A key shift

Maruti's decision to phase out diesel is prudent

Maruti Suzuki sprung a surprise last week when it announced that it would phase out all diesel cars from its portfolio from April 1, 2020. It was only in March that the country’s largest carmaker unveiled a brand new diesel engine, which had more power and more torque than the outgoing unit, to address a long-standing weakness in its product lineup. Since then, it has released newer versions of its best-selling models such as the Ciaz and Ertiga with the new diesel engine. Moreover, one-third of all the cars sold by Maruti Suzuki run on diesel engines at present. There are many segments where the company risks a significant dent in sales. For instance, Maruti Suzuki’s Vitara Brezza dominates the compact SUV segment where 70 per cent of the market belongs to diesel engines. Vitara Brezza does not have a petrol version.

Despite all this, Maruti Suzuki has taken a prudent decision. There are two reasons for this. First, India, in line with the rest of the world, is moving towards more stringent fuel emission norms. Diesel cars have lost their shine in Europe, the world’s biggest market for diesel cars where sales of many variants have fallen by as much as 20 per cent during 2018. Then, there is diesel’s reputation as a dirty fuel, leading the Supreme Court to ban the sale of all high capacity diesel cars, last year. The court directed that diesel cars could only be registered for 10 years in Delhi. This decision had an immediate, huge impact on diesel car sales in the national capital, which is the biggest car buying region. Second, the Indian car market is at Bharat Stage IV, and each shift to a higher level involves costly re-engineering of existing models and engines. Maruti Suzuki Chairman R C Bhargava has said that the shift to Bharat Stage VI emission norms implies that diesel cars will become costlier than their petrol versions. The share of diesel cars in total sales has anyway been dropping from the high of 60 per cent in 2014, driven largely by the government decision to deregulate the price of diesel that whittled down the price advantage of diesel over petrol. In the past, typically, consumers were willing to put up with higher upfront prices of diesel models because the running costs were significantly lower than the petrol ones. But this gap has steadily reduced over the years — for instance, seven years ago, every litre of diesel was Rs 27 cheaper than petrol. Today, that gap is barely over Rs 6 per litre.

Maruti Suzuki is thus justified in its conclusion that consumers are likely to steadily move away from diesel models for reasons of pricing, which remains a key determinant. It is true that just like the consumers, the whole ecosystem around diesel-powered cars, especially of Maruti which operates mostly at the lower and middle end of the market (almost 70 per cent of small cars sold at present in the domestic market run on petrol engines), are likely to witness significant disruption as a result of this decision. As a fuel, diesel should compete on its own merits in the Indian car market, and not piggyback on fuel pricing policy flaws, as it did so often in the past.