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Why petrol cars may win race against diesel vehicles

by ET Posted on 07 Jan 201348,812 Views4 Comments

With diesel prices likely to go north coupled with higher price tags of diesel vehicles the market may tip in favour of petrol cars

 

Hyundai i10

 

 

"Hyundai had a differential resurgence in petrol variants while holding on to diesel models. While overall sales of Hyundai have grown, the contribution of petrol cars has increased from 70% in September 2012 to 77% in November 2012. This strong sales was led by Eon and i10," said Rakesh Srivastava (VP, sales and marketing), HMIL.

 

Given the government's intention to discourage diesel usage for non-commercial purposes, a duty hike for diesel cars can't be ruled out. In the event of such a duty hike and also with the proposed rise in the price of diesel being approved, the cost of owning a diesel vehicle will shoot up significantly vis-a-vis the petrol one, making the petrol variant more cost-effective in the coming months.

 

However, the entry of new compact diesel cars like Hyundai i10, Honda Amaze and Nano could further increase the share of diesel cars in the overall market. Sumit Bali, director, Kotak Mahindra Prime, one of the leading passenger car financers says, the artificial economy which was created for diesel vehicles will disappear if the proposed Rs 10 hike in diesel is implemented.

 

"Over the last few months, we have seen a pick-up in petrol car sales and, in some cases, there is a waiting period for petrol cars. If there is an increase in diesel prices, I expect the petrol-diesel ratio to be about 35-40% of petrol to 60-65% of diesel." An executive with a leading car maker said, "There is hardly an impulse-buying for diesel car happening in the market. Right now, only those who can gain from the economics of driving diesel cars have remained in the market."

 

Why diesel price hike is imminent?

 

While the hike will be tough to implement politically, the pressure is mounting on the government to manage its fiscal deficit.

 

Even as the Rs 10 hike in diesel has yet to see the light of day, the kind of pressure oil subsidies have had on the fiscal health of the country is hard to ignore.

 

The under recovery or loss on account of sale of diesel at subsidised or government-mandated price has shot up from Rs 12,600 crore in FY06 to Rs 81,000 crore FY12 and is expected to be over Rs 1 lakh crore for FY13.

 

As a percentage to GDP, the under-recovery of the petroleum industry has increased from 0.71% in FY10 to 1.55% in FY12 and is expected to be even higher at 1.64% for FY13.

 

While there has been a gradual return to petrol cars, petrol car sales have, however, declined 15% this fiscal (April-November) as against a 29% growth in diesel cars.

 

Also read: Auto industry welcomes move to hike diesel price

 

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