How Maruti is changing the diesel market

India’s largest carmaker by market size , Maruti Suzuki’s new 800 cc diesel engine car is not only fuel-efficient but is also likely to be a game changer for the diesel market in India, if the company gets its engine pricing right.

According to a report in the Economic Times, Maruti, which is keen on maintaining its leadership position in India is experimenting with a small two-cylinder 800cc diesel engine along with its parent Suzuki Motor Corp in Japan to launch a fuel efficient diesel engine for a small car. The all-new engine is likely to deliver 40 horsepower and give 25-30 kilometers a litre, said the report. “Testing and validation is currently on in Japan and, if all goes well, the project may come down to India for indigenisation in 6-12 months,” said the report.

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The move comes close on the heels of Hyundai and Tata Motors gearing up with entry-level diesel cars as diesel, which is 40 percent cheaper than petrol and about 30 percent more efficient, is reviving a fading line of car buyers who were turned off by the soaring price of petrol.

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Car sales in India grew at the slowest pace in seven months during May with just 2.78 percent rise as high interest rates and petrol prices hit the market.

In April and May, diesel consumption increased 8.5 percent, while that of petrol fell 0.6 percent due to the price advantage the former enjoys, an IIFL research report said.

The surge in demand for cars with diesel engine has forced manufacturers like Maruti Suzuki, Volkswagen, Hyundai, Audi, Mercedes-Benz, Nissan Toyota and Mitsubishi to rethink production plans.

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According to industry estimates, Indian car makers increased production capacity of diesel vehicles by over 35 percent to 1.16 million units in the last financial year, compared to the year-ago period.

Hyundai Motor India ramped up the production capacity of diesel variants of its sedan Verna and compact car i20 by up to 50 percent from March.

Maruti Suzuki successfully launched the new utility vehicle Ertiga, which currently has a booking of over 47,500 units. Since January Maruti has also inked a diesel engine sourcing deal with Italian car maker Fiat, announced a new diesel engine plant at Gurgaon and is merging Suzuki Powertrain with itself in order to cash in on the public preference for diesel cars. The company has drawn up ambitious plans to increase the production of diesel vehicles from 2.5-lakh units at present to about 4 lakh units in FY13.

With the expansion of capacity of its diesel engine plant in Gurgaon and the new sourcing agreement with Fiat, Maruti is expected to see the share of diesel cars moving up to 38 percent by 2015, according to a research report from Antique Broking.

Global research firm Jefferies in its 20 June report also said that the shift towards diesel has been “best exploited” by Maruti Suzuki. Maruti’s new launches like the Swift hatchback, compact DZire and the Ertiga multi-utility vehicle have had huge success and its diesel models have waiting period as much as six months. Rivals like Ford and General Motors, on the other hand, have seen their sales of their competing products slip in recent months.