Oil on the boil makes car manufacturers toil

Oil on the boil makes car manufacturers toil
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First Published: Tue, May 13 2008. 12 27 AM IST

Costly ride: Fuel efficiency is also of concern in India where driving in cities involves frequent starting and stoppages, low-speed, bumper-to-bumper traffic and potholded roads.
Costly ride: Fuel efficiency is also of concern in India where driving in cities involves frequent starting and stoppages, low-speed, bumper-to-bumper traffic and potholded roads.
Updated: Tue, May 13 2008. 12 27 AM IST
The Bajaj-Nissan-Renault combine’s attempt to build a $2,500 (about Rs1 lakh) car that stresses on fuel efficiency and cost of ownership comes as oil prices, already at record levels after doubling in a year, are predicted to rise by the same percentage by the end of the year.
Oil, currently hovering around $120 per barrel, is set to cross $200 barrel in the next 6-24 months due to lack of adequate supply and increased demand from China for the 2008 Beijing Olympics, say analysts. The same set of analysts from Goldman Sachs had predicted oil would cross $100 a barrel when it was trading at close to $55 a barrel.
Costly ride: Fuel efficiency is also of concern in India where driving in cities involves frequent starting and stoppages, low-speed, bumper-to-bumper traffic and potholded roads.
And so, it’s hardly a surprise that around 84% of auto industry executives polled by audit and consulting firm KPMG last year cited fuel efficiency as an extremely important factor in their future strategy.
“We are clearly seeing huge global warming issues and oil at a $100 is not academic any more,” Rajiv Bajaj, managing director of Bajaj Auto Ltd, had said in a January interview, before he unveiled the prototype of the car, when quizzed about his vision for the yet-to-be-finished car. “I really don’t think it’s important whether a car costs a lakh of rupees, or Rs1.5 lakh because the cost of the car contributes to only a third of (cost of) ownership.’’
He wasn’t available for comment for this story.
Bajaj, 41, has always said that given the rising price of oil, it is necessary to give consumers a vehicle whose cost of ownership doesn’t pinch. When he first announced plans to make a small car, he seemed to care much less about the initial price tag of the car and seemed to veer instead towards a small car, which, while offering limited speeds, would do the job just fine by using a smaller quantity of fuel to run a longer distance.
Indeed, small and cheap cars are somewhat in favour.
Tata Motors Ltd, India’s largest auto maker by revenues, unveiled the Tata Nano earlier this year, after spending some four years in a bid to build the country’s cheapest car. The Tata Nano, with a price tag of around $2,500, has set the benchmark for other cheap cars that want to capture the mass market for individual four-wheel transportation.
Carlos Ghosn, who heads Bajaj’s partners in the small car effort, Renault SA and Nissan Motor Co., has been unabashed about his ambition to introduce a frugally engineered car that costs about the same as the Tata Nano.
But neither the Bajaj-Ghosn combine nor Tata Motors is alone in its ambitions for low-fuel guzzlers.
The recent spike in oil prices has prompted auto makers to cut back on the production of bigger cars and gas guzzlers such as the Land Rover. To keep sales going of cars, big and small, that they have in the market, some auto companies are offering subsidies to customers to buy fuel at cheaper prices while they work on hybrid engines that will use less fuel.
Mahindra and Mahindra Ltd, for example, is promoting its Scorpio as a fuel-efficient sports utility vehicle (SUV) in the US with the tagline, “SUV without guilt”. In the UK, for example, Fiat offers about £1,000 (Rs80,800) worth of fuel to customers who buy the Grande Punto small car.
Lawmakers across the world are also getting stricter on fuel efficient norms. In the European Union, for example, legislation considered for carbon dioxide emissions — that are closely related to fuel efficiency — will have lighter taxes for smaller cars.
In India, the primary market for the Bajaj-Nissan-Renault car, customers are protected from oil price surges to an extent, because petrol and diesel prices are subsidized by the government. Still, customers here are among the most value conscious drivers in the world.
“In India, the mindset is such that a certain section of customers ask about the fuel efficiency even when they are buying a (Rs)80 lakh car,” said Rishi Goel, who heads marketing at the local unit of German luxury car maker Audi AG. The cheapest cars in this category are priced above Rs25 lakh and are typically bought by millionaires.
In the past few decades, several car makers have become market leaders based on the fuel efficiency promise. India’s 1.5 million a year car market is dominated by small fuel-efficient cars, which account for 75 of every 100 cars sold. Maruti800, the first small car to be introduced in the country in 1983, became the largest selling car within four years of its launch, because it offered a longer ride per litre than rivals brands such as the Hindustan Motors’ Ambassador and Fiat Premier.
Fuel efficiency is also of concern in a country where driving in urban area is an exercise that involves frequent starting and stoppages, low-speed bumper-to-bumper traffic and potholded roads.
Despite the availability of cars such as Maruti800, the penetration of cars is still low. Only about eight of every 1,000 Indians own a car compared with 12 in neighbouring Sri Lanka and Pakistan, and auto makers are positioning their new fuel efficient vehicles such as the Tata Nano, to attract first-time drivers.
Auto makers are also looking at other options such as hybrid vehicles and alternative fuels such as hydrogen. Car makers such as Toyota Motor Co. and Honda Motor Co. already sell such vehicles. Some hybrids such as the Toyota Prius, for example, have been around for 10 years, at a time when the price of oil was less than a quarter of what it is today. The Prius has been named the most fuel-efficient car in the US by that country’s Environmental Protection Agency, but its sales are handicapped by it being about 25-30% pricier than comparable petrol-powered vehicles.
With hybrids and other alternative fuel options years away from mass consumption, in the next decade the battle for market share could well be fought on whether a car gives 13km per litre of fuel or 30km.
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First Published: Tue, May 13 2008. 12 27 AM IST