Slowdown blow: Hyundai drops diesel engine plant plan

The slowdown in the Indian automotive market has resulted in its first major casualty, with the country's second largest car-maker Hyundai Motor shelving a plan to set up a diesel engine manufacturing plant at an investment of Rs 400 crore (Rs 4 billion).

The wholly owned Indian subsidiary of the Korean auto giant, which has witnessed a sustained decline in sales over the past couple of months, cited sluggish demand as the reason for putting the project on the backburner for the time being.

When contacted, a Hyundai Motor India Ltd spokesperson told PTI: "Given the fact that the market is not buoyant at the moment, our diesel engine plant plans are on hold at the moment."

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While he did not provide details on how long the company will shelve the plan, the spokesperson said it would at least be for the "medium term".

Nevertheless, "Having invested $2 billion in India (so far), we can only move forward and stay committed to this market," he said.

While the location of the diesel engine plant had not been announced, HMIL managing director and CEO Han Woo Park said in December, 2010, that the firm would invest Rs 400 crore over three years to set up an engine plant with an installed capacity of 1.5 lakh (150,000) units per annum.

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The plant would have manufactured three different engines of 1.1-litre, 1.4-litre and 1.6-litre capacity for the domestic market.

The company had planned to utilise engines manufactured at the plant in its new models and only a few would have been used for replacing the existing models.

At present, the company imports diesel engines from Korea for its models such as 'i20' and 'Verna'. HMIL has an installed capacity to produce 6.7 lakh (670,000) vehicles per annum.

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Although demand for diesel cars has been rising in India due to the increasing price differential between petrol and diesel, HMIL's domestic sales fell by 4.95 per cent to 33,001 units in October from 34,720 units in the same month last year.

HMIL's domestic sales grew by 13.2 per cent to 35,955 units in September, but the same declined by 6.7 per cent to 26,677 units in August. In July too, its domestic sales dipped by 11 per cent to 25,642 units vis-a-vis the corresponding year-ago period.

In the April-October period in this fiscal, HMIL's vehicle sales in India grew by a mere 3.64 per cent to 2,14,436 units from 2,06,901 units in the same period last year.

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Overall car sales in India registered their steepest monthly decline in nearly 11 years in October, declining by 23.77 per cent year-on-year.

This was on account of a huge drop in output by the country's largest car-maker Maruti Suzuki due to labour trouble at its plants as well as high interest rates and fuel prices.

The October fall marked the fourth consecutive monthly decline in car sales on a year-on-year basis since July.