Sales of petrol-powered vehicles have gained significantly in the past few months, already aggregating around 58% of domestic sales. Carmakers are skewing their New Year production plans in favour of petrol-powered vehicles, in line with buyer preference that is increasingly shifting away from diesel. The narrowing price gap between petrol and diesel as well as higher prices of diesel vehicles due to their expensive technology are prompting buyers to again consider the traditional fuel. Manufacturers are finalizing production plans based on current trends, and most players say they are planning to roll out a higher number of petrol cars in 2015. Sales of petrol-powered vehicles have gained significantly in the past few months, already aggregating around 58% of domestic sales. The share is expected to reach 60% if the trend continues. Manufactures that predominantly make diesel-powered vehicles are facing the pinch.
Until a year ago, demand for diesel models was far more than petrol as government subsidies kept the heavier fuel cheaper, forcing auto makers to make more diesel-run variants. "The market is clearly moving towards petrol cars and so are manufacturers toeing this trend," said Rakesh Srivastava, senior vice president for marketing and sales at the Indian unit of Hyundai Motor. Petrol variants account for two out of every three cars the South Korean company sells in India. Fuel price is one of the key influencers for new car buyers. It forms a third of the total cost of ownership in case of a passenger car - the remaining are vehicle price and maintenance cost. Diesel, which was about Rs 20 a liter cheaper than gasoline in January last year, has lost its comparative advantage because of the huge premium on diesel-run cars even as the price difference reduced to about Rs 11 a liter. Petrol now costs Rs 61.33 a liter in Delhi pumps, while diesel is priced at Rs 50.51.
Experts credit the government for bringing diesel rates to its realistic levels. In June 2010, the then Oil Minister Murli Deora decontrolled both petrol and diesel. While the government allowed state-run retailers to sell petrol at market rates, diesel decontrol wasn't made formal fearing political repercussion. Because of this skewed pricing policy, diesel prices rose just Rs 1 per liter between June 2010 and June 2011, but petrol prices jumped more Rs 12 per liter. This had led many buyers to prefer diesel vehicles. This gap widened further until Veerappa Moily, when he was the oil minister in the Congress-led government, decided to tame diesel subsidies. The Cabinet decided in January last year to raise diesel prices by 50 paise per liter every month until its pump prices are aligned with market rates.
Meanwhile, with falling international oil prices, the losses on selling diesel at state-set prices fell sharply and, from September 2014, state oil marketing firms have been making a positive margin on fuel sales. Taking advantage of the situation, the Narendra Modi government deregulated diesel prices in mid-October. The changing customer preference is hurting auto makers focused on diesel vehicles. Utility vehicle major Mahindra & Mahindra, primarily a diesel player, has announced weekly production cuts until March 2015 to reduce stocks of its diesel vehicles. Tata Motors is seeing a shift towards the newly launched Revotron petrol engine in its newly launched Zest compact sedan. Tata Motors President Mayank Pareek said demand and sales of petrol models are increasing and the overall market is expected to be divided with 60% in favor of petrol cars. Honda Cars India, which previously made only petrol cars, introduced diesel engines last year because of the then market scenario. The company now is adopting a flexible plan to produce as per market demand. 72"Current data portray customer's preference for petrol and Honda sales are now evenly divided for both the fuels," Senior Vice President for Marketing and Sales Jnaneshwar Sen said. Analysts tracking the market say the shift will become more pronounced in the coming months. "We expect petrol cars to rule in market in the near term," said Amit Kaushik of IHS Automotive. Maruti Suzuki, the nation's largest carmaker by volume, has decreased production of diesel vehicles by 20 per cent, while has peaked production for petrol models such as the Celerio, Alto and WagonR.