According to KPMG Global Automotive Executive Survey 2017, “More than every second executive believes that diesel will be the first traditional powertrain technology to vanish from manufacturers’ portfolios. This is quite alarming for several manufacturers and regions considering their expected diesel penetration rates for 2023, such as Indian manufacturers with an overall diesel share of more than 60%.

 

Likewise, RC Bhargava, Chairman, Maruti Suzuki, has also predicted that small diesel cars would go out of production after 2020. There are a variety of factors that will impact the demand for small diesel cars including hatchbacks, compact SUVs and compact sedans over next few years – increased diesel price, escalated production cost, and new emission regulations.

 

Registration Ban and New Emission Regulations

Recently, the National Green Tribunal (NGT) banned diesel vehicles which are more than 10 years old in Delhi and NCS. In 2016, the Supreme Court ordered automobile manufactures to pay a levy amounting to 1% of the ex-showroom price of diesel vehicles with an engine capacity above 2000cc. The government is also set to introduce new regulations for emissions by 2020. The court ban and new emission regulations will dissuade more and more users to purchase small diesel cars. They will prefer investing in small petrol cars to avoid Supreme Court bans or revised emission regulations in the longer run.

 

Increase in Production Cost and Vehicle Prices

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The Bharat Stage IV emission standards will be implemented across India in April 2017. The Indian Government will also implement Bharat Stage VI emission standards to meet the Euro VI norms. The automobile manufacturers have to incur additional production overheads to build small diesel cars according to Euro VI norms. The Bharat Stage VI emission standards will increase the prices of small diesel cars by one lakh rupees. Mr. Bhargava believes that the Bharat Stage VI emission standards will make small diesel cars more expensive than small petrol cars in 2020.

 

Shrinking Diesel and Petrol Price Gap

In India, prices of both petrol and diesel are deregulated. The marketing companies keep revising petrol and diesel prices frequently based on global oil prices and INR exchange rates. Hence, the prices of both petrol and diesel will keep increasing due to a surge in global oil prices. But the price gap between petrol and diesel has been reducing steadily. The diminishing price differential will persuade many buyers to prefer petrol engine to diesel engine. Also, the increase in prices of both diesel and diesel vehicles will make many users switch to small petrol cars.

 

Many automobile manufacturers have revealed their plans to launch new hatchbacks, compact SUVs and compact sedans in India despite the sharp decline in small diesel car sales. However, major automobile companies allow customers to choose from both petrol and diesel engine options. Hence, the customers will still have option to choose from a myriad of small diesel cars in the short run. However, considering the probable phasing out of diesel cars, it might make more sense for new buyers to opt for petrol cars.

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