BackAuto firms brace for new set of challenges
Crackdown on cars with diesel engines, BS-VI norms by 2020 has brought hybrid, smaller petrol mills in focus
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Dheeraj Gandhi, a Delhi-based dealer for Toyota Kirloskar Motor India Pvt. Ltd has seen inquiries for Toyota Camry Hybrid shoot up sharply in the last one month and expects to sell 6-8 units of the model in January—at least double the three he sold last month.
Maruti Suzuki India Ltd has seen a similar shift. Sales of Ciaz SHVS Hybrid have gone through the roof, rising month-on-month between September and December. Of the total Ciaz diesel sales, 60% are hybrid units, said an official at the company, requesting anonymity.
Albeit in small way, these instances may depict the beginning of a gradual shift in consumer buying preference towards cleaner and greener technologies.
The shift, for now, is largely policy-driven. Delhi, which has earned the dubious reputation of being the world’s most polluted city, has seen a series of orders and directives slapped by the government and judiciary, and demanded by the civil society over the past one month.
Even though National Capital Region (NCR) accounts for only 7% of national auto sales (across segments and categories), if the move toward cleaner or less polluting technologies becomes the new normal, automobile firms in India may have to make a series of adjustments to prepare for a greener future.
This includes giving a greater thrust to technologies such as CNG, hybrid and electric vehicles, downsizing diesel engines to meet revised norms, finding newer export markets for diesel engines and sharpening focus on petrol models. It may even shake up the market with some body types like the multi-purpose vehicle (MPV).
The spectre of the shift appears to have sent some auto firms into a tizzy. “They want to promote cleaner technologies like CNG and electric vehicles, but do we have adequate infrastructure?" said a Maruti executive, requesting not to be identified. Availability of compressed natural gas (CNG) is a big problem, he pointed out. While the company has five CNG models, “customers are not very comfortable (buying them) as they think they will have to stand in queues for refilling," said the executive.
Electric and hybrid vehicles too face cost and infrastructure issues. While the lack of charging points have been impeding growth of electric vehicles, high technology costs have made hybrids unaffordable to the vast majority.
Given these uncertainties, firms say they will wait before they commit new investments into green technologies or change their long-term plans. They want to see a coherent policy from the government on issues ranging from emission norms to choice of fuel, scrappage of old vehicles and plans to build infrastructure to support electric and CNG vehicles.
“We have invested in petrol, diesel technologies while also having technology to meet any changes in regulations. We await a clear picture to emerge," said Rakesh Srivastava, senior vice-president (sales and marketing) at Hyundai Motor India Ltd.
A senior executive at Honda Cars India Ltd, requesting anonymity, also said that they will avoid “knee-jerk" reactions. The company has already started exporting diesel engine parts. If needed, the company will “augment" that process, said the executive.
“Everything appears ad hoc as of now," said Rajeev Singh, head (automotive) at consultancy firm KPMG India, referring to recent decisions temporarily banning the sales of large diesel-engine vehicles and advancing emission norms.
In December, Supreme Court banned fresh registration of diesel vehicles with engine capacity of more than 2,000cc until 31 March 2016. Also, India will move up to the toughest emission standards of Bharat Stage-VI (BS-VI) from the current BS-IV by 2020, skipping BS-V, transport minister Nitin Gadkari said on 6 January.
“The inconsistency in the decision (to move to BS-VI) has created a challenge for the leadership team (of auto companies)," said Singh, pointing out that the investment by companies in the BS-V norms has now become redundant.
Even as they await clarity in government policy, auto companies like Mahindra and Mahindra Ltd, Toyota Kirloskar and Mercedes-Benz India Pvt. Ltd, which have been hit the most on account of their diesel-dominated models, are realigning their product line-up and sales plans.
With all its sports utility vehicle models sporting 2,000cc-plus engines, Mahindra and Mahindra expects to push production and sales targets for KUV1OO—its first petrol-powered compact sport utility vehicle (SUV), which launches 15 January.
The production target for the model has been revised upwards to 7,000 units a month from 5,000 earlier, said an auto component supplier to the model. He declined to be identified.
The company, meanwhile, is speeding up work on its future engines. “It may also downsize some of existing diesel engines sooner rather than later to meet the norms," said another person aware of company’s plans.
“All I can say is that there is now pressure to do things faster," said Jayanta Deb, senior vice-president, product development, at Mahindra and Mahindra, adding that the company has been working on a series of petrol engines.
The 1.2-litre petrol mill, called mFalcon, which will power the KUV1OO is the first among several new petrol engines the company plans to launch.
“We are already on our way to having a strong petrol portfolio. We have more petrol engines in the pipeline. We are currently working on the Scorpio and XUV5OO petrol versions," said Pawan Goenka, executive director at the firm, told reporters on the sidelines of the KUV1OO’s unveiling in Mumbai on 19 December. Sensing a shift in buyer’s preference from diesel to petrol vehicles, Mahindra has started work on developing a new family of petrol power plant along with its Korean subsidiary, Ssangyong Motor Co.
An executive at Mercedes- Benz India Pvt. Ltd, who spoke on condition of anonymity, said the luxury car firm is in talks with its headquarters in Stuttgart, Germany, to increase the allotment of petrol models, as sales and enquiries for such models have risen since the diesel ban came into effect. Seven out of 10 models that Mercedes-Benz sells in Delhi run on diesel. Even as it works on getting more petrol models, Mercedes-Benz will have to let go of the volumes from a region which accounts for almost a fourth of its sales in the near to medium term.
“It will take us anywhere between eight months to a year to get the petrol models," said the Mercedes-Benz executive, adding, “The good thing is, that unlike other luxury car companies, we do have a strong portfolio of petrol models. It’s just a matter of getting them here."
Toyota Kirloskar, which has seen inquiries for its petrol models and Camry Hybrid shoot up, is in the process of ramping up production of petrol engines, said N. Raja, senior vice-president and director (sales and marketing) at the firm.
It is also supporting its dealers in Delhi and NCR who are saddled with unsold diesel vehicles, said Raja. Besides taking back the diesel models, such as Fortuner and Innova, the company is partially sharing the payment of salaries of the sales staff at the dealerships that were selling diesel models, Raja added. The auto maker is also in talks with banks to extend the credit period to dealers by an additional 30 days.
Puneet Gupta, associate vice-president with market research firm IHS Inc., said that there are, however, no guarantees that the petrol vehicles will be as acceptable as diesel models.
For instance, for a fleet operator, a petrol Innova, Bolero or Xylo might not make economic sense, and that may push him to chose a small car, a sedan or a compact SUV instead of a multi-purpose vehicle. The court’s directive may end up shaking up the whole market with one body-type finding more acceptability than the other, said Gupta.
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