Auto demand to be further skewed towards diesel

With petrol prices hiked again today and fears remaining about price volatility of the deregulated fuel, auto manufacturers in the country are expecting a jump in demand for diesel-driven passenger vehicles.

Oil marketing companies, reeling under huge losses due to high crude price in the international market and the rupee depreciation, raised petrol prices on May 24 by Rs 7.54.

But diesel prices, which are still regulated, were left untouched.

The domestic car market, which sees sales of almost one diesel car for every petrol car sold, will see demand for diesel-powered cars to hit the roof in the wake of the latest rise, say top officials at the country's leading auto makers.

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Diesel-driven passenger vehicles, such as cars, sport utility vehicles and multi-purpose vehicles, account for 47 per cent of the domestic market today. Share of petrol-powered cars has been on a declining trend ever since the fuel was deregulated by the government in 2010.

"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," said Pravin Shah, chief executive, automotive division, Mahindra and Mahindra Ltd. He, however, said Mahindra "will not be impacted by the hike" as about 99 per cent of all passenger vehicles sold by Mahindra were powered by diesel engines.

Honda Siel Cars India Ltd will be most affected by the rise since its entire line-up is powered by petrol engines.

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Market leader Maruti Suzuki India Ltd, which has five models powered by diesel engines, is expecting a further rise in demand for such vehicles. R C Bhargava, chairman of Maruti Suzuki, told a TV channel: "The hike will further widen the gap between petrol and diesel cars. Something needs to be done to balance the demand for both types of vehicles. May be the government can raise the excise duty on diesel cars or raise the price of the fuel. The government should make it clear to what extent does it want dieselisation of the industry."

Added Arvind Saxena, director (marketing and sales) of Hyundai Motor India Ltd (HMIL), said, "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."

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Toyota Kirloskar Motor Pvt Ltd (TKM), a joint venture between Japan's Toyota Motor Corp and India's Kirloskar Group, which at present reports around 30 per cent of the 'Etios' and the 'Liva' sales from the petrol variant and half of overall volumes of the 'Corolla Altis' model from the petrol fuel option, is expecting an impact on demand.

Sandeep Singh, deputy managing director (marketing), TKM, said: "The rupee depreciation, coupled with the steep hike in petrol prices, will hit hard the entire auto industry. The government has to take some action, otherwise we would have no option but to pass on the rise in input costs to customers."

The latest price rise would further affect sales of petrol cars, Singh said.

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With the cost differential between the two fuels already standing at Rs 25/litre, sales of diesel variants grew 35 per cent in 2011-12. Petrol cars sales fell by 15 per cent in the last financial year, according to industry officials.

While petrol driven cars are available off-the-shelf for diesel cars the wait is more than one month on an average.

P Balendra, vice-president (corporate affairs) of General Motors India, said: "The market was already sluggish and now with the cost of ownership of petrol cars going up, sales will be hit further. We were earlier expecting growth of 8-10 per cent in the current financial year but with this latest development it is possible that sales growth may go negative again."