Maruti Suzuki India has been in talks with the Fiat to source Diesel engines for its cars in India. So far, Maruti used to produce its diesel engine based on Fiat’s technology under royalty arrangements, but now along with its own manufacturing, Maruti will procure complete CRDI Diesel engine units also from Fiat. As per the deal between Fiat and Maruti Suzuki, which also required Tata Motors approval, Fiat will provide 1 Lakh engine units per year. This will greatly reduce the burden from Maruti’s Diesel Engine assembly units and will help Maruti deliver Diesel cars more quickly. As of now, there is months long waiting on the Maruti Swift Diesel whereas the petrol cars are almost ready off the shelf. This disparity is because of the shortage of Diesel engines with Maruti and huge demand surge because of recent Petrol Prices rise.
image – Fiat Multijet CRDI Diesel engine
Recently Maruti Suzuki has hiked the prices of Diesel cars in India because of higher input costs. This hike widened the price gap between petrol and Diesel cars from Maruti, still the demand for Diesel cars stand quite strong. There are high chances of Diesel cars getting all the more expensive after the union budget of 2012 in India as the Govt. is planning to put additional taxes and duties on Diesel cars to compensate for the subsidy in Diesel prices. This is further expected to put a check on the demand of Diesel cars in India.
Maruti Suzuki will expand its production of Swift Diesel in January 2012 to clear the backlog of pending deliveries of the cars for the customers who have been waiting for a long time to get their diesel car delivered. While this deal will bring a relief to the waiting customers and help Maruti increase its Diesel car sales and revenues, but it will also put some negative impact on the profit margins of the Diesel cars as sourcing an assembled engine will cost more to Maruti against making the engine at Maruti’s own facility. Whichever ways, if the move helps Maruti keep the sales growing, the margins will be offset by increased sales.
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