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Maruti Suzuki's new diesel engine plant only first of many to come

India's largest carmaker has announced the setting up of a diesel engine unit in Gurgaon as it estimates two-thirds of vehicular demand this year to be for diesel cars.

Kushan Mitra        Last Updated: March 29, 2012  | 16:22 IST

Kushan Mitra
Late last Friday evening, Maruti Suzuki India Limited sent out an email invitation asking reporters to visit their headquarters late Saturday afternoon. Most press events are usually well-planned events, even for Maruti which does most of them at their headquarters, which one senior Maruti executive told me was always "cheaper and easier than a hotel". And when Maruti invites the auto reporter corps for a sudden press conference, Saturday or not, everybody attends. Most of us, anyway.

So what was the press conference all about? It was Maruti Suzuki announcing that they were about to invest Rs 1,700 crore in building a 3,00,000 unit a year diesel engine unit at their Gurgaon factory. Chairman RC Bhargava said the skew towards diesel car sales had forced Maruti's hand.

"Forty seven per cent of cars sold on Indian roads today are diesel-powered. Under 20 per cent of the cars we sell will be powered by diesel engines," he told the assembled journalists.

Bhargava expects that in the next financial year - April 2012 and March 2013 - Maruti will see demand for petrol vehicles drop by 50,000 units, although sales will grow thanks to 1,50,000 new diesel cars the manufacturer will be able to produce.

Even though the first phase of the new diesel engine plant will only come on-stream by mid-2013 with a capacity of 150,000 engines, the additional diesel engines will come from Maruti's sister company Suzuki Powerplants and from Fiat India with whom Maruti has signed a deal for the supply of 100,000 engines.

This use of the Gurgaon plant for manufacturing diesel engines also means that Maruti will drastically reduce production at their original factory.

While the diesel plant will come on land that is presently used for parking vehicles, the second phase will involve the demolition of one of their existing lines. As MM Singh, Executive Officer, Production at Maruti points out, the new lines coming up at Manesar in mid-2012 (Line B) and mid-2013 (Line C) will pick up the slack.

As for the parking issues, Singh said that Maruti is also building a highly advanced multi-level car-stacking system.

In addition, Bhargava did mention that Maruti is in advanced stages of negotiations with the Gujarat government for land. While Maruti Suzuki has made its intentions clear to set up their third production site in the western Indian state, that factory will not come on stream in the near term as the additional Manesar lines start production.

Yet, Bhargava and Shinjo Nakanishi, Maruti's Japanese chief executive did say that an announcement will be made by the middle of this year. Do expect Narendra Modi to use that announcement as a central plank of his election campaign come winter.

As for diesel, even with the additional engines, Maruti believes that only 40 per cent of their production will be off-diesel cars.

Maruti's own estimates have two-thirds of vehicular demand this year to be for diesel cars, particularly since the Union Budget did not impose a 'diesel' tax on cars.

Even the country's second-largest car-maker Hyundai Motor has dusted off a long-shelved plan to build a new diesel engine plant in Chennai. Maruti's Executive Officer of Sales and Marketing, the man whose job it is to sell cars, admits that the rush to diesel is hurting Maruti. "I will not say that we will need to use inducements to attract car buyers to petrol cars," he pointed out.

Ironically, the rush to diesel hurts the buyer of small petrol cars the most.

None of the most popular small cars in India - Maruti's Alto and WagonR, and Hyundai's Santro and i10 - have diesel variants and despite advances in fuel-economy, with petrol still costing on average Rs 25 a litre more than diesel, the logic of spending money on a petrol car for people who travel more than 800-1000 kilometers every month is non-existent.

Expect more announcements on the diesel front soon.

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