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Old 19th June 2015, 11:14   #1
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Default Diesel Cars: Down, down, down! Market share = 34%

There was a time when the market demand for diesel vehicles was almost at par with petrol vehicles in India. In 2012-13, the ratio of diesels to petrols was 47:53. With the news of diesel prices being deregulated, in 2013-14, the ratio of diesel to petrol cars widened to 42:58. Finally, in October 2014, the government removed the subsidy from diesel and deregulated its prices. This meant that the price of diesel would be directly related to the global crude oil prices.

This diesel deregulation resulted in the ratio reducing further more to 37:63 (in favor of petrol) in 2014-15. According to the Society of Indian Automobile Manufacturers (SIAM), the ratio as on April 2015 is 34:66. After this move, the gap between the price of diesel and petrol reduced considerably, and no longer do buyers find any real monetary benefit to sway in favor of a diesel vehicle. Where diesel vehicles truly shine, is their outstanding fuel economy when compared to their petrol counterparts. However, these vehicles are more expensive to purchase (in comparison) and buyers need to do some serious mile-crunching to justify the premium over the petrol vehicles.

The National Green Tribunal's proposal to ban diesel cars more than 10 years of age (in Delhi) too has played its role in hampering the resale value of older diesel cars in such cities.

Manufacturers like Mahindra and Tata etc. who were earlier known for their diesel vehicles, have quickly reacted to this changing trend in the market. While Tata has already developed the new turbo petrol Revotron unit for its new cars, Mahindra too is said working on a new petrol engine to power its upcoming Utility Vehicles.



Source: Business Standard

Last edited by S2!!! : 19th June 2015 at 11:23.
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Old 19th June 2015, 11:43   #2
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Default Re: Diesel Cars: Down, down, down! Market share = 34%

Another point in favour of petrol is probably the increase in CNG variants and the availability of CNG in more parts of the country. CNG makes the running cost of a petrol car closer to that of a diesel with a fraction of the cost overhead of diesel.
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Old 19th June 2015, 12:06   #3
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Default Re: Diesel Cars: Down, down, down! Market share = 34%

Well I think this trend is more aligned with segment and price bracket. Sub 8 lakh ie mainly hatchbacks accounts for almost 60-70% sales where majority comes from petrol powered cars. Change in trend is clearly visible in waiting periods of the cars. There was a time when diesel used to command higher waiting periods but now situation has just reversed with petrol cars having one to three months waiting period.

I just wonder if this situation will lead to higher discounts and freebies being offered on diesel cars to lure customers.

Last edited by DragonHawk : 19th June 2015 at 12:07.
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Old 19th June 2015, 12:15   #4
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Default Re: Diesel Cars: Down, down, down! Market share = 34%

Although I can see the gradual decline in the ratio, I think 34% is not a bad number given that only select few customers in the small cars segment use diesel cars.

Last edited by GTO : 19th June 2015 at 17:17. Reason: Language
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Old 19th June 2015, 12:32   #5
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Default Re: Diesel Cars: Down, down, down! Market share = 34%

It could also have to do with the pricing. When diesel was much cheaper than Petrol, manufacturers sold Diesel cars at a much higher price than the actual price difference. So you had a 1-1.5L difference between pricing, even though actual cost for manufacturer was just 30-40K more(esp with common engine blocks).

Now, with reduced price difference, between petrol and diesel, paying 1.5L does not make much sense. But with so many cars still selling, suddenly dropping pricing will erode the brand value.

I think newer releases will see petrol and diesel variants have a lesser price difference, with older models still going the same way. Eventually, if Petrol and Diesel converge to 10-12rs of one another, we will see diesel cars just 30-40K more expensive than their petrol variants, and even less of a difference if the petrol engine used has forced induction.
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Old 19th June 2015, 13:02   #6
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Default Re: Diesel Cars: Down, down, down! Market share = 34%

Quote:
Originally Posted by tsk1979 View Post
manufacturers sold Diesel cars at a much higher price than the actual price difference. So you had a 1-1.5L difference between pricing, even though actual cost for manufacturer was just 30-40K more(esp with common engine blocks).
I have read this theory in this forum quite a number of times.

I am wondering, if it is so, why do every single manufacturer do so? Why don't somebody break it and offer their diesel cars cheaper and capture the market? Say, a struggling manufacturer like FIAT can sell their diesel cars well by pricing it close to its petrol models and capture the market? Why do they still price their diesel cars high and lose market share?
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Old 19th June 2015, 13:19   #7
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Default Re: Diesel Cars: Down, down, down! Market share = 34%

With new age petrol engines, the "kitna deti hain" is effectively covered even in these petrol engines.

There is no doubt that the diesel will continue to offer better mileage but on a rough calculation, the 1 lac+ differential takes close to 70K kms to break even or translates to an approx. 1800 kms per month.

