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As market shifts to petrol, carmakers struggle with diesel capacity

Just four years ago, the country was in the grip of a diesel drive. Price decontrol of the fuel and greater green concerns have since led to a turnaround, and auto makers have been left clutching at straws with demand rapidly shifting to petrol

business Updated: Apr 05, 2016 15:43 IST
Sunny Sen
Sunny Sen
Hindustan Times
Capital turnaround: With the ban on large diesel engines, Toyota cannot sell the Innova in Delhi any more. And 12% of its sales come from the Capital.(HT File photo)

The year was 2012-13. Jnaneswar Sen, head of sales and marketing at Honda Cars (India) was struggling to meet sales targets. There had been a sudden rise in demand in diesel cars, and Honda didn’t have any in its portfolio. The company’s market-share dropped below 4%. “It was a tough period for us,” he said. As much as 58% of all passenger vehicles sold that year were diesel-driven, up from 48% the previous year. And the price difference between the two fuels was at an all time high -- Rs 30!

Bowing to market demands, Honda launched its sub-four metre Amaze sedan with a diesel engine in April 2013. The turnound was dramatic. The car got a rousing reception, and its diesel engine even more so: 80% the Amaze units sold had diesel engines. Soon, every single car in the Honda portfolio got a diesel variant. And the company’s market-share leapfrogged to 7%.

You would have thought Sen would be content today. Far from it.

The problem is different, though. Since 2012-13, soon after Honda took to diesel, the demand for diesel cars started dropping. Reason? The price of diesel had been decontrolled, and the advantage vis-a-vis petrol came down rapidly. From April 2015 to February 2016, the diesel vehicle sales came down to 44%, and is expected to dip further. With the Amaze itself, diesel contributes just 30% to overall sales.

“We had made a lot of investments in our diesel capacity, we are utilising the capacity as we introduced diesel in more models… We are exporting as well,” said Sen.

Honda is just once example. Other carmarkers too are struggling with this transition in the market. In 2012-13, 97% of all utility vehicles (UV) sold had diesel engines. That has come down to 88%. Mahindra & Mahindra, predominantly a diesel UV maker, is in talks with engine component manufacturers for petrol cars. M&M’s executive director Pawan Goenka confirmed that the company is working on petrol vehicles.

For Maruti Suzuki, which sells one out of every two cars in the country, has seen its diesel mix go down to 30% from 38% during the peak. Its 800cc small diesel engine for the Celerio hasn’t done well so far, and sells one-fourth of capacity.

The bigger problem is that products are built over years. Maruti’s new compact SUV Brezza was conceptualised in 2012-13, so a petrol variant was not in the scheme of things. “That time diesel was an in thing,” said Randhir Singh Kalsi, head of sales and marketing at Maruti Suzuki. So, is there a petrol engine coming? “There are a number of projects in the pipeline, but not in the near future… But we have seen a significant shift towards petrol in hatchbacks,” Kalsi said.

The new additional cess of 2% on diesel vehicles and ban on diesel vehicles above 2000cc is making things worse. Toyota is one company which is feeling the heat. Its highest selling vehicle, Innova, can no longer be sold in Delhi, which accounts for around 12% of Innova’s sales. “We will not be making petrol Innovas, or even reduce the engine capacity of the vehicle. That will be compromising with the quality,” said Shekar Viswanathan, vice-chairman of Toyota Kirloskar Motor. Result: No new Innovas in Delhi.

Since the Supreme Court order came on December 16, according to Honda’s Sen , there has been a 5% shift towards petrol cars. That’s sudden, and unwelcome.

First Published: Apr 05, 2016 15:43 IST