatchback developed and produced in India, to customers in South Africa, marking the first time that the brand’s India division would export a car to another market.

Though Toyota framed the action as part of its commitment to emerging markets — indeed, the brand expects production of passenger cars in India to increase from the current 160,000 units to 310,000 in 2013 — the announcement came at a time when Toyota, as well as other Japanese automakers, were pursuing strategies to shelter their businesses from the effects of a strong yen.

The currency’s strength has raised the cost of producing vehicles in Japan. Unwilling to compromise their competitive positions in export markets by passing along rising costs to consumers, Japanese automakers are instead relocating production that would otherwise be performed in Japan.

Earlier this year, Mazda announced plans to build a $500 million plant in the Mexican state of Guanajuato, where it would build compact cars for the Central and South American markets. Honda, meanwhile, intends to build an $800 million plant in the Mexican state of Jalisco, where compact cars would be produced for North American customers. Though Honda assembles its Civic, with the exception of the Civic hybrid, in the United States and Canada, popular small vehicles like the Fit, as well as Mazda’s subcompact 2 and compact 3 models, are produced in Japan. Some analysts view the brands’ production plans in Mexico as a hedge against the strong yen.

In Rio de Janeiro on Thursday to announce a $1.4 billion plant for Brazil, Carlos Ghosn, the chairman of Renault-Nissan, told reporters that Japan confronted a “hollowing out” of its industrial base if government ministers did not act to weaken the yen.

Meanwhile, Toyota’s suppliers in Japan may face stark choices in coming months. The same week in which Toyota announced its plans to export the Etios to South Africa, it also told domestic suppliers to lower their costs or risk being replaced by non-Japanese competitors, according to a report by Bloomberg.