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Policy hurdle: A Hyundai plant in Chennai. Hyundai is unable to decide on building a diesel engine plant in India because of uncertainty over whether the government is likely to add taxes for diesel-p

Policy hurdle: A Hyundai plant in Chennai. Hyundai is unable to decide on building a diesel engine plant in India because of uncertainty over whether the government is likely to add taxes for diesel-p

Hyundai may bring its entire range of diesel engines to India

Hyundai may bring its entire range of diesel engines to India

New Delhi: Hyundai Motor India Ltd, the nation’s second largest car maker, will consider introducing its entire range of diesel engines as the popularity of vehicles run on the cheaper fuel soars, increasing competition for similar models sold by market leader Maruti Suzuki India Ltd.

The local unit of the South Korean car maker is likely to start production of diesel engines once it sets up a diesel engine factory in India. But Hyundai is unable to decide on building a diesel engine plant in the country because of the uncertainty over whether the government is likely to add taxes for diesel-powered cars.

“When we look at the diesel engine plant, we are looking at all kind of engines we have globally available with us," Arvind Saxena, director (marketing and sales), Hyundai Motor India, said in an interview last week.

Policy hurdle: A Hyundai plant in Chennai. Hyundai is unable to decide on building a diesel engine plant in India because of uncertainty over whether the government is likely to add taxes for diesel-powered cars. Photo: Babu Ponnapan./Mint

The 1.1-litre, three-cylinder CRDi diesel engine, which Hyundai sells in Europe, provides a mileage of 23km per litre and caters to stricter fuel emission standards.

The i10 diesel engine is equipped with an advanced diesel particulate filter that helps it cut emissions. European countries, which were applying Euro V norms till recently, have graduated to Euro VI norms. In comparison, only 20 cities in India have to meet Euro IV emission standards.

A diesel version of Hyundai’s i10 will give Hyundai an advantage over bigger rival Maruti Suzuki, which has only one type of diesel engine. Maruti Suzuki uses a 1.3-litre diesel engine for its Ritz, Swift, Dzire, SX4 and Ertiga models. It sources these engines from Italian car manufacturer Fiat SpA, which has a licensing agreement with Maruti’s Japanese parent Suzuki Motor Corp.

“They (Hyundai) have been looking at that option for a long time. The diesel version of an i10 will be a game changer for Hyundai and a threat to Maruti," said Deepesh Rathore, managing director, IHS Automotive India. “You have to understand that Maruti has more small cars in the segment than Hyundai. Naturally, the number of people walking into Maruti showrooms will be more than that of Hyundai’s. So, a diesel version of an i10 will pull a lot of customers to Hyundai showroom."

Saxena, however, said Hyundai does not have a time frame in mind to set up a diesel plant.

“Government’s policy stand on taxing diesel cars is not allowing us take a call on our diesel engine plant," he said. “If we set up a plant now and the policy changes tomorrow, our entire strategy will go haywire."

The government is considering a proposal to raise excise tax on diesel cars.

The subsidy on diesel has led to a distortion in car sales, with more buyers opting for vehicles that run on the fuel as it is about 32 cheaper than petrol.

The subsidy, which is meant for farmers to help them run pump sets, also benefits those who drive luxury vehicles made by Mercedes-Benz, BMW and Audi, while leading to a ballooning of the government’s subsidy bill.

Raising the taxes on diesel cars is expected to crimp car sales further, even as car makers are finding it difficult to attract customers amid rising fuel prices, high interest rates and slowing economic growth.

Car sales in India grew 2.19% to 2.02 million units in the year ended 31 March, while for the auto industry as a whole, sales grew 12.24% to 17.37 million vehicles.

“In this situation, I will be happy to continue importing engines from Korea," Saxena said.

Currently, Hyundai imports all its diesel engines from Korea. In 2010, it announced a plan to invest 400 crore on a diesel-engine plant under its then chief executive H.W. Park. The plan, however, was put on hold last year following a slump in the Indian car market.

It was expected that Hyundai will go ahead with the plant after the federal budget spared car makers from the so-called “diesel tax". Following that, the Korean car maker started a fresh feasibility study to set up a diesel-engine plant in India.

Rathore of IHS Automotive said that the sudden shift of market towards diesel cars will force more car makers to bring in smaller diesel engines.

“The segment has only one diesel car, Beat. In case of Maruti and Hyundai, they will work in tandem," said Rathore. “If one takes the initiative, the other will follow suit."

amrit.r@livemint.com

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