Petrol car sales rev up as diesel faces headwinds

Two models in a car

The Union Budget has proposed a one per cent cess on petrol or CNG cars, with an engine capacity of 1,200 cc and length of four metres.

New car buyers are increasingly choosing petrol vehicles over their diesel counterparts. The trend has gained pace since the Supreme Court banned the sale of some diesel vehicles in the National Capital Region.

Since the order was passed on December 16 last year, car makers have found a five to six per cent shift in the number of new car buyers from diesel cars to petrol alternatives.

This trend is likely to gain pace with the recently introduced infrastructure cess on diesel vehicles.

The Union Budget has proposed a one per cent cess on petrol or CNG cars, with an engine capacity of 1,200 cc and length of four metres.

For diesel cars of a similar length and engine capacity of 1,500 cc, the cess is 2.5 per cent of the price.

Also, the falling price of petrol -- hovering around the Rs 56-a-litre mark in Delhi -- has contracted the gap between it and the price of diesel (about Rs 46 a litre). In mid-2015, petrol was about Rs 16 a litre more expensive than diesel.

Honda Cars, the fourth-largest player in the domestic passenger vehicle market, said the share of diesel cars in its new sales has come down to 32 per cent from 37 per cent three months ago.

“After the Supreme Court ruling, inquiries for diesel cars at dealerships came down immediately.

"The change in sales was evident as well,” said Jnaneswar Sen, senior vice-president (marketing and sales), Honda Cars.

He added the trend would aggravate for two reasons.

“In the case of small cars, a cess of one per cent has been imposed on petrol vehicles, while a levy of 2.5 per cent has been introduced for diesel. The price difference between diesel and petrol has also gone down,” said Sen.

Traditionally, petrol cars were preferred by Indian buyers. However, many of them started going for diesel cars since June 2010, when the then United Progressive Alliance government deregulated petrol prices but left diesel untouched.

By 2011, as oil marketing companies continued to align petrol prices in India to the global price, the gap between the two fuels jumped to a high of Rs 25-30 a litre in 2011.

With the shift in preference, car makers pumped money to expand diesel engine capacity.

The share of diesel cars in new vehicles sold jumped from 37 per cent in FY11 to 58 per cent in FY13.

But now, the trend seems to be swinging back.

Announcing Maruti’s quarterly results in the last week of January, the company’s Chief Financial Officer Ajay Seth said although there was no direct impact [of Supreme Court order] on the company, there was a noticeable shift in customer preference for petrol vehicles.

“The petrol vehicles sales (for the sector) grew at almost double the pace of the diesel sales.

Penetration of the petrol vehicle increased from 54 per cent to 56 per cent, while that of diesel cars decreased from 46 per cent to 44 per cent.

This led to an increase in the sales promotion expenses on diesel vehicles,” he added.

Toyota has seen demand for Etios and Etios Liva (petrol engine) rise by five to seven per cent in the last three months.

Petrol engine models account for almost 40 per cent of Liva sales and 25 per cent of Etios.

N Raja, the senior vice-president and director (sales division) at Toyota, said, “The ban has brought a feeling of uncertainty among diesel car buyers.

With the new triggers of higher cess on diesel cars and lower gap between the two fuels, inquiries for petrol vehicle will gets stronger”.

The economics of owning a diesel car has changed.

Raja said until recently, someone who used a diesel car for 2,000 km a month could recover the higher price paid for the vehicle. “Now, only those who can run the car for 2,500 km a month would prefer to buy a diesel vehicle.”

Hyundai’s Senior Vice-President (sales and marketing) Rakesh Srivastava said buyers of cars priced up to Rs 700,000 are highly sensitive to price and ownership cost and this segment could see a greater shift to petrol vehicles.

The temporary ban on the sale of diesel vehicles of 2,000 cc and above is effective till March 31, before which the court decides their fate.

WINNING THE RACE

Sale of petrol cars is growing at a higher pace than diesel:

REASONS:

The Supreme Court’s ban on the sale of diesel cars in the National Capital Region is the key trigger for this
Higher cess on diesel cars
Contracting gap between the prices of diesel and petrol

RESULTS: