Demand for diesel cars likely to peak next fiscal

Years ago, the then Maruti Udyog's biggest grouse was that its Gypsy jeep had to cough up 40 per cent excise duty compared to just 15 per cent for other multi-utility vehicles powered by diesel. Maruti only had a petrol portfolio and its first foray into diesel was with the Zen fitted with the Peugeot TUD5 engine in 1998.

The diesel versus petrol debate stemmed from the skewed excise duty structure, which has since been remedied in the 21st century. However, the bigger problem now is that the price differential between petrol and diesel has doubled in the last eight months to over Rs 20 a litre. During this time, petrol has become dearer by Rs 10 and is slated for another Rs 2/litre price increase in the coming days.

Making hay

As a result, auto industry sources see the market making a demand for more diesel cars, which, in turn, could have its fallout on petrol-driven models. The same Maruti, which was a slow starter in diesel till the late 1990s, is now a significant player with Fiat's 1.3 Multijet. The global alliance with Volkswagen could give it access to a larger diesel engine portfolio.

Likewise, General Motors India missed having a diesel option for its Beat and watched its US counterpart, Ford, leverage this advantage with the Figo. It's not as if petrol cars have been completely consigned to the archives but manufacturers are increasingly realising that the price differential is going to be a bigger issue than they thought.

And this has been happening for years now. Even during the bizarre excise duty days, diesel's cheap pricing always gave it the upper hand in the market. When Ford opened bookings for the Escort in the 1990s, over 80 per cent were for diesel.

This is what inspired Peugeot to launch the 309 GLD except that the company decided to pack up later and exit India. The same engine was used by Maruti and Hyundai for a while before both companies moved to other options.

Tata Motors, likewise, turned to diesel for the Indica with the petrol version barely accounting for ten per cent of production during its launch in 1998. In fact, sources say had the company followed this for the Nano people's car, it would have had a far more profound impact in the market rather than go through the long phase of hiccups. Indications are that the diesel Nano will be out next fiscal which could just do the trick in ramping up numbers.

With diesel, manufacturers can also hope to access segments beyond personal buying, a list that includes hotels, taxis, tour operators etc. ?It is all very nice for companies to proclaim that their products are driven by demand in the personal segment but market dynamics decide otherwise,? an industry official said.

The petrol drive

So, is it all over for petrol? Not quite considering that the largest model sold in India, the Alto, does not have a diesel version. Similarly, Hyundai has woven its success story here largely around petrol. Toyota and Honda's new compact car offerings, the Liva and Brio, will have little to do with diesel.

At one level, nobody can fault Mr Jairam Ramesh, the Environment Minister, for his comments on inexpensive diesel fuelling costly cars and UVs. However, it is really up to the Centre to frame out a policy where subsidised diesel is only meant for commercial vehicles. There is no point levying higher excise duties on personal cars/UVs merely to discourage buying them.

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