High fuel prices and widening price differential between petrol and diesel is driving the trend for more diesel cars. What does this shift in consumer preference bode for the automobile industry?
For India, fuel means diesel du jour. A study by the Diesel Technology Forum proves this. In China, of every 32 vehicles sold, 22 are diesel-powered. Ratio of sales of diesel to petrol variants is 2.2:1. In Europe, it is a lower 2:1. India however is where automobile buyers (and makers) are on a dieselisation spree. A recent Gallup study revealed as far as levels of well-being was concerned, 88% of Indians either considered themselves to be either r“Struggling” or “Suffering”. With diesel having served as the “more affordable” alternative to petrol, and with Indians moving about looking for newer ways to save money, the storm of dieselisation is expected to gather force in near future. Last year, in India, diesel-engine cars outsold their petrol counterparts 4:1!
In recent years, the trend has become more defined with price gap between petrol and diesel rising steadily. Even against the backdrop of an increase in global crude prices, diesel prices in India have not been raised since July 2011. In contrast, petrol prices have been hiked on four occasions during the same period, the most recent being on May 23 this year, when an increase of Rs.7.54/litre was brought into effect – the highest ever single increase in absolute terms!
Though it was anticipated that diesel prices too would be increased by moderate proportions, the government has decided to put on hold any hike in diesel prices in the near term. As of date (May 28, 2012), the difference between the price of petrol and diesel in Delhi, has widened to Rs.32.27 (petrol priced at Rs.73.18/litre and diesel Rs.40.91/litre) from Rs.11.76 in July 2009.
Already the yawning gap in fuel prices has had a visible impact on car sales with the share of diesel cars in popular segments (Rs.400,000 to Rs.1,000,000) increasing from about 48% in FY2010-11 to 55% in FY2011-12. Even before the recent hike, diesel was 37.67% cheaper than petrol. The fact that you get an opportunity to kill a portion of your operating cost is an incentive for Indian car buyers to choose diesel over petrol. The results are there for all to see. In FY2011-12, diesel car sales in India grew by over 25% y-o-y, while petrol car sales fell 11%. In FY2011-12, 2.02 million units of passenger cars were sold, a growth of 2.19% y-o-y. Not a jump to be proud of, but experts claim that during the ongoing period of recovery, even this meagre growth was largely fuelled by the rise in sales of diesel cars.
As per estimates by Crisil, diesel cars now account for about 30% of total passenger cars in use in India. Experts opine that the big draw for diesel engines is that they produce more torque and are 20-30% more fuel-efficient than petrol variants. And it is this factor of fuel efficiency that gets one to believe why diesel cars will sell even more (absolute count) during FY2012-13. The March 2012 auto sector report by Kotak Institutional Equities states that, “Petrol car volumes are expected to remain flat while sales of diesel cars are expected to increase by 40% y-o-y in FY2012-13, which is likely to result in a 12% y-o-y volume growth for the domestic car industry.” Clearly, the Indian automobile market is making a big and bold move towards dieselisation and it is a safe bet to assume that more and more diesel cars will be running on Indian roads in times to come. But the bigger question is: What is the impact of this shift on the Indian automobile market and how is it reacting to the change?
Read more....
For India, fuel means diesel du jour. A study by the Diesel Technology Forum proves this. In China, of every 32 vehicles sold, 22 are diesel-powered. Ratio of sales of diesel to petrol variants is 2.2:1. In Europe, it is a lower 2:1. India however is where automobile buyers (and makers) are on a dieselisation spree. A recent Gallup study revealed as far as levels of well-being was concerned, 88% of Indians either considered themselves to be either r“Struggling” or “Suffering”. With diesel having served as the “more affordable” alternative to petrol, and with Indians moving about looking for newer ways to save money, the storm of dieselisation is expected to gather force in near future. Last year, in India, diesel-engine cars outsold their petrol counterparts 4:1!
In recent years, the trend has become more defined with price gap between petrol and diesel rising steadily. Even against the backdrop of an increase in global crude prices, diesel prices in India have not been raised since July 2011. In contrast, petrol prices have been hiked on four occasions during the same period, the most recent being on May 23 this year, when an increase of Rs.7.54/litre was brought into effect – the highest ever single increase in absolute terms!
Though it was anticipated that diesel prices too would be increased by moderate proportions, the government has decided to put on hold any hike in diesel prices in the near term. As of date (May 28, 2012), the difference between the price of petrol and diesel in Delhi, has widened to Rs.32.27 (petrol priced at Rs.73.18/litre and diesel Rs.40.91/litre) from Rs.11.76 in July 2009.
Already the yawning gap in fuel prices has had a visible impact on car sales with the share of diesel cars in popular segments (Rs.400,000 to Rs.1,000,000) increasing from about 48% in FY2010-11 to 55% in FY2011-12. Even before the recent hike, diesel was 37.67% cheaper than petrol. The fact that you get an opportunity to kill a portion of your operating cost is an incentive for Indian car buyers to choose diesel over petrol. The results are there for all to see. In FY2011-12, diesel car sales in India grew by over 25% y-o-y, while petrol car sales fell 11%. In FY2011-12, 2.02 million units of passenger cars were sold, a growth of 2.19% y-o-y. Not a jump to be proud of, but experts claim that during the ongoing period of recovery, even this meagre growth was largely fuelled by the rise in sales of diesel cars.
As per estimates by Crisil, diesel cars now account for about 30% of total passenger cars in use in India. Experts opine that the big draw for diesel engines is that they produce more torque and are 20-30% more fuel-efficient than petrol variants. And it is this factor of fuel efficiency that gets one to believe why diesel cars will sell even more (absolute count) during FY2012-13. The March 2012 auto sector report by Kotak Institutional Equities states that, “Petrol car volumes are expected to remain flat while sales of diesel cars are expected to increase by 40% y-o-y in FY2012-13, which is likely to result in a 12% y-o-y volume growth for the domestic car industry.” Clearly, the Indian automobile market is making a big and bold move towards dieselisation and it is a safe bet to assume that more and more diesel cars will be running on Indian roads in times to come. But the bigger question is: What is the impact of this shift on the Indian automobile market and how is it reacting to the change?
Read more....
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