How many of us normally drive that much to justify a 3 year break even period?
Petrol is also CNG compatible like Zenren suggested and most of the top sales cars- Wagon R, Alto, Celerio have company fitted CNGs that offers great VFM and is cheaper to operate compared to Diesels.
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Old 19th June 2015, 13:20   #8
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Default Re: Diesel Cars: Down, down, down! Market share = 34%

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Originally Posted by civic-sense View Post
I have read this theory in this forum quite a number of times.

I am wondering, if it is so, why do every single manufacturer do so? Why don't somebody break it and offer their diesel cars cheaper and capture the market? Say, a struggling manufacturer like FIAT can sell their diesel cars well by pricing it close to its petrol models and capture the market? Why do they still price their diesel cars high and lose market share?
Both FIAT (Punto) and Skoda (Rapid) were offered with such arrangement couple of times - "Pay for Petrol and Get Diesel", still there was marginal difference in their sales during those months.

The reason cannot be price alone, those who want Petrol will go for petrol and those with considerable driving and have a habit of driving cars with higher torque at low RPM will stick to Diesel, the NGT kind of ruling may tilt decisions in cities where it is enforced.

A friend of mine was very keen to switch to petrol, he always drove diesel cars and even after several test drives of various makes and model, he again bought a diesel; to me it seems that choices are generally firm in the mind of customers, pricing may not be the real concern here (capital investment), lets look at other reasons.

Cheers

Last edited by i74js : 19th June 2015 at 13:22.
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Old 19th June 2015, 13:22   #9
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Default Re: Diesel Cars: Down, down, down! Market share = 34%

Quote:
Originally Posted by civic-sense View Post
I have read this theory in this forum quite a number of times.

I am wondering, if it is so, why do every single manufacturer do so? Why don't somebody break it and offer their diesel cars cheaper and capture the market? Say, a struggling manufacturer like FIAT can sell their diesel cars well by pricing it close to its petrol models and capture the market? Why do they still price their diesel cars high and lose market share?
Only the volume guys can make money like this. Even if FIAT dropped pricing by 30K, it would not matter much as the Fiat issue was not the price of cars.
Volume guys are selling at lot of cars at a high price, so no sense to cut pricing.

For example, lets take the fortuner. Toyota makes a huge margin, and sells as many cars as it produces. A much lower pricing will still rake in a healthy profit, and increase the waiting list. Overall profit will decrease.

So if I am a manufacturer capable of producing X number of cars, I would like to price such that demand is closest to X. Even if demand if 5X, due to lower pricing, it would not benefit me. It makes more sense to price it higher to get a demand of X.

Last edited by tsk1979 : 19th June 2015 at 14:54.
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Old 19th June 2015, 13:31   #10
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Default Re: Diesel Cars: Down, down, down! Market share = 34%

The luxury car makers need to take note of this. Buyers are forced to opt for diesels engines in their luxury cars simply because the petrol ones are underpowered in comparison or too over priced. The top of the line performance models are mostly diesels. For example the E350CDi, 530d are the range toppers. The A6 does not even have a petrol on offer, just a the 2liter diesel engine. Move up the ladder and the situation changes but yet in the favour of the diesels, with the XJ,7,A8 and S-class the diesel engines are a whole lot cheaper yet fully loaded and fun to drive. For example the new S350CDi costs 1.11cr ex-showroom and S500 costs 1.41 with almost the same equipment level. There is no v6 petrol on offer unlike in 2010 when the previous gen S-class v6 diesel was for 82 lakhs and v6 petrol was 80 lakhs. For the 7 series the price difference is even more as only the 730Ld is CKD and all petrol models are CBU.
Its high time they introduce good v6 turbo charged/hybrid petrol engines on luxury cars here.

Last edited by noopster : 19th June 2015 at 14:14. Reason: Typo: & series = 7 series
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Old 19th June 2015, 13:32   #11
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Default Re: Diesel Cars: Down, down, down! Market share = 34%

Quote:
Originally Posted by civic-sense View Post
Why don't somebody offer their diesel cars cheaper and capture the market? Say, a struggling manufacturer like FIAT can sell their diesel cars well by pricing it close to its petrol models and capture the market? Why do they still price their diesel cars high and lose market share?
In a market dominated by few large players, no company will reduce prices. They usually follow the pricing strategy of the dominant player, in this case, Maruti.

In the scenario, above outlined, Fiat is unsure how other companies may react to this move. If it drops prices of its diesel cars, other companies will definitely follow suit and Fiat's revenue will erode even further.
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Old 19th June 2015, 13:36   #12
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Default Re: Diesel Cars: Down, down, down! Market share = 34%

Good to read that petrol has made a come back.

The difference in cost between diesel and petrol in my city is bordering on Rs. 20. Now that is a lot. I wonder what happened to the 50p increase every month for diesel. If the difference in cost between fuels are going to increase like it has over the last two months, the market share will slowly sway towards diesel again. Do we have a poll on number of petrol and diesel car owners on tbhp?

