The Rs. 5 per litre increase in the price of diesel fuel by the Indian government has been received positively by the car makers operating in the Indian market. The sluggish sales and slackening demand for vehicles in the country had put the industry players under immense pressure and many had to decrease their production in order to avoid overcrowding of their warehouses. Senior officials from Maruti Suzuki, Mahindra and Mahindra (M&M) and General Motors India have affirmed that the latest hike in diesel fuel price may hit sales initially but the upcoming October-December period will prove better than that of last year, in terms of vehicle demand.
According to Economic Times, R. C. Bhargava, Chairman, Maruti Suzuki India Limited (MSIL), said, “I don't think the hike will have a big impact on demand; there may be a temporary reduction in demand, but off take should pick up by the time the big festivals set in.”
Evidently, Domestic players like M&M and Tata Motors are expected to bear the brunt of the latest hike as most of their products fall in the diesel-run category. However, it is also certain that Utility Vehicle (UV) segment is currently the best performer in the Indian car market and it will be interesting to see how the UV market fares post the hike.
Pleased with the hike, Pawan Goenka, President, Automotive, M&M, affirmed that the company supports the Indian government's decision and said, “We have always believed that the country cannot sustain a high level of subsidy on diesel for long as it has artificially broadened the gap between the two fuels; as far demand goes we don't expect a major impact, with our portfolio growing in double digits.” Goenka pointed out that the hike will decrease the disparity between petrol and diesel rates, which will be helpful for the company in the long run. He also added that the concerns regarding the speculated special tax to be levied on the diesel vehicles seem futile now.
The apex industry body Society of Indian Automobile Manufacturers (SIAM) was also elated by the government's decision. Expressing his vies on the diesel price hike, Sugato Sen, Senior Director, SIAM, said, “We have been asking the government to remove the distortion in fuel prices. The decision to hike diesel price by 5 per litre hike may initially hurt the consumer and induce market inflation, but prices have to be adjusted to the real global scenario and corrected in a staggered manner.”
Honda Cars India rejoiced the decision and are hoping Indian car enthusiasts to shift their focus back towards petrol cars. Most of the Honda products fall in the petrol category and have been comprehensively outsold by the diesel run products in the market, leaving the car maker in a state of gloom. Jnaneswar Sen, Senior Vice President, Sales and Marketing, Honda Cars India, said, “We do see some kind of upside to our sales, but it is difficult to quantify. Some people may move back to petrol, but we will have to continuously educate the customers about why petrol cars are cost effective, at least for those with a not too high daily running.” Sen affirmed that the company welcomes the decision and sees it like a new ray of light for bringing petrol buyers back to its showrooms.
P. Balendran, Vice President, General Motors India, remained positive and accepted the hike but believed that the government's decision came at a vital point as the Indian festival season is just round the corner and the hike will make Indian buyers to re-evaluate their plans of deciding which option to go for- petrol or diesel. According to Balendran, the usual growth in car sales during the festivities is 20 per cent more than the year's average and during the upcoming festive period the market may grow by just 5-10 per cent.
Mahantesh Sabarad, an auto analyst at Fortune Broking believes that the hike in diesel price will surely result in decrease in demand for diesel-run vehicles but the festival season of 2012 will fare better than that of last year. He further affirmed that the good demand for UVs like Renault Duster compact Sports Utility Vehicle (SUV), Maruti Suzuki Ertiga Multi Purpose Vehicle (MPV) and M&M XUV500 SUV will boost sales in the domestic passenger car market during the October-December period.
