Carmakers want clarity on diesel pricing

The “inflationary impact” of the Government's move to raise diesel prices by Rs 3, combined with rising interest rates, may lead to a short-term impact on car sales, according to the industry.

Domestic carmakers are worried that an “uncertain pricing strategy” for diesel could put their long-term investments on diesel technology and engine manufacturing at risk. On June 24, the Government had increased diesel prices by Rs 3, thereby reducing the gap with the more expensive petrol to Rs 22.25 (Indian Oil, in Delhi). In Delhi, petrol prices currently stand at Rs 63.37.

“In the short-term, as far as market sentiment is concerned, there will be a negative impact of the diesel price increase. We need a clear direction in terms of the fuel policy. Today, companies are investing in diesel with a long-term plan. This will be difficult to change later if the Government drastically changes diesel pricing and the sales drop as a result,” Mr Shashank Srivastava, CGM (Marketing), Maruti Suzuki, told Business Line .

For Maruti, which sells every second car in India, diesel models account for over 70 per cent of the sales where available. “The demand for our diesel cars is very high. We're examining expanding the production of diesel engines,” he said.

With diesel significantly cheaper than petrol (by Rs 25 in the last week), sales of diesel cars had seen a rush in recent times. Uncertain pricing is underlined by the fact that in June 2010, diesel price was 80 per cent of petrol (gap of Rs 9.80), but by May this year it became 59 per cent of petrol.

This had prompted most major players such as Maruti Suzuki, Hyundai and General Motors to announce substantial investments in the last few years on the development of diesel technology and engine manufacturing.

“There needs to be some clarity on diesel pricing. This will help us augment our investments. However, diesel car sales are higher not only because of the price differential, but the fact that these engines are more efficient and cleaner,” said Mr Arvind Saxena, Director, Marketing and Sales, Hyundai Motor India.

Hyundai, which imports diesel engines from Korea for the i20 and the Verna, has announced plans to build a new diesel engine plant for production by 2013.

Meanwhile, General Motors started production at its new engine plant at Talegaon late last year. The facility produces both diesel and petrol engines. .

“On an overall basis, an increase in diesel prices will add to the dampened mood in the market. With the price gap reducing, many people who were on the margin and still deciding whether to go for a diesel car, may not want to any more,” said Mr Vishnu Mathur, Director-General, Society of Indian Automobile Manufacturers.

He added, “A road map is needed so that the industry can know how to invest in diesel. Like Europe, we need a strategy on clean diesel technology.”

Though diesel car sales are up due to the lower pricing of the fuel, diesel engines are also 20-30 per cent more efficient. This makes diesel cars more cost-effective to run, even when they are generally more expensive to buy.

Apart from the compact car segment, diesel car sales have also gained strength in the entry and mid-size sedan segments where models such as the Volkswagen Vento, Skoda Laura and Chevrolet Cruze are popular. Meanwhile, most sports utility vehicles sold by Tata Motors, Mahindra & Mahindra, Ford and Toyota, also run on diesel.

> roudra.b@thehindu.co.in

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