CV industry awaits scrappage policy

The commercial vehicle industry eagerly awaits final scrappage policy from the Central government for a sustainable demand as it sees a bleak outlook in the near term.

The CV segment has been battling a deep demand slowdown over the past year. The medium and heavy commercial vehicle category has seen its volumes drop by more than 40 per cent on the back of slow economic growth, overcapacity in the operators’ space and tight financing environment. Though industry expects some pre-buying to kick in ahead of BS-VI norms, the demand headwinds are likely to continue for the next few quarters.

Twin objectives

The entire industry is looking forward to government’s scrappage policy which the industry sees will achieve the twin objectives of stimulating a sustainable demand and cutting down carbon footprint for the benefit for the environment.

Contrary to the popular view, implementation of BS-VI norms will not reduce pollution. The industry will only add less. Since there are too many old vehicles causing pollution and India never had a scrappage policy, the industry wants the government to come out with a strong policy for long-term goals instead of making it as a one-time affair. Unless older vehicles are taken off the road, pollution levels will not come down. Hence, there is a need for a proper scrappage policy.

“In our survey, we found that if we take out 50 per cent of BS-II & BS-III trucks off the road, we will save about 800 million tonnes of oil a year and it will bring down CO2 by 2 million tonnes,” said Satyakam Arya, MD & CEO, Daimler India Commercial Vehicles.

“We should have a running policy instead of a one-time thing. The government can incentivise it over a period to stimulate higher demand and then can reduce or disincentivise. Incentivisation could come by savings on oil imports. Since the government could save something and half of it could be used to incentivise the scrappage scheme,” he said.

There are about 12 lakh commercial vehicles that are more than 15 years old and an effective scrappage policy will have the potential to support the sector over a three-year period. It will be a big boost for the CV industry with volumes coming in for replacement equivalent to 36 per cent of annual sales (FY19), according to a report of ICICI Securities.

Arya pointed out that BS-VI is a dramatic improvement in emission and India should have utilised the chance to get the old vehicles off the road with a scrappage policy along with the new emissions.

Most of the other countries such as the US or European nations introduced “Cash for Clunker’ scrappage policies along with the implementation of stricter emissions norms. Such a move not only helped stimulate demand for some period, but also cut down pollution levels, he pointed out.

Incentive for scrap

The CV industry pointed out that the government’s draft scrappage policy covered mostly the aspect of building scrap centres and associated support mechanisms. They urge the government to design the final policy covering all dimensions such as defining the end of life for vehicles based on km travelled, or mileage and years. Also, an incentive for scrap and disincentive for keeping the old vehicle and trading of scrappage certificates should be covered.

The government’s attempt to bring in a vehicle scrappage policy can spur sales if implemented for vehicles older than 15 years. But this needs to be assisted by additional incentives over and above the exemption of registration fees of ₹20,000-40,000, according to Hetal Gandhi, Director, Crisil Research.

“We believe about ₹40,000 benefit on the scrappage of 15-year and older heavy trucks will not be enough to promote scrapping such trucks as the current resale value of a 15-year-old truck is higher than the current scrap value and the registration benefit. We believe on higher benefits CV sales can pick up on the introduction of new scrappage policy. This when accompanied with a gradual recovery in demand will make a meaningful impact on CV sales,” said Gandhi.

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