Middle class bike users worst hit by price hike

The latest hike in petrol prices, the second major rise in four months, has not only created a significant skew in automobile demand but also pinched the poor and middle-class consumer who cannot afford to fork out more for a diesel vehicle.

Although the government's logic in increasing petrol prices at the cost of diesel is that the former is a rich man's fuel, increasingly, it is the more expensive compact cars, not to mention sedans and SUVs, that are offering diesel variants in order to benefit from the more than Rs 20 differential between the two fuels. Ironically, the lowest rung in the auto ladder – two-wheelers and entry-level small cars – are the ones that now run only on petrol. So, the petrol hike has ended up hitting the middle and lower middle class consumer, say industry experts.

One look at how the car demand has behaved of late gives the picture. For example, in all models where Maruti offers a diesel variant, the diesel percentage of total sales has gone up from 65% a year ago to 85% now. But that also means the petrol-only segments have suffered. "The diesel option is not there in most small cars so those customers are simply staying away from the car market," says Mayank Pareek, managing executive officer (marketing and sales) at Maruti Suzuki. "This is causing a fundamental shift in car demand which is why the car industry has clocked just 1% growth."

Pareek says only five models have clocked any growth in recent months. These are Alto, WagonR, Santro, Omni and Eeco. "This despite the fact that there are 20 models in the A2 segment and even in these five models the growth is marginal," Pareek says.

While the small car buyer is staying away, the motorcycle and scooter consumer is being pinched really hard. Says TVS Motor president marketing HS Goindi, "These successive petrol price increases are hurting the middle and lower middle class bike user. The fuel price increase along with rising interest rates and food inflation has led to a severe pinch. And the worst thing is that this diesel shift is due to an artificial price gap which is not necessarily based on fuel quality, fuel efficiency or operating cost."

Industry experts feel it's time the government laid out a well thought out fuel policy for the automobile industry without which companies are wary of investing any further in either petrol or diesel technology. "Setting up fresh capacity (for diesel engines) means huge investments for which you need clarity from the government on their future auto fuel policy," says Pareek.

Agrees Goindi, "You can't cross-subsidise a fuel for ever. So the government needs a proper fuel policy in the long run."