Logistics

Here’s how automakers are gearing up for the BS-6 transition

Nandana James Mumbai | Updated on October 22, 2019 Published on October 22, 2019

The automakers are better positioned this time and are not expecting fire sale

From offering huge discounts aimed at bringing down the inventory levels of BS-4 vehicles to creating awareness among consumers on the benefits of new technology, automakers are pulling all stops to ensure that they are ready to roll out BS-6 vehicles come April 1, 2020.

Contrary to the previous transition in emission norms from BS-3 to BS-4, wherein automakers were caught napping and had to liquidate their stock within a matter of a few days before the deadline, this time, automakers are not only better positioned to make the transition to BS-6 norms well within the stipulated deadline, but are also not expecting a fire sale of the BS-4 models.

BusinessLine spoke to automakers to understand how they are gearing up for this transition to BS-6 norms, which has also been identified by most automakers as one of the major reasons for the subdued customer demand in the face of one of the worst slowdowns to beleaguer the automotive industry in recent times.

Back in 2017, just a few days before the deadline for the transition to BS-4 norms, the Supreme Court banned the sale and registration of BS-3 vehicles, leaving automakers staring at a stock of around 8.2 lakh BS-3 vehicles, as it was earlier understood that they will just have to cease the manufacture of new BS-3 vehicles post the deadline, and that they can sell their existing BS-3 stock even after the BS-4 deadline.

Prepared for transition

In line with the BS-6 transition, Maruti Suzuki, the country’s largest carmaker, introduced its first BS-6 compliant model in April 2019, and has already sold 2 lakh BS-6 compliant petrol vehicles, with eight of its 16 models being BS-6 compliant now. It has already stopped production of BS-4 cars for these eight models in which BS-6 models have been introduced, said Shashank Srivastava, Executive Director, Marketing & Sales, Maruti Suzuki India Limited. For the rest of the models, the decision to cease BS-4 production will be taken keeping in mind the inventory levels, he added.

Srivastava said that Maruti has a “very balanced inventory” of BS-4 vehicles and that it doesn’t seem like there will be a fire sale.

“The current discounts are at an all-time high and we don’t think it will go beyond this level. Also, the production plan of most of the companies are aligned to BS-6 implementation and soon the BS-4 stocks will finish without prompting any fire sale.” affirmed Rajesh Goel, Senior Vice President & Director, Sales and Marketing, Honda Cars India.

Read: What BS-6 means for auto buyers

Suraj Ghosh, Principal Analyst, Powertrain & Compliance Forecasts, IHS Markit, said that most OEMs would be clearing their inventories by February or March, and that there wouldn’t be a fire sale in its actual sense. “If there’s ever a sales period with heavy discounts, then it’s going to be this quarter, particularly the last month,” he added.

Ashish Modani, Vice-President and Co-Head, Corporate Ratings, ICRA, also said that the discounts are already high and that the likelihood of any fire sale – which is almost non-existent – will be specific to a particular OEM or dealership. From an industry point of view, the industry is much prepared this time, compared to the BS-3 to BS-4 transition, he said.

In order to boost consumer sentiments at a time like this, Maruti has undertaken efforts like promotional offers of up to 1 lakh, price cuts to share the benefit from the corporate tax cut, easier finance availability by approaching banks for attractive finance schemes and an enhanced reach in sales and services through the launch of Mobile NEXA Terminal.

Honda Cars is also providing offers under ‘The Great Honda Fest’, which is helping it maintain sales of its BS-4 vehicles, said Goel. Honda Cars has also tied up with multiple banks and financial institutions to offer upto 100 percent on-road financing, low EMI packages and long-tenure loans to make the purchase process more attractive. “We are confident about clearing our BS-4 stock well in time before BS-6 implementation...We will do a sequential changeover to BS-6 from Q4 of FY19-20,” said Goel.

Plans for old vehicles

Additionally, taking into consideration the apprehensions beleaguering customers post the announcement about the discontinuation of smaller diesel vehicles, Maruti has rolled out a 5-year, 1-lakh km warranty on its four diesel powered cars, namely Dzire, S-Cross, Swift and Vitara Brezza. Customers’ confusion about the continuance of Vitara Brezza and S-Cross – which are currently available in diesel only – made them hold back their purchases, and Maruti plans to introduce petrol variants of these two models in the coming months, said Srivastava.

