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The Rs 3/litre petrol price hike is going to fuel diesel demand even further and put huge pressure on carmakers and the public sector oil refiners.
On an average, petrol will be dearer than diesel by at least Rs 25/litre (Rs 71 to Rs 46) effective Friday. “The craze for diesel cars will only increase and it will be tough for companies to cope with this lopsided demand,” an auto sector executive told Business Line .
It remains to be seen what impact the hike will have on petrol-driven compact cars. For instance, when prices were hiked by Rs 5/litre in May this year, it hit sales of some top-selling Maruti models like the Alto and Wagon R by nearly three per cent in the short-term.
Big setback
Carmakers like Honda have constantly maintained that this fuel price differential has been a big setback since it does not have a diesel engine in its portfolio. Over the last few months, the company has attempted to offset this disadvantage by reducing prices of the City and Jazz models but the recent price hike could only make things more difficult.
Honda is now getting ready to launch the Brio at a competitive price and it is a moot point if the absence of a diesel option will make a difference to its fortunes. Almost every other carmaker, right from Maruti and Ford to Toyota and General Motors, has a diesel option in its compact car kitty. Despite this, they could still find the going tough in terms of meeting the surging demand.
“It's not as if all of us are gloating about getting more orders for diesel cars. We are still very uncomfortable about the subsidy and are not sure when the Government will decide to withdraw it,” a car company official said.
Inflation fear
The truth is that this may not happen in a hurry because any move to deregulate diesel prices will stoke inflation which is already inching towards the 10 per cent mark. For the moment, nobody has a clue on working out a differential pricing model for diesel in cars and trucks. “As a result, expensive cars and sport-utility vehicles will continue to make the most of subsidised diesel even though it is an obnoxious practice,” the official added.
From the oil companies' point of view, leaving diesel prices untouched will hardly help their cause. The losses at Rs 6/litre should be seen in the context that diesel accounts for nearly 60 per cent of the total fuel losses with kerosene and cooking gas taking up the balance 40 per cent. With states like Tamil Nadu reeling under a severe power shortage, use of diesel will only increase in generator sets and deflate the profits of the refiners.
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