A rise of Rs. 7.5 in petrol price has triggered a strong response from the automobile industry of India, which is now looking towards diesel cars to drive sales in the country. Despite this huge hike in price of petrol, cost of diesel remained unchanged as it is regulated by the government.
In India, the sales ratio of petrol and diesel cars is 1:1, but this figure is all set to be skewed as leaders of the industry believe that demand for the latter will spiral due to this hike. Hatchbacks, Sports Utility Vehicles (SUVs) and Multi Purpose Vehicles (MPVs) powered by diesel account for 47% of the car sales in the country at present. The disparity between diesel and petrol stands at Rs. 25 per litre, which resulted in a 15% decline in sales of petrol cars in the 2011-12 fiscal, while diesel car sales grew 25%. Moreover, the average waiting period for diesel cars is at least one month, whereas petrol vehicles can be taken home at the time of booking itself.
Pravin Shah, Chief Executive, Automotive Division, Mahindra & Mahindra Ltd., stated, "This is another solid blow to the industry after excise duties were hiked a few months ago. The hike will push overall cost of ownership for the customer and it will definitely have an impact on demand. Growth in April had been on the lower side and there has been no improvement yet.” Nevertheless, this hike will not affect the company since close to 99 per cent of its passenger vehicle sales are through diesel models only. On the other hand, Honda Siel will bear the brunt the most as it does not offer any diesel powered car in India.
According to RC Bhargava of Maruti Suzuki, this hike will increase the difference between petrol and diesel sales even more. He said that the government may choose to hike the price of diesel as well or raise the taxes on diesel cars in order to maintain parity between the sales of petrol and diesel passenger vehicles in the country.
Director - Marketing and Sales, Hyundai Motor India Ltd (HMIL), Arvind Saxena, commented, “Demand is already under pressure on account of inflation and high interest rates. A hike of such magnitude is good neither for the customer nor for the industry.” The same sentiment is showed by Toyota India and General Motors, with the latter lowering sales targets in the wake of this hike. Toyota has stated that it would be forced to offset losses by raising prices of its cars if the government does not do something.
