Auto industry feels hike won’t affect diesel car sales

Jan 19 2013, 01:31 IST
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SummaryThe government’s decision to increase diesel prices in a phased manner will have a negligible impact on sales of vehicles powered by the fuel, according to auto industry executives.

The government’s decision to increase diesel prices in a phased manner will have a negligible impact on sales of vehicles powered by the fuel, according to auto industry executives.

The statement assumes significance as diesel vehicles have been the primary growth driver in the last two years and with an overall slowdown in auto sales this fiscal, there were apprehensions that if sales of diesel vehicles also plummet, the sector’s growth would be further hit.

Industry officials said that till the time the price differential with petrol remains — petrol is today priced Rs 20 a litre more than diesel (R47.65, in Delhi) — diesel car sales are expected to see continued rise in demand due to benefits like lower operating costs. Even if both fuel are priced in the same range, a diesel engine is still 20-30% more fuel efficient — which may continue to drive sales.

Pravin Shah, chief executive (automotive) at Mahindra & Mahindra, said that till the gap between petrol and diesel remains at around Rs 15, as was the case a few years back, there should be no long-lasting impact on sales. “We are not against the increases which are required to be taken. The gaps are not sustainable and are artificial, which has to be narrowed. To the extent the increase is in small doses as per the government’s announcement, it will be fine. There will be upward revision in petrol prices as well,” he said.

A Tata Motors spokesperson said: “It is a good sign and the sky will not fall with this move. It is a question of benefits of diesel technology, which will continue to drive sales. People look at the lower running costs of diesel vehicles".

Also, freeing diesel prices will mean a drop in the subsidy bill for the government that is expected to translate into higher GDP growth and more money in the hands of consumers to spend on cars and two-wheelers.

RC Bhargava, chairman of Maruti Suzuki, added that the gap between petrol and diesel fuel will take a few years to narrow, but when that happens the share of diesel vehicles in new car sales may come down. “In a couple of years, the share of diesel car sales may come down from 59% to 49-50%, but diesel car demand is here to stay. A hike of 50 paise per month does not do much in terms of changing a buying decision,” he said.

Companies like Honda Motor India, Toyota Kirloskar, Hyundai Motor India and Maruti Suzuki may see gains if buyers shift towards petrol cars. Many carmakers are straddled with high levels of unutilised petrol engine production capacity, even as they have increased investments towards setting up local diesel engine plants. Hyundai has announced an investment of around Rs 1,600 crore, part of which is for a diesel engine plant, while market leader Maruti is investing over Rs 2,000 crore in expanding diesel engine output apart from extending its engine supply contract with Fiat.

Vishnu Mathur, director general at the Society of Indian Automobile Manufacturers, said that raising diesel prices is a step in the right direction and in line with the industry body’s view that diesel prices need to be deregulated in small doses. “I don’t see an immediate change in vehicle demand. As the price difference between diesel and petrol reduces over time, we may see petrol car demand rise and diesel car demand moderate,” he said.

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