MUMBAI: India’s stuttering passenger car market may shrink by up to 7% by 2021 as diesel cars become costlier and the country’s biggest car maker completely stops selling diesel cars by next year.
Industry experts and executives said that Maruti Suzuki’s decision to stop selling diesel cars after April 2020 may pull down annual passenger vehicle sales by 200,000-250,000 units or 7% by FY21. The world’s fourth-biggest passenger vehicle market may grind to its slowest growth rate in seven years in FY20 and sales could dip in 2021, they added.
Experts such as Gaurav Vangaal, country lead, production forecasting at IHS Markit, said sales volume will get affected in 2019-20 due to withdrawal of a number of models from the market and the transition to Bharat Stage VI emission norms.
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“The Indian light vehicle market is forecast to grow by 3-4% in 2019 while Maruti Suzuki is expected to grow by 2-3% in 2019. IHS was forecasting for flat growth in India for 2020, but with the market leader pulling the plug off diesel completely, the slip in market growth could be higher than anticipated,” Vangaal said.
“Maruti may be able to make up for 60-70% of the lost diesel volumes in respective vehicles in the best case scenario,” he added.
IHS Markit offers forecast on the calendar year and not fiscal year.
Maruti Suzuki on Thursday announced that it will completely phase out diesel cars below 1.5 litre after April next year as the BS VI emission norms will spike the price premium of diesel vehicles over petrol and nullify the higher fuel efficiency benefit diesel vehicles enjoy over petrol vehicles.
India’s passenger vehicle market has had a bad year with sales slipping due to rising oil prices, higher interest rates and weak consumer demand ahead of the ongoing general elections. The share of diesel cars in the overall market has slipped to over a decade low of 19% with the share in passenger vehicles dropping to 36%.
In the January to March quarter of 2019, sales of passenger vehicles fell 2% whereas the overall global passenger vehicle market is estimated to have declined by 6%.
Maruti has forecasted its vendors to plan for 350,000 units of diesel vehicles this year as against 475,000 units it made in FY19. This number may come down to zero in FY21, if it does not upgrade 1.5 litre diesel engine for BS VI.
The street is pricing in volume growth of 8-9% for FY21for Maruti and is yet to discount the end of the road for diesel vehicles. Therefore, the risk of slippage on earnings growth after diesel car phaseout could be significantly higher. For instance, the Kotak Institutional equities is expecting sales volume of 2.125 million units in FY21, out of which 442,000 units are estimated from diesel vehicles.
Apart from diesel withdrawal, the car market is also expected to be hit by Maruti’s decision to discontinue Omni model. Launched in the 1980s, it was still going strong with annual sales of 50,000-70,000 units in FY19.
Switching off diesel engines and transition to BS VI would also have an impact on the volumes of Swift and DZire maker, experts said.
RC Bhargava, chairman of Maruti Suzuki, is confident that consumers will switch over to petrol due to better economics.
“I don’t know of any performance parameter, which makes a diesel car superior to a petrol car. I don’t believe that the type of fuel, diesel or petrol, is a determining factor in a customer’s mind. It is the economic factor that is the determining buying decision and post BS VI, petrol will make more economic sense,” he added.
Maruti Suzuki will also be pushing its CNG and mild hybrid versions to make up for the shortfall of diesel, but not everybody is as confident as Bhargava.
At least five senior industry executives that ET spoke with said that to expect Maruti to shift 50% of nearly 400,000 annual buyers to petrol or hybrid cars will be a tall task.
Vikram Kirloskar, vice-chairman, Toyota Kirloskar, says there may be a temporary phase where people may be in a window shopping mode to understand the economics and eventually end up choosing what makes economic sense.
Apart from volumes, analysts expect a lower proportion of diesel cars to impact operating margins too. Maruti had an average realisation of Rs 4.68 lakh per unit March quarter, and diesel vehicles accounted for 23% of total volumes in the same period. It has a diesel engine manufacturing capacity to 300,000 units per annum currently. The lower utilisation of diesel engine plant — if the total diesel volume slips below-installed capacity— will weigh further on margins.
Maruti’s chief financial officer Ajay Seth said in the post-earnings conference that the current fiscal year is quite unpredictable as consumer response to price and regulatory changes is unknown. “Customer could advance their purchase due to price hike following new emission norms or prefer the less polluting vehicle. Need to watch out this year,” said Seth.