Auto industry has its work cut out with BS VI norms

It was barely a fortnight ago that the Supreme Court made it clear that only Bharat Stage VI-compliant vehicles would be sold in India from April 1, 2020.

In the process, the message that went out loud and clear was that there was no way auto-makers would be allowed to continue with their present BS IV range. This effectively meant that there would be no grace period for the industry even while it was widely believed that another 100 days would be granted to manufacturers to get rid of their old stocks.

At one level, this was not entirely unexpected considering last year’s experience when the Court had the industry stunned, ruling that only sale of BS IV vehicles would be allowed from April 1, 2017. It was widely believed that the manufacturing date would be considered for the new emissions regime.

No leniency

Many manufacturers did not expect this to be the date of sale instead and had to extinguish their stocks across vehicle categories. Some incurred losses since they had to offer discounts to get rid of their BS III inventories in just about three days.

It was also quite clear that there was no way any leniency would be allowed, especially with the environment at stake. To that extent, even while a section of the industry was hopeful that there would be a small extension of the BS VI deadline, the Court was not inclined to the idea. By making its stance clear, there would be no complaints of an inadequate notice period as was the case with BS IV.

It is quite remarkable that days following the recent diktat on BS VI, the quality of air in Delhi has just gotten worse. It would be naive to assume that the auto industry is the sole culprit for this state of affairs considering that there are other issues like construction and stubble burning that have contributed to the mess.

Yet, with the Court signalling its intent to auto-makers that they must stick to the BS VI deadline, not many people can afford to point fingers at them any longer. During the days of subsidised diesel, large SUVs were termed the villains of the piece since they were seen as soaking in the benefits of cheaper fuel.

They were promptly slapped with tax levies but this argument is no longer valid. Diesel is now out of the administered pricing mechanism, which effectively means that the subsidy element has been knocked off. With its price now a lot steeper since the good old days, customers are now heading back to petrol even if it is slightly more expensive.

It is in this backdrop that the industry is now preparing itself for the ‘big unknown’ in April 2020 when the BS VI regime will kick in. What is worrying manufacturers is that there are a host of other issues to contend with right now.

Negative factors

First, there is a degree of anxiety on rising fuel prices that could deter buying. After all, customers would be concerned about their household budgets going haywire and may choose to adopt a wait-and-watch attitude.

The September notifications on hike in auto insurance have also done little to boost sentiment, especially in the case of two-wheelers where the cost burden is higher. In some cases, especially in the case of entry-level motorcycles and mopeds, the revised insurance levy works out to nearly 20 per cent of the cost.

This is a lot of money for buyers in this product segment and it remains to be seen how demand pans out in the months that follow. The other area of concern pertains to the recent northeast monsoons, which have left parts of the country facing the prospect of severe water scarcity.

It is now quite clear that parts of Maharashtra and Gujarat as well as central India are gearing up for a tough haul in the coming months. Rural prosperity is an important lever for two-wheeler purchases and it remains to be seen how the scenario unfolds in 2019.

This is also the time that the country heads for the national elections and there is really no telling what is in store. Will the ruling BJP make a comeback or will the opposition manage to upset the applecart? Nobody really has a clue and it is this political uncertainty that auto-makers need to factor in while forecasting/gauging potential demand for their vehicles.

These will be nagging worries even as they will now need to go flat out on their BS VI timetable. Effectively, they have barely 15 months left because they need to get their new range ready even while the present BS IV family will be phased out. This also means coordinating closely with suppliers and dealers to ensure everything works to clockwork precision.

This is not going to be the easiest of tasks and managements will have to pull out all the stops in ensuring that there are no stock pile-ups at their plants or dealerships leading to April 2020. This will call for careful planning, especially at a time when there are distinct headwinds already that are causing uncertainty.

The other challenge is for oil companies to ensure that BS VI fuels are available across the country weeks prior to the actual date. There is no way new engines can be fed BS IV petrol and diesel and this is where both auto-makers and oil companies will have to work in tandem.

Silver lining?

So, is everything all gloomy with no silver lining in the cloud? Not quite, especially for commercial vehicle-makers who are reasonably confident that there will be brisk buying of BS IV trucks through 2019-20. From the fleet operator’s point of view, the difference in price will be good enough reason not to buy a BS VI vehicle.

After all, manufacturers are going to spend considerable money on new technologies and will have to recover this from the customer. While this will be a setback to buyers of both cars and two-wheelers, the impact will be much more in the commercial vehicle space.

Fleet owners operate a business where they need to recover their investments, especially when the BS VI range will be far more expensive. They will be quite content to have a BS IV truck that will fit the bill at least for the next five years. While the prospects of brisk buying next fiscal will please truck-makers, they will have to contend with the reality of a slowdown in sales when their BS VI range hits the market.

By the end of the day, there is no denying the fact that April 2020 will usher in a new chapter for the Indian automobile industry. Yet, there are concerns galore arising from the present state of affairs in the market coupled with the challenges of moving to a completely different, and even alien, ecosystem.

It is not going to be easy for sure but if this means that the country will send a strong message to the world that it is serious about cleaning up the air, the effort will be well worth it. At least, Delhi’s residents will not have a reason to blame auto-makers in the new decade.

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