Goel said that the market has definitely moved towards petrol in many segments and that Honda Cars will also be aligning its production mix in line with the market demand. Honda Cars is planning to continue with its diesel models post the BS-6 implementation, he added.

In order to salve customers’ apprehensions about the BS-6 transition, Srivastava said that Maruti has also created extensive training modules for its front line teams and dealer sales executives on doubts related to the transition, as they are the ones interacting with customers on a day-to-day basis.

Hyundai, on the other hand, is offering petrol BS-6 engines with its Grand i10 NIOS and New 2017 ELANTRA. “We will be fully ready before the BS-6 implementation from April 2020...We have optimum levels of inventory for BS-4 and BS-6 cars,” said Puneet Anand, Sr. GM & Group Head - Marketing, Hyundai Motor India. It has also rolled out a Mega Festival Campaign, offering “smart deals on wheels, big benefits and assured early deliveries” on some of its brands in a bid to boost sentiments during the festive season.

At Toyota Kirloskar Motors Ltd, in the light of its challenges with Innova and Fortuner where the price hike is going to be severe post the transition, and is currently being discussed at Toyota, the company is trying to educate customers about the price hike and provide them with solutions in both BS-4 and BS-6, as per their needs, to help them make an informed decision, said N. Raja, Deputy Managing Director, TKM.

“Toyota production is based on a ‘pull system’ which helps us regulate how much is required by when and how, thereby regulating production basis the market demand. Therefore, we would monitor such elements so as to ensure no BS-4 vehicle stock beyond March 31, 2020,” said Raja.

Raja added that since customer preferences will vary depending on whether the purchase is made for personal or fleet use, and price forms an important aspect for fleet customers, the company’s biggest challenge will be to predict such customer-specific demand accurately.

At Mahindra & Mahindra Ltd, it is taking efforts to educate customers on the BS-6 technology, said a Mahindra spokesperson. “All our marketing efforts will be to promote our differentiated value proposition of clean emissions and fuel efficiency with thrilling performance of our vehicles,” the spokesperson stated, adding that currently, it is up to the customers to take advantage of the existing price levels which are inclusive of festive offers to buy BS-4 diesel vehicles.

“At Mahindra, we are planning a smooth transition, with a ramp-down for BS-4 and ramp-up of BS-6 in such a way that the overlap will be minimal. In case of rare overlaps, customers will have the option to choose between BS-4 and BS-6 vehicles and will get price benefits on BS-4 vehicles. Since we cannot switch overnight from selling BS-4 to BS-6, we will start selling BS-6 vehicles and tone down BS-4 vehicles in a phased manner. For BS-6 diesel vehicles, availability of BS-6 fuel is crucial,” the spokesperson added.

A Volkswagen spokesperson said that the company is currently evaluating the market and is aligned with the Indian government’s vision. “Volkswagen carlines will be compliant well within the time period. To this effect, our on-ground sales and service consultants are well-trained to provide required advice and support to our customers,” the spokesperson said.

Honda Cars’ Goel said that from a customer’s perspective, it is the best time now to make a car purchase since the discounts are at an “all-time high”.

“The same car in BS-6 version will be more expensive and without these discounts. Even if one considers the resale value of a BS-6 car versus a BS-4 car, the current upfront discounts on buying cars now make the total cost of ownership more favourable for BS-4 cars,” said Goel.

Any undue confusion among customers about the viability of BS-4 vehicles has also been clarified by the government when it reiterated that all BS-4 vehicles registered till March 31, 2020 will continue to be operational for the entire period of registration, and this also means that there should not be any hesitance in buying BS-4 vehicles, Goel pointed out.

The demand is better than what it was a few months back because customers have understood that this is the best time to buy cars, added Goel. Since the festive period is ongoing now, it remains to be seen how the demand progresses in later months, he said.

Published on October 22, 2019
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