Ban on diesel cars: Auto majors feel decision not optimal

Our Bureaus December 16 | Updated on January 22, 2018 Published on December 16, 2015

Automobile companies with a predominantly diesel engine portfolio are now trying to see how they can re-work their strategy.   -  THE HINDU

Industry wants focus on emissions control rather than on any specific fuel or technology

Faced with a temporary ban on sale of diesel sports utility vehicles and luxury cars in the national capital, automobile companies feel the Supreme Court decision isn’t an optimal one.

They also say this will lead to an unequal ground. Instead, they wanted the long-term regulatory roadmap to focus on emissions control rather than on any specific fuel or technology.

Automobile companies with a predominantly diesel engine portfolio, such as utility vehicle maker Mahindra & Mahindra and luxury car manufacturer Mercedes Benz, will be hit by the Supreme Court decision. They are now trying to see how they can re-work their strategy.

Anand Mahindra, Chairman of the Mahindra group, said on micro-blogging site Twitter: “so even if we believe the decision on diesel vehicles isn’t optimal, we will honour it and develop vehicles that comply with their stipulations.”

Mercedes-Benz India felt the decision would adversely affect the auto industry and lead to an unequal ground.

Vinod Dasari, President, Society of Indian Automobile Manufacturers, said the SC decision was a “sudden decision without warning”. He said the auto industry had consistently met government norms. But suddenly there was one more authority that has stepped in. “There are way too many agencies regulating the industry,” he added.

Dasari, who is Managing Director of commercial vehicle maker Ashok Leyland, pointed out that just three per cent of Delhi’s pollution could be attributed to passenger vehicles, both petrol and diesel.

It is good that the court has banned the use of older vehicles, but it has simultaneously stopped registration of new and less polluting ones. This will mean people will continue to use old cars, which will impact emission control, according to him.

However, M&M said the impact on it due to the SC order would be negligible. Its UV portfolio includes Bolero (2500 cc), Scorpio (2200/2500 cc), XUV500 (2200 cc), Thar (2500 cc) and Xylo (2200/2500 cc). Nearly 98 per cent of its portfolio comes with engine capacities of more than 2,000 cc.

Delhi, the company said, accounted for only two per cent of its total sales. “In the short-term, the court’s order affects the sales of some of the company’s products in the National Capital Region. The vehicles affected represent about two per cent of the company’s total monthly sales. The company is in the process of evaluating various options to work within the framework provided by the court,” M&M said in a statement.

Among luxury car makers, Mercedes Benz will take the biggest hit as its entire portfolio – from the A Class hatchback to the S Class sedans and the SUVs – will be impacted. Diesel cars account for 80 per cent of its sales and the NCR contributes nearly 22 per cent to its total sales. Its competitors like BMW and Audi will not be hit hard.

In a statement, Mercedes-Benz India said the ban created an environment of uncertainty and would impact its expansion plans and future investments. “We also have to consider the loss of jobs that this will result at the dealerships, at the vendors producing diesel engines and also negatively impacting our own workforce,” it said.

Long-term impact

Tata Motors, which too has a portfolio of UV, said it would be impacted but its continued foray into petrol would stand the company in good stead over a period of time. However, it said, the long-term regulatory regime should focus on the overall emissions-control roadmap rather than any specific fuel or technology.

Analysts tracking the sector felt there will be a long-term impact on the automobile industry, especially on those manufacturers with a significant diesel portfolio. Pollution control would have to look at all aspects and not just the automotive industry, said Abdul Majeed, Partner, Price Waterhouse. There was a need for a short-, medium- and long-term policy on emissions control as it would help automakers plan their strategy.

The industry works on long time cycles and changes that have a short-term implication cause significant disruption, said Kumar Kandaswami, Senior Director, Deloitte in India. The industry would be worried about the timing of the order as there were signs of sustained growth after many months.

From a customer standpoint, there was likely to be a shift away from diesel, given the perceived uncertainties. “Interestingly, we have seen preferences shifting from one powertrain to another on account of policy action in the past,” he said.

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(With inputs from Mumbai, New Delhi, Chennai and Pune.)

Published on December 16, 2015
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