Hyundai India betting big on diesel engine factory

On one end of the spectrum, the country's largest car maker Maruti Suzuki is cutting back on diesel engine production owing to dropping demand. On the other end, the country's second largest car maker Hyundai is betting big on diesel power. 

This seemingly contradictory approaches may be reconciled by the fact that while Maruti Suzuki produces diesel engines in-house and outsources some production to Fiat India, Hyundai imports all its turbo diesel engines from South Korea. So, while Maruti needs to cut back on diesel engine production to adjust inventory levels, Hyundai plans to tide over the tough sales climate and save money by producing diesel engines in India. 

Hyundai offers four turbo diesel engined cars in India: the i20, Verna, Elantra and Santa Fe. The imported turbo diesel engines that power the cars cost Hyundai quite a bit in terms of import duty. Spare/replacement parts for these engines are also expensive, given their imported nature. In this light, the upcoming diesel engine factory at Hyundai's Sriperumbudur manufacturing facility, off Chennai, could be instrumental in helping the car maker achieve cost savings on diesel car models.

Amid growing competition, Hyundai India could also use the cost efficiencies achieved through the diesel engine factory in order to rationalize car prices, making for more competitively priced products. According to the FinancialExpress, the diesel engine factory that Hyundai is setting up at an investment of 300 million US Dollars is all set to go on stream very soon. 

Hyundai India's diesel engine factory is a flexible plant, which means that it can produce both diesel and petrol engines, aligned to market demands. This approach hedges Hyundai's bets as any change in car buyer behavior can be met swiftly and flexibly. Here's a round up of advantages,

• Cost savings on account of no import duty
• Lower spare/replacement parts cost for diesel engines 
• Lower transport and logistics costs
• Lower waiting periods 
• Flexibility of catering to both petrol and diesel car demand

Hyundai's upcoming small car, code-named the BA hatchback, will be available with both petrol and diesel engines. The car will sit between the i10 and i20 car models. So, the 2014 Hyundai BA, which could be called the i15, will be the least priced diesel engined car in Hyundai's Indian line up. The hatchback will use a 1.1 liter-3 cylinder CRDI turbo diesel engine. An August 2013 launch time frame in India, is doing the rumour rounds for the Hyundai BA/i15.