New Delhi: Maruti Suzuki India Ltd plans to shut its diesel engine assembly plant in Gurgaon in the biggest sign yet of a grim future for diesel cars in India. The Suzuki Motor Corp. unit might either convert the diesel engine line in its Gurgaon plant to produce petrol engines or add an assembly line for petrol engines at its plant in Manesar, said three people directly aware of the development. Both the factories are located in Haryana.

Maruti’s move highlights waning demand for diesel vehicles in India and its plans to aggressively tap the market for petrol and CNG cars, as well as ecofriendly hybrid cars and electric cars. India’s largest carmaker is expected to gain the most from a deepening partnership between its parent Suzuki and Toyota Motor Corp., which covers various areas—including the production of hybrid and electric cars.

Sale of diesel cars is expected to fall sharply in India once the more stringent Bharat Stage VI (BS VI) emission norms come into force from 1 April 2020. Upgrading of existing BS IV diesel engines to BS VI would make them much costlier, potentially affecting demand, said the people cited above.

Maruti currently assembles a 1.3-litre diesel engine sourced from Fiat in Gurgaon. The engine powers some of its highest-selling models such as Baleno, Vitara Brezza and Ertiga. The Gurgaon plant also makes an 800cc diesel engine, which has been developed in-house and is currently offered on Maruti’s Super Carry light truck.

The diesel assembly line in Gurgaon has a capacity of approximately 170,000 engines per annum. The automaker also produces Fiat’s 1.3-litre diesel engine at its Manesar factory, which has an annual capacity of around 300,000 units.

Meanwhile, Maruti plans to stop using the 1.3-litre diesel engine for its cars, replacing it with a 1.5-litre diesel engine developed in-house by Suzuki, the people said, requesting anonymity.

“In the long run, Maruti will not offer the 1.3-litre diesel engine any more and in the medium term, the diesel engine assembly line in Manesar will suffice for the demand in the market," said one of the three people cited earlier.

Maruti, like other carmakers, is witnessing a shift in customer preference for diesel cars, as they are considered more polluting than those that run on petrol. Diesel cars still cost more than petrol models, while the price differential between the two fuels has vastly narrowed in recent years.

Maruti didn’t respond to an email sent on Wednesday.

The share of petrol cars in India has risen from 47% in FY14 to 60% in FY18, according to data from the Society of Indian Automobile Manufacturers (Siam). During the same period, the share of diesel vehicles fell from 53% to 40%.

Suzuki has already started working on a full hybrid car for India and has earmarked a record $1.4 billion for research and development, the lion’s share of which will be deployed for the development of hybrid and electric cars in FY19. The company has also requested the Union government to expand the retail outlets for CNG, with sales of Maruti’s CNG vehicles growing 50% so far this fiscal.

Companies such as Groupe Renault SA and Daimler AG have reduced manufacturing of diesel vehicles in Europe as consumers move towards petrol, hybrid and electric cars. Maruti will become the first automaker in India to effect a significant cut in diesel car production after the BS VI norms are implemented.

“Globally, diesel as a fuel has come under regulatory scanner and urban buyers are informed about this. Hence, they are staying away from diesel vehicles," said Anil Sharma, associate director at market researcher MarketsandMarkets. “Also, with BS VI emission norms, per unit cost of developing diesel engines will rise significantly, which will be passed on to the consumers. As a result, the automakers are cutting down their diesel engine capacities."

Last year, Maruti stopped offering the 800cc diesel engine option on its small car models, such as the Celerio, due to lower-than-expected sales.

The first person cited earlier said most carmakers in India were seeking to cut diesel vehicle production on expectations that demand would fall over the next couple of years.

In 2012, the board of Maruti decided to invest in the diesel engine plant in Gurgaon due to surging demand for diesel cars in India. In 2015, Maruti renewed its agreement with Fiat for the 1.3-litre diesel engine.

“Senior executives in Maruti are of the opinion that the diesel engine manufacturing capacity in Manesar will be enough for the company to cater to the demand in the coming years," the second person said on condition of anonymity. “Also, to convert an existing engine assembly line it takes a year and a half. So the reduction in diesel engines will not be immediate."

R.C. Bhargava, Maruti’s chairman, said in a press conference on 19 December that the company was witnessing lower sales of diesel cars this fiscal, and would produce diesel cars based on customer requirements and market demand. The company, however, posted a 50% jump in sales of CNG vehicles so far in this fiscal, he said.

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