Diesel cars will account for a lion's share of sales in India this fiscal, thanks largely to a skewed fuel pricing policy which puts petrol models at a distinct disadvantage.

What is interesting, though, is that India's top-selling car, the Maruti Alto with average numbers of over 25,000 units a month, is doing just fine without a diesel option. Its latest rival, the Hyundai Eon, is also banking on petrol to drive sales which are already clocking over 10,000 units each month.

Clearly, this shows that the entry-level segment (in the Rs 2.5-4 lakh price range) is comfortably insulated from the present diesel frenzy. There is no question, though, that things would have been different if customers had a fuel alternative even in this product category. And this is where experts believe the Tata Nano has the potential to change the dynamics in the ‘affordable car' segment.

The Nano, of course, promised plenty as the world's cheapest car during the time of its unveiling at the 2008 Delhi Auto Expo. The script went completely awry since then, thanks largely to valuable time lost in relocating its plant from West Bengal to Gujarat.

Rising sales

The other problem was that its real market, according to observers, was ‘Bharat' (Tier 2 and 3 regions) and not the regular metros. With no clear retail strategy in the initial months following its launch, the Nano just could not zero in on its ‘true customer base'. However, things have been looking up for a while now with monthly sales around the 8,000-unit mark. Ancillary suppliers believe that once the diesel version of the Nano enters the market during the course of this fiscal, the sales charts could see a sharper swing upwards.

“I am certain that the car has the potential to do numbers of 15,000 units each month once the diesel option is available,” a Tata Motors vendor told Business Line.

On the face of it, this is only logical going by the present frenzy for diesel cars. While the sceptics insist that the Nano brand has taken a beating, the market may just change its mind once a diesel alternative is on offer.

What would be even more attractive is its price which will be barely Rs 3-lakh, with the next best deal (the Tata Indica) at Rs 4-lakh plus.

The diesel version will not only revive the fortunes of the people's car but also change the dynamics in the affordable car space.

May take on Alto

Observers believe the diesel Nano can eat into sales of the Alto thanks largely to the fuel price differential which is presently playing havoc in the premium hatchback and sedan segments.

It has been particularly tough for the likes of Honda which only have petrol options on offer for the Brio and City models. And it is not as if other carmakers are happy with the situation because they are not unaware of the fact that this lopsided demand is happening because of the pricing structure.

“Once diesel prices are hiked, petrol cars will be back in the reckoning,” an industry source said.

The truth, though, is that any price increase in diesel will only be nominal at about Rs 3 per litre as anything more can stoke inflation. Petrol prices, on the other hand, could see a relatively steeper hike (of up to Rs 5/litre) which means it will continue to be a lot dearer. The net result is that the demand for diesel cars will continue unabated.


(This article was published on April 14, 2012)
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