This production cut represents a third of the total production capacity, in a factory that is designed to output 300,000 Fiat 1.3 liter Multijet turbo diesel engines each year. The car maker is said to have instructed 200 contract workers to go on indefinite leave, owing to the production cut at the diesel engine factory. Maruti Suzuki has also cutback on car production at its Manesar and Gurgaon factories as car demand has been continually falling over the past few months.
The cutback on diesel engine production comes at a time when prices of diesel have been steadily inching upwards on account of the depreciating Indian rupee and the new governmental policy of partially deregulating diesel prices. The Indian government plans to completely deregulate diesel fuel prices by the end of this year, as it did with petrol a few years ago. This deregulation is expected to result in the price of diesel touching the 60 rupees/liter mark.
The running costs of diesel cars will shoot up accordingly that could in turn force car buyers to reconsider buying decisions. The triple impacts of the sales slowdown, high interest rates and diesel price hikes have already begun telling on diesel car sales and the production cutback by Maruti Suzuki is the clearest indicator yet that the sales slowdown has hit diesel engined cars quite hard.
Over the last couple of years, deregulation of petrol prices have led to a steep increase in the fuel's prices. This prompted scores of car buyers to shift to diesel engined cars, as diesel was much cheaper than petrol and with a widening gap at that. Many top selling diesel engined cars in Maruti Suzuki's line up such as the Swift and the Dzire saw long waiting periods.
Now though, minimal waiting periods and discounts have become the order of the day, even on Maruti's top selling diesel cars. As things stand currently, the running costs of diesel cars remain cheaper than that of petrol cars. Also, diesel cars hold their value much better than petrol engined cars in terms of resale value. However, the completely deregulation of diesel by the end of 2013 could have wider ramifications for car sales in the country.
source:Maruti Suzuki shares slip over 1% on falling demand concerns - The Economic Times