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As India switches to BS-VI, sub Rs 10 lakh petrol cars may gain

Mumbai: Petrol-run vehicles priced below Rs 10 lakh are likely to be the initial gainers when India transitions to Bharat Stage-VI emission standards in April, according to industry executives and experts.

Factors that are expected to work against diesel vehicles include price hikes that would likely be sharper than on petrol-run models and continuing uncertainty over the availability of BS-VI compliant fuel across the country. Companies that focus on large diesel-powered utility vehicles could therefore take a bigger hit, at least initially, than those that specialise in petrol.

Introduction of BS-VI would impact the sub Rs 10 lakh and the Rs 10 lakh-plus price bands differently, said Vinay Raghunath, partner and leader, automotive, EY. “In the first category, OEMs have already announced and launched BS-VI capable gasoline (petrol) powertrain variants while keeping the price rise marginal, which should give a boost to the gasoline powertrain segmental share. In the greater than Rs 10 lakh segment, it’s clear that due to BSVI transition there will be a significant price increase in the diesel powertrain variants.”

Maruti Suzuki chairman RC Bhargava said sales of petrol cars could likely grow at the expense of diesel cars after the transition, with the sub-Rs 10 lakh petrol models likely to see faster expansion. The rule in the National Capital Region limiting the life of diesel vehicles to 10 years and that of petrol to 15 years could also influence buying decisions, he added.

Maruti Suzuki has the largest petrol small-car portfolio in India. Over the recent years, sales of petrol cars have gone up, he said.

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In fiscal 2015, diesel vehicles accounted for 48% of auto industry sales, and petrol 52%. In fiscal 2019, the share has changed to 36% to 64%, in favour of petrol.

Fuel efficiency and performance of petrol vehicles have also improved, offsetting an advantage diesel had over the lighter fuel. The downside of petrol cars as a variant is not there anymore, said an expert.

“We have to see how consumer behaviour plays out over the next couple of quarters, with respect to continuing popularity of certain combinations of vehicle body type & powertrains, price elasticity and the perceived product value proposition” said EY’s Raghunath.

While the price impact on petrol variants of compact cars and SUVs would be in the range of 3-5%, it is the larger diesel vehicles, that would be a minimum of 8-10%, according to industry experts. Companies like Mahindra & Mahindra that have a large portfolio of products priced above Rs 10 lakh would have to pass on their higher cost to customers, they said. What this means is that a small BS-VI passenger car in the Rs 5 lakh bracket would becoming costlier by about Rs 25,000 which can easily be afforded by its consumer, while a diesel SUV costing Rs 10 lakh would become dearer by nearly Rs 1 lakh, making it potentially unattractive to customers.

Another factor is that BS-IV petrol can be used in BS-VI variants, but the same is not the case with diesel, where BS-VI engines will require fuel compliant with the same standards. There is no certainty over the availability of BS-VI diesel on a pan-India basis, thereby giving headaches to diesel vehicle makers.

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