Home / Companies / What are CAFE norms and why do they matter in the proposed Toyota-Suzuki deal?

New Delhi: India’s proposed corporate average fuel efficiency (CAFE) norms for all car makers, could be a key to deciphering the latest realignment move in the global auto industry.

With reports suggesting that the two Japanese auto makers, Toyota Motor Corp and Suzuki Motor Corp., are on the cusp of a tie-up to share technology as well as pool in capital, India is the key market both are seeking to address. Changes in regulatory norms have left both companies scrambling to fill gaps in their product lines.

From 1 April, India adopts CAFE , or corporate average fuel efficiency, norms, which require cars to be 30% or more fuel efficient from 2022 and 10% or more between 2017 and 2021.

Read here: Toyota, Suzuki poised to unveil partnership today

The mileage improvement will be decided on the basis of litres of fuel consumed by a vehicle to run 100km. The move is targeted at reducing the carbon footprint of the automobile industry. It is the first time such norms have been introduced in India.

Now car makers were hoping that since diesel as a fuel offers higher mileage, they will be able to meet those norms but since the said fuel has come under scanner especially after the Supreme Court effected a ban on diesel run vehicles in 2015, the larger fear is that usage of diesel may just be limited to commercial use.

In such a scenario, since use of diesel vehicles go out of equation in personal space, meeting CAFE norms will be impossible just by petrol vehicles since their mileage is low and weight is almost the same.

Therefore, the way forward will be hybrids—not the mild ones.

In this scenario, Toyota and Honda are the global leaders and Indian market leaders, including Suzuki, are laggards.

Suzuki, in fact, has said it does not have money to invest in rapidly changing technologies and it hardly bothered about developing those on its own since it always operated in India, where local companies resisted such norms to come in early; and in Japan, it operated in the mini car segment, where it holds around 30% market share.

Suzuki is aware that it may take a while before such norms get a legal nod in India but when they do get the nod, the repercussions will be wider.

Maruti had to withdraw its Omni and Gypsy models in 2000 when Bharat stage norms were first introduced as Suzuki did not have tech immediately available in India to meet those norms. Models were brought back to the market after upgradation. It seems Suzuki in India is at a similar point now with a massive 47% market share in the world’s fastest growing auto market but it is not sure if that share can be maintained amid a rapidly changing regulatory environment.

Read here: India holds the key to Suzuki-Toyota tie-up

Not that it has not explored tie ups before. But it has had bitter experiences with Volkswagen and General Motors. In Toyota, it may see cultural similarities, deep pockets and a shared kinship stemming from their Japanese roots.

Suzuki stands to gain if the partnership goes through but that will also depend on how much ground it is willing to cede to Daihatsu, its arch-rival in the mini car segment and now a Toyota company, in India, which is expected to be third largest market for passenger vehicles by 2025.

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