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Automakers switching gear to petrol engines

It’s back to the drawing board for several automobile manufacturers. A few years ago customers were actively buying diesel vehicles taking into account the subsidy on diesel, so manufacturers concentrated on this segment.

However, with both petrol and diesel now being sold at market rates and increasing curbs on diesel due to green concerns, the demand is returning to petrol.

This has propelled automakers back to the drawing board and they are re-adjusting their plans –this time to bring out more petrol cars and utility vehicles from their production lines.

Petrol-run variants accounted for 56% of India's passenger vehicle sales in the fiscal year ended March 31. The share of petrol-run models was 42% of total passenger vehicle sales three years earlier. In March, their share jumped to 59%, industry data showed.

Analysts and industry executives said the shift towards petrol that started with the lifting of the diesel subsidy accelerated in recent months, with the Supreme Court in late 2015 imposing a ban on the sale of large diesel vehicles in the National Capital Region over pollutions concerns.

Though the ban covers only the national capital and its satellite cities, the impact on sentiment is wider, they said. "The market has been very volatile," said Jnaneswar Sen, senior vice-president of sales and marketing at Honda Motor's local car unit.

With demand pattern changing fast, auto makers are finding it tough to adjust, he said. "There is a lead time for supply of all the components required in a vehicle ... (by the time) supplies are in place, the demand pattern changes," he adds.

This accelerated shift towards petrol has raised concerns about the recent investments made by auto makers to address demand for diesel vehicles.

Honda invested about Rs 2,500 crore about three years ago to double capacity, set up a diesel component line and a forging unit.

The company, which earlier used to sell only petrol vehicles, brought in its first in-house developed diesel engine for the Indian market in entry-level sedan Amaze.

Demand for diesel was high at the time due to the price differential between the two fuels; the difference that had peaked at Rs 26 a litre in fiscal 2012 has now narrowed to Rs 16.

The Indian unit of Toyota Motor invested Rs 1,000 crore to set up a diesel engine facility with capacity to produce around 1,00,000 units a year.

That factory is set to be inaugurated next month, at a time when the company's bestsellers, Innova and Fortuner, have been hit by the Supreme Court ban in the NCR on vehicles having diesel engines with capacity of 2 litres and more.

Toyota Kirloskar's sales and marketing head, N Raja, said customers were worried that the ban may spread to smaller diesel vehicles as well and that inquiries for the company's petrol cars had doubled in the NCR. "We have been revising our production plans to meet this shift in demand," he said.

Others are also adjusting production. Honda Cars India is working towards changing its supplies more in favour of petrol-run vehicles.

According to people in the know, Honda is likely to increase its petrol engine cars output by 40-60% starting June. The plan is to produce 680-700 petrol cars a day from 500-550 now.

Tata Motors, which produced mostly diesel vehicles, introduced the new Revetron petrol engine in the Tiago and Kite 5 models.

The company sees incremental volumes of 50,000-70,000 cars coming from petrol in fiscal 2017, said several component suppliers to the company.

Building on the momentum it is witnessing in petrol cars, Maruti Suzuki is expecting to sell more than a million petrol vehicles for the first time in fiscal 2017. The company, which was sitting on excess capacity for petrol when the demand was more biased towards diesel, has seen utilisation going to 85% from 75%.

With the preference switching back in favour of petrol, Maruti decided also to shelve plans to set up a diesel engine plant in Gurgaon.

Currently, 70% of Maruti Suzuki cars sold in the country are petrol driven. For Hyundai, the share is 66% and for Honda, about 65%.

South Korean car maker Hyundai Motor said there was a marked shift from diesel to petrol, but the situation was different at the company, with the Creta SUV bringing in incremental diesel volumes as SUV buyers prefer diesel over petrol.

Sales and marketing head for India Rakesh Srivastava said Hyundai expected the share of diesel in its sales to remain around 34%.