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This article was first published 3 years ago  » Business » Car makers rejig products as diesel, petrol prices near parity

Car makers rejig products as diesel, petrol prices near parity

By T E Narasimhan
July 10, 2020 10:28 IST
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While the share of diesel vehicles sales in the overall passenger car industry has already fallen sharply, sales of CNG vehicles have shown a compound annual growth rate of 15.5 per cent over the past five years.

For the first time in decades, diesel prices are now at parity with petrol because of structural changes such as oil price deregulation and recent increases in indirect taxes.

With the introduction of Bharat Stage VI fuel norms from April raising the cost of vehicle ownership and the price advantage inherent in diesel cars no longer valid, automobile manufacturers are reworking their manufacturing and marketing strategies in response.


The share of diesel vehicles sales in the overall passenger car industry has already fallen sharply - from a peak of 58 per cent in FY13 to 29 per cent in FY20 (in the fourth quarter of the latter, the share was as low as 15 per cent).

The country’s largest pa­ssenger car maker Maruti Suzuki India Ltd responded early to the signals by an­nouncing it would exit diesel vehicles in April last year.

Instead, it is focusing on CNG vehicles, says Sha­sha­nk Srivastava, executive di­rector, (marketing and sales), Maruti Suzuki India.

Sales of CNG vehicles have shown a compound annual growth rate of 15.5 per cent over the past five years, the company says.

In 2019-20, the company sold 106,443 units of CNG vehicles and is targeting 1.4-1.5 lakh units in the current fiscal.

At present Maruti Suzuki offers CNG variants in eight models.

Srivastava believes CNG is a good option when prices of both diesel and petrol are rising (mainly on account of taxation).

The running cost of a CNG vehicle at Rs 1.5 per km is much cheaper than a petrol (Rs 2.70/km) or diesel (Rs 3.5/km) vehicle.

The limitation, however, is that la­rger cars, SUVs and commercial ve­hicles are better suited to diesel engines, which have a higher torque force suitable for carrying heavy loads or climbing steep inclines.

So Maruti has hinted that it may offer diesel vehicles, but only in cars above 1,200 cc.

Maruti’s rival and country’s second largest maker Hyundai is, however, still betting big on diesel, but mostly for its high-end cars, including the large sedan and SUV segments.

Hyun­dai did not respond to Bu­siness Standard’s queries, but a recent statement said the company would continue to focus on diesel despite the price hike.

Ne­arly 47 per cent of buyers for the new Creta have opted for the diesel variant, said the company, adding that the share of diesel is 40 per cent for the premium hatchback i20 and 20 per cent for the smaller Grand i10.

Hyundai remains an outlier. Other manufacturers, Renault India and Nissan Motor India, had all de­cided to stop manufacturing diesel vehicles from April 2020 in anticipation of cha­nging customer demand.

Nissan’s managing director Rakesh Srivastava said a Rs 1-1.5 lakh difference between a diesel and petrol vehicle is likely to change the demand dynamics.

“We foresee this shift to happen across all body types and more so in SUVs,” he said.

Anticipating this shift in customer preference, Nissan introduced the BS-VI compliant Nissan KICKS with a petrol option only.

Besides, Srivastava points out, the Covid-19 pandemic has abruptly shifted demand from cab-hailing apps back to personal ownership on account of hygiene and safety.

In the current economic downturn, however, cost of ve­hicle ownership will take centre stage.

Honda, too, has seen the realignme­nt of customer demand - petrol variants accounted for 80 per cent of its sale in 2019-20.

Rajesh Goel, senior vice-pre­sident and director, marketing and sa­les, Honda Cars India, said while there is an increasing shift in market preference towards petrol cars, the de­mand for diesel will not vanish immediately.

This is principally because some customers prefer diesel cars for the driving experience.

“Hence, in our BS-VI line-up, we have strategically decided to offer both fuel choices in line with our customer’s preferences,” Goel said.

For example, among Honda’s three product offerings in the sub-four metre segment, sales of the diesel variations of the WR-V and Amaze have been significant, so these models are available in both fuel options.

So will the impending fifth generation model of Honda’s best-selling City.

On the other hand, customers for the premium hatchback Jazz are increasingly opting for the petrol model; so the new model will be offered in petrol variants only.

Mahindra & Mahindra, which has a large SUV portfolio, is also realigning its strategy.

“At Mahindra we haven’t seen any impact on the sales mix given our SUV portfolio.

"But going forward we are coming up with an entire range of petrol engines,” says Veejay Nakra, CEO, automotive division.

Photograph: Jonathan Ernst/Reuters

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T E Narasimhan
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