Rise in the demand for diesel cars in India leaves automobile manufacturers in a dilemma

Thursday 12 January 2012, 16:21 PM by

Automobile manufacturers in India are facing a huge problem, whether to bring out diesel or petrol variants. The trends in the Indian auto market refuse to favour majority of car makers as demand for diesel-run vehicles has been on the rise.

Maruti Suzuki, the leading auto maker in India, and Hyundai Motor Co. which collectively contribute to 70 per cent of the total passenger car sales in India are hesitant in manufacturing more diesel variants, even though the companies may loose potential customers.

Arvind Saxena, Director, Sales and Marketing, Hyundai India Unit, said “We are still contemplating.” Most industries in India depend on the policies formulated by the government and hence the automobile manufacturers are also affected by these. "If we invest, and in months, or years, the (diesel) price rises, we are left high and dry." Arvind Saxena had said during the Delhi Auto Expo 2012.

Rise in the demand for diesel cars in India leaves automobile manufacturers in a dilemma | CarTrade.com
demand for diesel cars

The deregulation of petrol prices had been announced by the government in June 2010 and thereafter, prices have increased by 30 per cent. In comparison, the diesel fuel, utilised mostly by farmers and manufacturers, continue to have subsidised rates. Currently petrol is about 56 per cent more expensive than diesel. However, the latest reports coming in also state that there might be fresh taxes levied by the federal government on diesel, which may lead to a disturbance in the demand. The taxes are most likely to be declared in the upcoming budget of 2012-13.

Mayank Pareek, Head of Sales and Marketing, Maruti Suzuki India, said that since no decision was taken by the government yet, it left the makers in a fix. "Our engineering people tell us that if you set up a plant (for engines) with a capacity of 100,000 vehicles, it costs 1,000 crores (10 billion rupees, or $189 million). Now the call of this decision is 1,000 crores -- to do or not to do?" he further added.

Previously the total sales of diesel cars in India amounted to less than 20 per cent, but currently it is as much as 40 per cent. Maruti Suzuki, mainly a petrol automobile manufacturer, witnessed a drop of 16 per cent in its total sales for the April to December time period. The major reasons for this fall were rise in petrol prices and high interest rates along with labour problems at the factory’s manufacturing plant.

The fall in demand led Maruti Suzuki to reduce production of most of its car models in August, whereas long waiting periods for a few diesel models. According to R.C. Bhargava, Chairman, Maruti Suzuki India, if the company had manufactured more diesel cars then the sales would not have been affected so much. Manufacturers like Mahindra & Mahindra and Nissan Motor Co. did not have to face this issue as both of them have adequate infrastructure that supports production of diesel vehicles.

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