Diesel car sales may pick up on widening price gap with petrol

By: | Published: August 8, 2015 12:31 AM

A price gap of Rs 15-17 will not impact the sales of diesel and petrol cars. However, if the difference crosses Rs 20, then it will definitely have an impact, said Abdul Majeed, Price Waterhouse partner

With the price gap between petrol and diesel widening, industry experts feel if the difference increases by Rs 20, the share of diesel vehicles may rise again at the cost of petrol variants.

After the latest revision of petrol and diesel prices by the oil marketing companies on July 31, the price difference between diesel and petrol in New Delhi is now over Rs 18 a litre.

After the deregulation of diesel prices in october 2014, the gap between diesel and petrol prices, which used to be as high as Rs 23 per litre or 37%, say on october 2013, had narrowed down to around Rs 10 a litre. It hovered around this range for quite some time which once again brought down the market share of diesel vehicles which had increased when the price differential had increased.

When the price difference was the highest, the sale of diesel vehicles rose to as high as 45% of the total car sales, according to industry estimates. Currently, the share of diesel vehicles is down to 37%. However, if the price differential widens, the share may climb again.

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Rajeev Singh, head of Automotive for KPMG in India, said it is highly unlikely the peak of over 40% share of diesel cars would be seen again. “Customers have now realised that diesel has been deregulated and the price gap widening could be a short-term occurrence”.

Abdul Majeed, partner at Price Waterhouse, said any reversal in trend could be expected only if the difference in prices goes beyond Rs 20 a litre. “The price difference of Rs 15-17 will not have any impact on the sales of diesel and petrol cars. However, if the difference crosses Rs 20, then definitely it will have an impact,” he said.

However, another disincentive to go for diesel vehicles will be the ongoing case at the National Green Tribunal that could possibly ban diesel vehicles older than 10 years, Majeed added.

A Mumbai-based analyst said the diesel vehicle capacities of most automakers are currently under-utilised due to the lower sales in diesel passenger cars. This has happened as the car manufacturers had ramped up the diesel capacities when the price difference was significant and the demand for diesel cars was at an all-time high.

In FY15, the share of diesel vehicles of the total vehicles sold by Maruti Suzuki, the market leader in passenger vehicles, has declined to 30% against 32% the previous year. For models that have a petrol as well as a diesel variant, the sale of diesel vehicles has declined to 65% from 69% in the previous year.

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