Customers have started to factor in the narrowing gap between petrol and diesel and the premium that needs to be paid for a diesel vehicle.
Buyers are ditching diesel cars, bringing their share in new sales to 34 per cent in April, the latest month for which data is available.
This is driven by a closing gap between the price of diesel and petrol, and a falling value of older diesel vehicles in the resale market. Falling sales of utility vehicles, the bulk of which have diesel engines, is another factor.
The share of diesel vehicles was 37 per cent of all passenger vehicles in 2014-15, down from 42 per cent in 2013-14 and 47 per cent in 2012-13, according to the Society of Indian Automobile Manufacturers (SIAM). The trend is good for the environment as diesel exhaust pollutes more than petrol.
Diesel prices were freed last October and its price has since moved with the market. In May, the price of diesel went up by 10.7 per cent, same as the hike in the price of petrol. When the government decontrolled diesel, the gap between petrol and diesel prices was down to Rs 11 a litre from Rs 18 in January 2014.
The gap has now increased to Rs 16 but it is clear diesel prices will continue to be market-lined and buyers find no long-term incentive to buy diesel cars.
“One of the key motivations for buying diesel cars used to be the low cost of ownership due to a big differential between petrol and diesel prices. Now, the cost of owning a petrol car is marginally higher if you take into account the premium one pays for a diesel car,” said Rakesh Srivastava, senior vice-president and division head (sales and marketing) at Hyundai Motor India. Srivastava expects the share of diesel vehicles to settle in the range of 30-35 per cent.
Buyers in cities like Delhi are also apprehensive they may not be able to drive diesel vehicles for long after an order by the National Green Tribunal to ban diesel vehicles older than 10 years.
The order is yet to be implemented, but its impact is already seen in the falling prices of used diesel cars.
Vishnu Mathur, director-general of SIAM, said the high demand for diesel vehicles was based on artificially low diesel prices. “The demand will now be based on the pure economics of fuel efficiency and vehicle price,” he added.
According to the Petroleum Planning and Analysis Cell, a wing of the petroleum ministry, petrol sales grew 11.4 per cent in 2014-15 while diesel sales grew 1.5 per cent. In April, petrol sales grew 18.7 per cent and diesel sales 9.3 per cent.