Last edited by sandeepmohan : 19th June 2015 at 13:38.
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Old 19th June 2015, 13:39   #13
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Default Re: Diesel Cars: Down, down, down! Market share = 34%

Quote:
Originally Posted by civic-sense View Post
I have read this theory in this forum quite a number of times.

I am wondering, if it is so, why do every single manufacturer do so? Why don't somebody break it and offer their diesel cars cheaper and capture the market? Say, a struggling manufacturer like FIAT can sell their diesel cars well by pricing it close to its petrol models and capture the market? Why do they still price their diesel cars high and lose market share?
The difference between the on road price of a 75Hp emotion Punto and 1.4 FIRE is just 12k here so Fiat is pricing their diesel cars low.
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Old 19th June 2015, 13:40   #14
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Default Re: Diesel Cars: Down, down, down! Market share = 34%

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Originally Posted by civic-sense View Post
Say, a struggling manufacturer like FIAT can sell their diesel cars well by pricing it close to its petrol models and capture the market? Why do they still price their diesel cars high and lose market share?
FIAT probably earns a bomb by selling its "Indian National Engine" to all and sundry. Suddenly if they drop their prices just to gain some traction in a market what are the possible and realistic scenarios? May be some number differences but thats about it. People dont buy Fiats and they may have many reasons and inhibitions (right or wrong). Dropping their own valuation will strengthen those inhibitions further (something is not right). On top of that they will also kill the market. Others who use their engines will either have to bite the bullet and bring their prices down (lesser chances) and thus renegotiate the costs with Fiat (= less profits for Fiat) or else even otherwise, give them an opportunity to renegotiate the prices.

Its not that simple for Fiat to just drop prices. They will barely gain anything but loose a lot more.

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Originally Posted by i74js View Post
The reason cannot be price alone, those who want Petrol will go for petrol and those with considerable driving and have a habit of driving cars with higher torque at low RPM will stick to Diesel, the NGT kind of ruling may tilt decisions in cities where it is enforced.
Bingo! You are probably more on the right track. I am permanent diesel junky. Ask me. Price has little to do here (may be a little, yes). Its also about the other things. My XUV can putter around in a crowded city without any accelerator input on 1st and 2nd gear. Just on its own torque. I dont tire myself in such traffic except for time to time dab on the brakes. I come out of my cellar ramp (pretty stiff incline) with the 2 ton behemoth on 1st gear and 2 people inside without any accelerator input on the 1st gear. This kind of torque is just missing in petrol. Of course it accelerates like mad and can keep cruising at high triple digits all through the day on wide highways without the vehicle breaking into a sweat.

Other than these, the cheaper fuel (howsoever small the difference may be) and the better fuel efficiency only adds an icing to this cake.

These things are far higher in priority to me than an occassional revving to redline. Uh huh... you are right. For someone who buys diesel the price difference of fuel is only a small part of the entire deal.

Quote:
Originally Posted by sandeepmohan View Post
I wonder what happened to the 50p increase every month for diesel.
Well! You missed one important thing. The deal was not to increases prices by 50 paise forever. It was to have happened till the prices wiped out the subsidies. That has been achieved now. What you see now is a subsidy free pricing that moves up or down based on the global crude prices.

Last edited by Zappo : 19th June 2015 at 13:51.
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Old 19th June 2015, 14:27   #15
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Default Re: Diesel Cars: Down, down, down! Market share = 34%

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Finally, in October 2014, the government removed the subsidy from diesel and deregulated its prices. This meant that the price of diesel would be directly related to the global crude oil prices.
Shockingly, as we have seen with the latest round of fuel price changes (a price hike for petrol & a price cut for diesel by twice the amount), this still means the price of petrol is not directly related to global crude oil prices by any stretch of the imagination, despite petrol supposedly being "deregulated" a long time ago.

Is this the reason?

With car buyers no longer seeing any advantage in paying huge additional sums upfront for diesel cars, sales of oil burners are declining relative to their gasoline counterparts. This would have hurt the margins of manufacturers who make hefty profits on diesel cars (compared to the equivalent petrols).

In a free market economy, the reaction to this would be manufacturers lowering the prices of diesel cars (by accepting a cut in the profit made on oil burners, in accordance with the new fuel price scenario). A diesel car's profit margin would slowly come down and begin to match that made on a petrol car. The buying preferences of consumers would also adjust accordingly.

In a truly free market economy, the ground realities (fuel prices) would influence consumer preferences and manufacturer profit margins.

In a lobby raj economy like ours, it's the other way around. In this Third World country with a well-established extractive economy, manufacturers' profit margins dictate the ground realities and consumer preferences.

We still wonder why India hasn't produced someone like an Elon Musk!

Last edited by RSR : 19th June 2015 at 14:40.
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