Diesel subsidy end good news for smaller cars

Smaller vehicle manufacturers such as Maruti Suzuki India Ltd, Honda Siel Cars India, General Motors India and Toyota Kirloskar Motors, are likely to gain from the government's proposal to end subsidy on diesel for passenger vehicles.

"If diesel is deregulated or a dual diesel pricing scheme is put in place, there would be a level-playing field for petrol- and diesel-driven cars.

"Demand for diesel vehicles would continue to be there, but the momentum would moderate," said Abdul Majeed, leader, automotive practice, PricewaterhouseCoopers.

"Because of the subsidy on diesel, sales of vehicles propelled by the fuel had gone up sharply in the last six months," he said.

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According to industry estimates, sales of diesel vehicles make up a third of the total passenger vehicle sales in India.

In fact, for models available in both variants, the proportion of sales coming from diesel variants increased by 75 to 80 per cent after petrol prices were raised by Rs. 5 a litre in May.

Honda Siel, which has an all-petrol portfolio, is likely to gain the most.

Jnaneswar Sen, senior vice-president (marketing and sales), HSCI, said: "Diesel is subsidised for a specific reason and it should be limited to that. If an effective mechanism is put in place, the choice of which fuel variant is to be opted for would be back in the hands of the consumer."

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Honda has lost out on sales of City because it does not have a diesel variant of the sedan and customers in the segment have shown increased preference for diesel-powered vehicles in recent months.

General Motors, which launched a diesel variant of its small car, Beat, late last Month, said the company was in favour of a market-driven price of the fuel.

"We have diesel models, but diesel has other advantages than simply being a cheaper fuel. Diesel technology today is cleaner and fuel efficiency of diesel vehicles is higher. We would rather let the consumer choose according to his requirements," said P Balendran, vice-president of GM India.

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"The benefit of owning a diesel car does not come in unless a consumer drives at least 2,500 km every month. So, the new cars have been introduced in petrol initially," said Sandeep Singh, deputy managing director, marketing, TKM. Etios and Liva, both petrol-driven cars, contribute 50 per cent to Toyota's overall sales.

MSIL, India's largest car maker, offers diesel variants for four of its 14 models. Diesel cars account for about 20 per cent of its line-up, with Swift and Swift DZire leading the company's sales chart.

But majority of its sales continue to come from petrol variants.

A senior executive of the company said if diesel prices went up, the differential between the two fuels would reduce.

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There would be parity between sales of diesel and petrol cars, but high fuel pricing is likely to affect consumer sentiment, regardless of what variant is being opted for, according to him.

MSIL offers diesel variants of compact cars Ritz and Swift, and sedans SX4 and Swift Dzire.

Though the diesel versions are priced Rs. 80,000-85,000 higher than the petrol variants, the company has seen sales of a model picking up on the introduction of a diesel fuel option.

MSIL sells 30,000 units of these four models a month and the diesel variants account for three-fourth.