As diesel, petrol reach price parity, Maruti bets big on CNG models

G Balachandar Chennai | Updated on June 29, 2020

Top carmaker Maruti Suzuki India Ltd (MSIL) sees itself having an edge as price parity has been reached between petrol and diesel, though record-high fuel prices could delay demand revival in the passenger vehicle (PV) segment.

With its strong portfolio of cars with petrol and CNG options, Maruti is now chalking out plans to give an aggressive push to CNG models in place of diesel cars, which have become expensive as a whole. While the entire PV market saw a two-digit decline in sales in FY20, Maruti’s CNG sales grew about 6 per cent at 106,443 plus units.

Maruti, which offers CNG options across eight models, now hopes to achieve sales of 135,000-140,000 units in the segment by the end of this fiscal year.

“CNG variants will be an alternative option for those who had decided to buy a diesel car for lower running costs. Though prices of CNG models are higher than petrol cars, the gap is ₹50,000-60,000 only, unlike in diesel. Also, factory-fitted CNG models now promise better running costs, in addition to assuring safety and performance,” said Shashank Srivastava, Executive Director (Marketing & Sales), Maruti Suzuki India.

Meanwhile, the government’s proposed expansion of CNG outlets across the country is expected to augur well for the company. As of March 2019, there were about 1,700 CNG fuel stations and this will double by the end of this year.

Marketing campaign

Maruti is also planning an aggressive marketing campaign to support its CNG push, discussing the advantages of buying a factory-fitted CNG car for economic and safety reasons.

The increased CNG focus has been driven by the recent increases in fuel prices. For the first time in many decades, diesel prices have attained parity with petrol due to the recent hike in indirect taxes. Of course, the gap between diesel and petrol has been narrowing from about ₹31 in FY13 to ₹7.60 in FY19, ₹6-7 in FY20 and now less than ₹5 on an average, while in some locations, diesel is actually costlier than petrol.

The development appears to favour Maruti, which had decided to stop offering diesel options in small cars due to cost issues. Though many felt it would impact Maruti in the BS-VI era, the fuel price parity now has proven otherwise.

The share of diesel models in overall car sales has been coming down over the past few years. Barring categories such as some large utility vehicles and sedans, the share of diesel models has fallen in most segments. From 60 per cent of overall PV sales in FY13, it declined to 37 per cent in FY19 and 28 per cent in FY20. It was 14 per cent in Q4 of FY20. In the hatchback segment, it was just 5 per cent during Q4 of FY20. Now, even in entry level SUVs, petrol models have a dominant share in terms of volume.

Thus, the economic reason to buy diesel appears to be vanishing. Also, the difference in acquisition cost (ex-showroom) between petrol and diesel variants has increased from ₹86,000-1.20 lakh to ₹1.50 lakh in the BS-VI era.

The running cost is expected to be higher now for diesel at ₹3.5 per km compared with ₹1.5 km for CNG and ₹2.70 for petrol. “On a a total cost of ownership basis, diesel will become expensive, except for the fleet segment,” noted analysts at Motilal Oswal Securities.

Published on June 29, 2020

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