Diesel pricing policy put car makers in Dilemma

Friday 02 December 2011, 14:30 PM by

As the decision makers obfuscate the giant auto companies like, Maruti Suzuki and Hyundai over the diesel pricing, the industry leaders are left with no option but to either scrap or postpone their expansion plans. Moreover, with the duty on diesel cars expected to put on weight, the car makers have been discouraged even more.

In the recent past, demand for diesel cars has witnessed sharp hike, owing to the widening disparity between the prices of diesel and petrol that has led to a humongous Rs. 25 per litre gap. It must be noted that the price gap stood at Rs. 9.00-9.50 in June 2010. As a result, majority of cars that run on diesel have a minimum waiting period of 3 to 6 months.

As the country's largest car maker, Maruti Suzuki, is revising its expansion strategy directed towards diesel cars, Hyundai India has already held back its plans of giving rise to a diesel engine plant.

Diesel pricing policy put car makers in Dilemma | CarTrade.com
Diesel Prices

Mahindra & Mahindra and Tata Motors that deal with diesel cars at large scale are mulling upon bringing out a host of petrol engines or revive the existing line-up. The move has been adopted on the heels of the possibility of deregulation of diesel prices by the government.

"The ambiguity over future policy has forced us to re-look at our investment. If we put in Rs 400-500 crore in an engine plant today, it may take two years for it to be operational and if there is change in policy, it will put our entire future strategy for a toss," said Arvind Saxena, Vice-President, Sales and Marketing, Hyundai India.

During the time period of April to October 2011, the diesel cars accounted for 44% of the total industry sales, as against 35% previously, said Shashank Srivastava, Chief General Manager, Marketing at Maruti Suzuki. With contrasting trends prevailing in the market, petrol car sales has witnessed a downfall of about 15%, whereas diesel car sales escalated by about 22% during the last seven months. The upward movement for diesel car sales has been registered amidst the total car sales nosediving by 1.5 to 1.8%.

In order to keep abreast of the mind-bending diesel car demand, Maruti Suzuki announced a small-scale expansion, some time back, at the Suzuki Powertrain plant by 40,000 units. The car maker is about to ink a sourcing deal with Italian car maker Fiat to purchase diesel engines.

"While manufacturers are reacting to existing environment by trying to increase diesel vehicles supply, no one really knows which way the market is headed in the long run," Srivastava said.

At the outset, the demand for Maruti's diesel models is experiencing an increase by 80%; however the figures may alter in view of the high probability that the great advantages accompanying these cars would compress. "With uncertainty towards fuel pricing, especially diesel and excise duty for future, it is difficult for the industry to plan for the future," added Srivastava.

Thus, the proliferation scheme finds itself in the line of fire and car makers are in no mood to dig a deep hole for themselves and prefer to let sleeping dogs lie.

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