CLEAN AIR OR LOWER SALES?

about 7 months ago
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On 23rd Oct 2018, the Supreme Court (SC) had to step in again and make what should ideally have been a voluntarily adopted ‘rule.’

The SC has made it categorical that only BS VI-compliant vehicles will be sold in India from April 1, 2020. What this means is that the current fleet of BS IV cars, two-wheelers and trucks can be sold only for a little over 12 months now.  This also means that companies will have to start depleting their inventories from Dec’19 as the dealership pipeline gets ready to be replenished with BS VI vehicles.

This BS VI stage comes to mind because of what is happening in Maruti Suzuki. The company’s sales for Feb were down and two days ago, it announced that it had cut down production by 25% (YoY) for March’19. In fact production for March this year is expected to be the lowest since 2015. This cut in production is obviously due to dwindling sales and when the largest car maker of the country, which makes one out of two cars sold, says that sales are down and it is cutting production, it does sound ominous. Other automobile companies have not yet announced any production cut but their monthly sales too have been on a decline.

There are various reasons for this falling sales – high interest rates, uncertainty over upcoming elections, high cost of fuel, insurance premiums, tight liquidity. But in all this, for companies, the situation with a dwindling sales gets critical as the 1st April 2020 deadline is now just a year away.

This does mean that companies need to match production with sales to ensure that too much inventory does not get piled up. The manufacturers, as the year progresses, will have to offer enticing discounts, that too at a time when raw material prices are skyrocketing.

The entire dynamics of the sector is undergoing a change. The BS-VI stage puts a cloud on customers buying the cars now – their resale value of BS IV cars will plummet from next fiscal.

But this time around, manufacturers have been given more than enough time to make the change, to recalibrate manufacturing towards achieving smoother transition.

The challenge is huge as the industry is jumping straight from BS VI to BS VI.  This BS standards are stipulated by the Govt  to regulate air pollutants from internal combustion of engines, especially vehicles. This is based on the European regulations.

The big difference between the existing BS IV to BS VI is the much lower emissions - BS-IV fuels contain 50 parts per million (ppm) Sulphur and BS-VI has 10 ppm sulphur content. Nitrogen oxides in petrol cars can be cut down by 25% and diesel by 70%. ) from diesel cars can be brought down by nearly 70%. BS VI will bring down the cancer causing particulate matter (PM) in diesel cars by a huge 80%.

The investments for vehicle making companies are huge and it would not a surprise to them carrying foul and urging an extension on the deadline. But we fervently hope that this is not done as they companies have been given good enough time to bring about the change. The country is choking; we have the most polluted cities in the world in India; this BS-VI stage is the need of the hour.

For Maruti and the rest, this year could be tough; at least that is what we are seeing now. But if sales happen later, on the fear that costs will go up in FY20 as BS-VI vehicles will costs more, that would help balance the sagging sales of today.

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