Maruti Suzuki bets on African and South East Asian markets as petrol car sales slowdown in India

Diesel is 40% cheaper than petrol in India while diesel cars cost almost 20% more than petrol powered ones. Despite the higher initial cost of diesel engined cars, car buyers are choosing to buy more diesel cars, leaving petrol cars in the lurch, as they feel that higher running of the diesel car will help them recoup the higher initial price over a period of time. So, the bottom has simply fallen off petrol car sales with diesel powered cars accounting for 80% of total car sales in many segments. This has also meant that car makers are now saddled with excess capacity for petrol cars at their factories.

2012 Maruti Swift hatchback used as an illustration

One such carmaker and the country’s largest one at that, Maruti Suzuki, is now changing tack to tide over this issue by focusing on exporting its petrol engined cars. Maruti, whose entry level cars are predominantly petrol powered has found itself at big petrol car inventory piling up at its plants. So, the car maker is looking to export big to markets in Africa, where the demand for petrol powered cars still remain high due to the parity in pricing of petrol and diesel fuel. The same is the case in many markets of South East Asia, which are also on Maruti’s radar for higher exports.

Exporting the cars to these countries will also help Maruti to tide over the other crisis of higher import costs due to the steep depreciation of the Indian Rupee vis-a-vis the US Dollar. So, exporting more cars will give Maruti respite from the double whammy of high petrol prices and a depreciating rupee. Currently, Maruti Suzuki has an installed capacity to manufacture 880,000 petrol engined cars annually, from its two plans in Manesar and Gurgaon. The car maker is also constructing another factory near Mehsana, Gujarat, albeit on a scaled down model, for future demand.

Maruti Suzuki is utilizing about 70% of its installed capacity to build petrol cars. Therefore, that gives rise to an excess capacity of 264,000 cars currently. Increasing exports to 15,000 to 20,000 units per month would therefore, ensure that Maruti is able to utilize its production capacity better, thereby boosting profits. Rumoredly, Suzuki, Maruti’s parent company, is said to be developing a twin cylinder 800cc turbo diesel engine for use in the automaker’s entry level range of cars. This engine however, is expected to be available for use only in 2014 or 2015.

Via Bloomberg