With diesel vehicles facing the wrath of the courts due to pollution concerns, car buyers seem to have begun lapping up petrol variants — prompting automakers to recalibrate their production strategy.
Major car makers like Hyundai and Honda are re-working their strategy to meet the demand for more petrol vehicles.
Even in the fancy SUV segment, which has been a stronghold for diesel versions, sales of diesel-powered cars is declining.
In the luxury segment too, market leader Mercedes Benz has predicted that there could be “a tide turning” in India in favour of petrol versions although the company hasn’t witnessed a strong shift so far.
“In the last few months, there has been an accelerated change in demand in favour of petrol vehicles. This is mainly due to the government policy on diesel vehicles (higher excise duty) and cases surrounding diesel vehicles, including NGT order to ban those over 10 years,” Maruti Suzuki India Executive Director (Marketing & Sales), R S Kalsi, told PTI.
He said that between 2013-14 and 2015-16, there was a gradual shift from petrol towards diesel vehicles but the trend has now reversed.
Expressing similar sentiments, Hyundai Motor India Ltd’s (HMIL) Senior Vice President, Sales and Marketing, Rakesh Srivastava said, “The sales of diesel passenger vehicles have come down to 40 per cent of total sales for the industry, from 46 per cent earlier.”
Total passenger vehicle sales in India stood at 27,89,678 units in 2015-16 and in April this year, it stood at 2,42,060 units.
Singling out diesel vehicles
One major factor favouring diesel cars in India in the past has been lower price of this fuel, in comparison to petrol. Singling out diesel vehicles consequent to the pollution problems in the capital, the government decided to impose a 2.5 per cent cess on diesel vehicles of length not exceeding 4 metres and engine capacity not exceeding 1,500 cc, while higher engine capacity and SUVs and bigger sedans were slapped a cess of four per cent on the value of the car.
These are over and above a cess of one per cent on petrol/LPG/CNG driven vehicles of length not exceeding four metres and engine capacity not exceeding 1,200 cc.
The government also proposed “to collect tax at source at the rate of one per cent on purchase of luxury cars exceeding value of Rs. 10 lakh“.
Last December, the Supreme Court banned registration of diesel cars and SUVs with engines above 2,000 cc in Delhi-NCR which has now been extended till further hearing, expected in July.
“The limited ban on diesel vehicles in Delhi-NCR has added to the uncertainty, thereby affecting demand and leading to a shift in preference for petrol over diesel vehicles,” Srivastava said.
He further said, “This shift is even more visible in SUVs, which traditionally had higher percentage of demand for diesel engines. It has seen a pronounced shift towards petrol with diesel demand coming down to 80 per cent from 90 per cent earlier.”
Distinct shift in demand
Echoing his views, Honda Cars India Ltd (HCIL) Senior Vice-President (Marketing and Sales) Jnaneswar Sen said: “Even for our new model B-RV in the SUV segment, where there is normally more demand for diesel, we are seeing even sales of diesel and petrol.”
Sen said there has been a distinct shift in demand from diesel to petrol in Honda Cars India’s (HCIL) models, including the City sedan, which have both diesel and petrol options.
Srivastava said a major reason for consumers preferring petrol vehicles is the reducing gap in the prices of petrol and diesel from Rs 14 a litre to Rs 11.67.
“It substantially increased the cost of ownership of diesel vehicles and played a big role in the shift,” he said.
In the luxury segment, Mercedes-Benz India Managing Director and CEO Roland Folger said: “We haven’t yet seen such a strong shift towards petrol versions, but that wouldn’t mean that there could not be a tide turning.”
He said there could be clarity in the next three months on where it could drift since people are not sure at the moment on the implications of the ban imposed by the Supreme Court in diesel SUVs and cars with engines above 2,000 cc.
When asked if HMIL has adjusted its production according to demand for petrol vehicles, Srivastava said, “We have a flexible engine manufacturing unit which is able to adjust to the shift in demand along with the support of our vendor partners and work to meet the increased requirement for petrol engines.”
Similarly, Sen said: “We have adjusted our production but we can’t do it overnight as it takes time. That has been reflected in our May sales figures as it took a bit of time to supply more petrol engines.”
HCIL’s overall diesel car production came down to 3,194 units in May, from 7,643 units in April. Petrol car production also came down to 7,376 units, from 9,388 units in April this year.
The company’s overall production was down in May due to block closure of plants for maintenance.