Dizzy diesel prompts car price rethink

After the fuel’s deregulation, buyers don't see the rationale behind paying a hefty premium over the petrol variants

In view of the expected loss of pricing advantage of diesel following its deregulation, car makers are rethinking their pricing strategies for both diesel and petrol models.

At present, diesel passenger cars command a premium over petrol cars, largely because of the superior demand enjoyed by them. Being more expensive, petrol models were hitherto at a disadvantage.

As diesel's price was kept artificially low by the government until it decided to deregulate it recently, allowing oil marketing companies to decide the price. Despite the premium on diesel models, the car market was heavily skewed in favour of diesel versions. The difference was so stark that nine units from every 10 units sold were diesel models.

Currently, diesel models command a premium ranging from Rs 80,000 for hatchbacks to nearly Rs 200,000 for C segment sedans over the petrol versions of the same models with near-identical peak power delivery.

However, with the deregulation of diesel, consumers have flocked to petrol versions as they see little advantage of paying a huge premium for diesel cars. In addition, maintenance costs of a diesel model is higher than that of a petrol model.

Therefore, companies are working towards revisiting their pricing strategies as the premium will lose its relevance in future. In several cases, high demand for diesel models used to make up for the loss in demand for petrol versions for car markers.

Although carmakers refuse to disclose their pricing strategies, sources say that efforts to make diesel versions more affordable have already kick started.

Anil Mehrotra, chief financial officer, General Motors India, said, "In the medium- to long-term, nobody can survive by selling below cost. So there will always be a natural difference between petrol and diesel prices, so what it is for different companies will be different numbers. I cannot disclose my pricing strategy.”

Companies that produce their diesel engines locally are at an advantage to reduce prices than those that have to import engines. Toyota Kirloskar, for instance, imports its engines from Thailand.

Sandeep Singh, deputy managing director and chief operating officer of Toyota Kirloskar, said, "We cannot reduce the price of diesel because we import them while petrol engine are made here. For us, margins on diesel models are very less. Petrol versions have seen a positive shift in demand. We are expecting the share of petrol models to go up to 25 per cent from 15 per cent earlier and 20 per cent now.”

Demand for diesel cars, which until recently accounted for 58 per cent of total passenger vehicle sales in India every month, had hit the roof even as manufacturers continued to introduce new models and variants strapped with diesel engines.

"Petrol models will gain significance in time putting diesel at a disadvantage. Moreover, the mileage figures generated by both the fuel versions are not too different these days due to significant improvement in efficiency of petrol engines", said an automotive consultant based in Mumbai.