Deregulation can help carmakers plan better, says JD Power Asia

Carmakers and their dealers will have the challenge to persuade customers to buy diesel on its merits and not for cost of operations as buyers increasingly opt for petrol cars over diesel in a scenario in which both fuel prices are market-determined, said Mohit Arora, executive director, JD Power Asia in a video chat with Mumbai-based auto journalists.

India deregulated prices of diesel at the end of October four years after petrol was deregulated. Prices of diesel at the fuel station were subsequently lowered by just over Rs 3 a litre at the end of last month.

The shift towards petrol has also meant that the OEs’ diesel capacity faces pressure as of now with capacities estimated at operating below 50 percent, Arora said. Apart from capacity, other issues concern the short-term build-up of inventory which could well be attributed to the fact that OEs would not want to miss a sale.

A deregulated scenario has ensured in a way that OEs can look at what the real demand. In a scenario in which they are trying to push sales of diesel cars, the situation also gives OEs the ability to plan better than they did in an era where prices were masked by subsidies.

In its analysis, JD Power Asia sought to analyse the likely situation going forward in a market where one of the chief motivations to buy a diesel car was its price differential with petrol. From a high of 58 percent in 2011-12, the differential has fallen by over half to 26 percent in 2014, he said.

On other aspects of the shift in fuel preference, JD Power Asia’s research has shown that going by the age of the driver, those in the age group of 25 and under opting for petrol has gone up, so too for people in the monthly expenditure bracket of Rs 20,000 per month. As has been the case even before, those on shorter runs have preferred petrol at 62 percent as against 35 percent for those on long runs.     

Across all vehicle categories, carmakers have tried to improve fuel efficiency and based on the median transacted price, while prices say of a Maruti Swift may have gone up by 10 percent but the petrol-diesel differential has remained the same, Arora explained.

In this context, a sobering thought may well be that passenger car sales saw their consecutive monthly dip in October which perhaps indicates that the auto industry is still not on a strong footing.