No economic logic now for diesel cars: Maruti Suzuki
NEW DELHI [Maha Media]: With parity between the prices of petrol and diesel, there is no economic logic for buying diesel cars as with the same running cost, the acquisition cost differential is very high.
In an interview with news agency, Shashank Srivastava, Executive Director (Marketing & Sales), Maruti Suzuki India Limited said that under BS VI, the differential between diesel and petrol cars is to the tune of Rs 1.25 to Rs 2 lakh. Srivastava said that at the same running cost, with petrol and diesel at the same price, or even diesel higher in some states, there is no economic logic for buying diesel cars.
He said that till 7-8 years back, diesel was cheaper by Rs 32 compared to petrol and diesel cars were 60 per cent of total sales.
Thereafter, the government allowed free float of fuel prices and last year the differential fell to Rs 7 and diesel car share fell to 28 per cent.
Srivastava said in the last quarter, it was only 17 per cent, the share has been falling due to the convergence between the petrol and diesel prices. In the smaller cars segment, it was only 5 per cent.
Currently, there is almost parity in diesel and petrol prices and in some states, diesel is even higher.
Srivastava said there is no economic logic now for diesel cars to be bought. In BS VI vehicles, the differential is Rs 1.25-2 lakh, meaning that diesel cars are more expensive.
Srivastava said that with a similar running cost why would consumers want to pay extra. In higher segment for SUVs, some consumers still prefer diesel vehicles but in small cars and sedans there is no no economic logic, he said.
Srivastava said the new fuel option that is gaining traction is CNG as the running cost is low compared to petrol and diesel at only Rs 1.5 per km. Even last year, CNG gained 6-7 market share and in some of the models, the CNG penetration is as high as 70 per cent.
The government policy to boost the network is also a positive as the outlets at 2100 in the country are expected to go up to 3000-3500 this year.
On the demand dynamics, Srivastava said June was a good representative month after a long gap. The enquiries, bookings are at 80-85 per cent of pre-Covid levels. "It's a good comeback", he said but added that part of this is also large pent up demand from the previous months.
Maruti has opened 2800 of its showrooms. On the supply side, industry is at 50 per cent of pre-Covid levels.
On the emerging consumer trends, Srivastava said consumers are shifting the choice downwards due to income loss and uncertainty in jobs and business loss. This is being reflected in bookings with a higher percentage of bookings towards smaller cars. This share was 55 per cent earlier but now it is higher at about 65 per cent.
He added that during times of stress, people tend to shift towards the established brands and are less experimental.
Also, the demand for pre-owned cars is increasing, the only issue there is that supply is less as people are holding on to their vehicles for longer time and they are not being sold in used cars.
Srivastava said another trend is that consumers are apprehensive of public transport and want to have their own vehicles.
On financing of cars, Srivastava said 80 per cent of retail sale is through financing. The post Covid liquidity of banks is good thanks to government measures. However, some of the banks are little more cautious in lending and are reviewing credit worthy of business and individuals as income levels will be impacted.
Maruti has rolled out financing arrangements with more flexibility on tenure, EMIs and cash down requirements to help consumers.
On the future triggers for demand, Srivastava said the current spike in demand has an element of pent up demand and the long term demand will be linked to fundamentals of economy and how the Covid situation evolves.
There could be an upside if the vaccine comes earlier and a downside, if the number of cases goes up. Srivastava said there is uncertainty and demand situation is difficult to predict.
He said there is revival of rural demand with a good crop and encouraging monsoons. In addition, the Covid effect on rural areas is much less while it is more in the larger cities.