 "SC, green panel to decide fate of Delhi's diesel cars today")
Diesel vehicles have of late got the whip from those concerned about damage to the environment. First came the Supreme Court registration ban on vehicles having engines above 2,000cc and then the ban on taxis operating on diesel.
The automobile sector has been hit hard. An estimated Rs 5,000 crore was invested in building diesel engine capacity when demand picked up between 2009 and 2013 and the government continued subsidising the fuel. Now, however, diesel’s future looks dim. The stand against diesel vehicles has impacted sales and the price differential narrowed with petrol.
At stake is the capacity set up by numerous original equipmet makers. About a month after the Supreme Court banned sales of large diesel cars in the National Capital Region, Mahindra & Mahindra reacted with new SUV variants to circumvent this. This move helped it to restore earlier sales levels in the region. Though such re-engineering and diversification to petrol engines helped M&M, investment on diesel technology will also have to be revisited, company officials agree.
Pravin Shah, president and chief executive (automotive) at M&M, said: “For any investment, we need a stable business environment to enable it live out its life. We take long-term investment plans into cognizance while developing engines and it cannot be an overnight decision to reverse it.”
Maruti Suzuki, Hyundai and Honda had invested in diesel engine capacities between 2011-12 and 2013-14, when diesel car demand was at its peak. The deregulation in petrol prices in 2010 (even as diesel was regulated) led to widening of the price gap between the two fuels, substantially influencing car buyer preference.
That trend is reversing. Research and rating agency ICRA says diesel accounted for 44 per cent of the 2.78 million passenger vehicles (PVs) sold last year, down from the peak of 58 per cent of the 2.68 mn PVs in 2012-13.
“On the one hand you have petrol vehicle buyers waiting and on the other, you sit on unsold diesel vehicles. We have seen a swing of 15 per cent to petrol variants (from diesel) in the case of (our) City (model) during the first quarter of 2016. The situation is uncertain,” said Jnaneswar Sen, senior vice-president (marketing and sales) at Honda Cars India.
The rate of swing back to petrol is less aggressive than the swing towards diesel six years earlier. From a mere 15 per cent in 2007-08, the share of diesel vehicles marked a near four-fold jump to 58 per cent in 2012-13. The rate of shift to petrol has been milder, as diesel lost only 14 percentage points share in the past three years, according to ICRA.
Toyota Kirloskar has thus gone ahead with its planned investment of Rs 1,100 crore for a new unit with annual capacity of over 100,000 diesel engines a year. These will power its Innova and Fortuner models, both of which use imported engines at the moment. “The plant's inauguration,” said N Raja, senior vice-president, sales and marketing, “demonstrates our strong belief that diesel is a good fuel when used with the latest technology. Diesel engine technology will continue to be an integral part of every automobile maker, considering the stringent fuel efficiency norms being introduced in year 2017.”
Beside increased activism against diesel for being the chief polluter, a major reason behind the demand shift back towards petrol models is the reducing price gap. From as high as Rs 30 a litre in 2012, it narrowed to Rs 10 a litre two months earlier between the two fuels.
With a steep premium of 20-25 per cent (Rs 100,000 and above) over equivalent petrol variants, diesel models are not only substantially more expensive to buy but also to maintain. Further, new petrol hatchbacks are nearly as fuel-efficient as diesel counterparts. Which is why Maruti suspended an earlier plan to double the diesel engine capacity at its Gurgaon factory to 300,000 engines.
It, instead, decided to buy these from Fiat, which has a ready plant near Pune.
"The share of diesel vehicles in overall domestic PV sales moderated to 44 per cent in FY16 and is likely to further decline to 40 per cent by FY17. Over the medium term, it is likely to stabilise around 40 per cent, supported by new model launches in the compact utility vehicle segment and shifting preference towards larger cars, which are largely diesel-driven,” said ICRA.
Guenter Butschek, managing director of Tata Motors, said: “The whole pollution issue requires more global review, a more holistic approach. We are very strongly committed to fuel efficiency (and) to ecologically responsible drivetrains. We are open to all kinds of discussions and fully support the government but let us actually address the problem.”
