Automakers cheer diesel deregulation

Diesel prices, reduced by Rs 3.37 per litre on Sunday, would henceforth be exposed to the volatility in global crude oil prices

Car and sports utility vehicle manufacturers have welcomed the government’s move to deregulate diesel prices, claiming that this will allow buyers to chose vehicles more objectively.

Diesel prices, which were reduced by Rs 3.37 per litre on Sunday, would henceforth be exposed to the volatility in global crude oil prices.

Since diesel was subsidised, vehicles that ran on it were heavily in demand. (Petrol prices are determined by the market.) This benefited only a handful of car manufacturers.

Two years ago, when the demand for diesel vehicles hit a peak, it accounted for 65 per cent of the total demand in the industry, with some car models reporting a share as high as 85%. Companies like Maruti Suzuki, Mahindra & Mahindra and Ford were able to gain from the anomaly, while others like Honda Cars India suffered as they did not have any diesel cars. The unusual market situation also forced companies like Hyundai to explore a diesel-only engine facility in India.

However, with a gradual increase in diesel rates and owing to its high acquisition price (compared to petrol models), the demand for diesel cars has tapered. According to estimates, petrol cars now account for 55% of the market with the balance 45% being diesel.

N Raja, senior vice-president and director (sales & marketing), Toyota Kirloskar Motor, said: “We welcome the government’s decision to deregulate the price of diesel, especially in time for the festive season. This is good for the consumers, as they can now decide which car to buy, based on their preference and utility. The auto industry is witnessing a positive momentum and this step will further add to the upswing of the industry.”

Despite the high cost of acquisition, buyers were upbeat about diesel cars primarily because of their better mileage (20-25% higher than petrol) and low fuel cost (petrol was 50% more expensive).

This forced several manufacturers, including market leader Maruti Suzuki, to scurry for solutions. Maruti Suzuki entered into a pact to buy engines from Italian company Fiat, despite having a diesel engine facility of its own, which was running to full capacity.

Guillaume Sicard, president, Nissan India Operations, said: “The deregulation of diesel is a bold step taken by the Government of India in the interest of the country’s economy. In the long run, we expect this move to bring about healthy competition in the fuel retailing sector. It will allow buyers to choose from across brands and quality of fuel, and not base their decisions only on price. We expect the deregulation to bring more maturity to customers’ preferences while car shopping. Overall, this is a positive step forward and we welcome it.”

However, contemporary petrol-powered cars are able to run as many kilometers as any diesel car, thanks to the constant research and innovation done by vehicle makers. For instance, the Ford EcoSport, the compact SUV from the US auto giant, returns with a mileage of 17 km per litre while its diesel counterpart runs for 18 km before it must stop for refuelling.