Diesel car demand puts producers in dilemma

Carmakers in India face a quandary: diesel or petrol? In a market where once-rampant growth has been stalled since mid-2011, demand for diesel-powered cars continues to surge, with buyers willing to wait months to take delivery because of a widening gap between prices of gasoline and diesel. Even so, Maruti Suzuki and South Korea's Hyundai Motor Co, which together sell 70 per cent of the passenger cars in Asia's No 3 economy, are reluctant to invest to make more diesel cars, even if it means losing customers. "We are still contemplating," Arvind Saxena, director for sales and marketing at Hyundai's Indian unit. As with many industries in India, the plans of carmakers hinge on uncertain government policy. "If we invest, and in months, or years, the [diesel] price rises, we are left high and dry," Saxena said on the sidelines of the biennial India Auto Expo. India deregulated the price of petrol [gasoline] in June 2010, and prices have shot up 30 per cent since then. Diesel, widely used by farmers and manufacturers, remains subsidised. Petrol, viewed as the fuel of the rich in India, now costs 56 per cent more than diesel. However, the federal government is contemplating new taxes on diesel vehicles, according to news reports, and this could disrupt the demand pattern. The taxes could be announced in the 2012-13 budget that is expected to be handed down in mid-March. Ease of switching "In the absence of any clear policy, we are at a dilemma," said Mayank Pareek, head of sales and marketing of Maruti Suzuki, controlled by Japan's Suzuki Motor Corp. "Our engineering people tell us that if you set up a plant [for engines] with a capacity of 100,000 vehicles, it costs Rs10 billion [Dh714 million]. Now the call of this decision is Rs10 billion — to do or not to do?" Diesel cars now account for about 40 per cent of sales in India, compared with less than 20 per cent a few years ago. Nissan Motor Co, which started making cars in India only in 2010, is better positioned. Its plant in Chennai can switch between diesel and gasoline engines. "We're agnostic," Andy Palmer, an executive vice president at Nissan, said in an interview at the auto show. "If the government dictates that the diesel price is X, we give you diesel. If it's Y, we say: here's petrol."