The automobile sector has been hit hard. An estimated Rs 5,000 crore was invested in building diesel engine capacity when demand picked up between 2009 and 2013 and the government continued subsidising the fuel. Now, however, diesel’s future looks dim. The stand against diesel vehicles has impacted sales and the price differential narrowed with petrol.
At stake is the capacity set up by numerous original equipmet makers. About a month after the Supreme Court banned sales of large diesel cars in the National Capital Region, Mahindra & Mahindra reacted with new SUV variants to circumvent this. This move helped it to restore earlier sales levels in the region. Though such re-engineering and diversification to petrol engines helped M&M, investment on diesel technology will also have to be revisited, company officials agree.
Pravin Shah, president and chief executive (automotive) at M&M, said: “For any investment, we need a stable business environment to enable it live out its life. We take long-term investment plans into cognizance while developing engines and it cannot be an overnight decision to reverse it.”
Maruti Suzuki, Hyundai and Honda had invested in diesel engine capacities between 2011-12 and 2013-14, when diesel car demand was at its peak. The deregulation in petrol prices in 2010 (even as diesel was regulated) led to widening of the price gap between the two fuels, substantially influencing car buyer preference.
That trend is reversing. Research and rating agency ICRA says diesel accounted for 44 per cent of the 2.78 million passenger vehicles (PVs) sold last year, down from the peak of 58 per cent of the 2.68 mn PVs in 2012-13.
“On the one hand you have petrol vehicle buyers waiting and on the other, you sit on unsold diesel vehicles. We have seen a swing of 15 per cent to petrol variants (from diesel) in the case of (our) City (model) during the first quarter of 2016. The situation is uncertain,” said Jnaneswar Sen, senior vice-president (marketing and sales) at Honda Cars India.
The rate of swing back to petrol is less aggressive than the swing towards diesel six years earlier. From a mere 15 per cent in 2007-08, the share of diesel vehicles marked a near four-fold jump to 58 per cent in 2012-13. The rate of shift to petrol has been milder, as diesel lost only 14 percentage points share in the past three years, according to ICRA.
Toyota Kirloskar has thus gone ahead with its planned investment of Rs 1,100 crore for a new unit with annual capacity of over 100,000 diesel engines a year. These will power its Innova and Fortuner models, both of which use imported engines at the moment. “The plant's inauguration,” said N Raja, senior vice-president, sales and marketing, “demonstrates our strong belief that diesel is a good fuel when used with the latest technology. Diesel engine technology will continue to be an integral part of every automobile maker, considering the stringent fuel efficiency norms being introduced in year 2017.”
Beside increased activism against diesel for being the chief polluter, a major reason behind the demand shift back towards petrol models is the reducing price gap. From as high as Rs 30 a litre in 2012, it narrowed to Rs 10 a litre two months earlier between the two fuels.
With a steep premium of 20-25 per cent (Rs 100,000 and above) over equivalent petrol variants, diesel models are not only substantially more expensive to buy but also to maintain. Further, new petrol hatchbacks are nearly as fuel-efficient as diesel counterparts. Which is why Maruti suspended an earlier plan to double the diesel engine capacity at its Gurgaon factory to 300,000 engines.
It, instead, decided to buy these from Fiat, which has a ready plant near Pune.
"The share of diesel vehicles in overall domestic PV sales moderated to 44 per cent in FY16 and is likely to further decline to 40 per cent by FY17. Over the medium term, it is likely to stabilise around 40 per cent, supported by new model launches in the compact utility vehicle segment and shifting preference towards larger cars, which are largely diesel-driven,” said ICRA.
Guenter Butschek, managing director of Tata Motors, said: “The whole pollution issue requires more global review, a more holistic approach. We are very strongly committed to fuel efficiency (and) to ecologically responsible drivetrains. We are open to all kinds of discussions and fully support the government but let us actually address the problem.”
