Business Today

Dilemma... What Dilemma?

Carmakers claim their plans, and plants, are flexible enough to handle any changes in fuel pricing policy and diesel car bans. But is it really that simple?
twitter-logoNevin Johnand twitter-logoAlokesh Bhattacharyya | Print Edition: May 10, 2015
Are carmakers’ plans flexible enough to handle any changes?
Photo: Reuters

On April 8, the National Green Tribunal (NGT) banned diesel vehicles older than 10 years from plying in Delhi (it then suspended the order for two weeks). What does that mean for the industry? A Tata Motors official says the ban could generate an 'anti-diesel' sentiment in buyers' minds. "Another fear is that NGOs and activists in other cities might follow suit to get older diesel vehicles banned there."

Analysts offer a different perspective. "When older vehicles go off the road, there will be fresh demand for new vehicles," says Rakesh Batra, Partner and National Leader, Automotive Sector, Ernst & Young, but adds that demand for diesel vehicles could be hit. Abdul Majeed, Partner at Price Waterhouse, doesn't expect demand to get affected because the difference between diesel and petrol prices is now only Rs 12, and because buyers will continue to prefer diesel for heavier vehicles such as SUVs.

So, will carmakers face a dilemma in terms of planning petrol vs diesel cars? Nobody seems to think so. Maruti Suzuki's spokesperson says it takes a long-term view of products and technologies, and market shifts only entail 'short-term' adjustments for them. Adds Skoda Auto's CMD Sudhir Rao: "We are competent in both fuel technologies and will adjust product strategy as market demand evolves."

Companies claim they didn't face a product mix dilemma even after petrol price deregulation in June 2010 led to a huge difference in the prices of petrol and diesel and consumers shifted large-scale to diesel cars. Carmakers had then invested heavily in diesel production lines. As a result, sales soared. Maruti Suzuki's share of diesel vehicles in its sales rose from 17 per cent in 2010/11 to 37 per cent in 2012/13 (it is 31 per cent now). Honda, which didn't have a diesel car in 2010 and saw its market share reach two per cent in 2011/12, launched several diesel cars since. Today, its market share is over seven per cent. Jnaneswar Sen, its Senior Vice President for Marketing and Sales, says 60 per cent of Honda's sales come from diesel cars.

The pot stirred again in January 2013 when diesel prices were deregulated. Petrol swung back into favour. And with the NGT order, petrol is looking even better. Does that present another dilemma for carmakers? Everyone says no. But as Majeed adds, diesel is 30 per cent of the 2.6-million unit Indian passenger vehicle market. And any pan-India ban on old diesel cars will surely have an impact.

(Follow the authors on Twitter: @nevinjl and @alokeshb)

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