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Inventory pile-up a fresh challenge

10/04/2017 | Author: Autoguide | 0 Comments Back To Home   < Previous News   |   Next news >

SC bans sale, registration of BS-III vehicles

In a sudden blow to the automobile industry, the Supreme Court on March 29 banned sales and registrations of vehicles not conforming to Bharat Stage-IV (BS-IV) emission norms from April 1. Though the industry had already complied with the Government notification by deciding to stop manufacture of BS-III vehicles after March 31, the apex court order imposing ban on their sale and registration has left it with a huge inventory.
Refusing to give the companies time beyond April 1 to clear inventory, a Division Bench comprising Justice Mr Madan Lokur and Justice Mr Deepak Gupta said, “The number of such vehicles may be small, compared to the overall number of vehicles in the country but the health of the people is far, far more important than the commercial interests of the manufacturers or the loss that they are likely to suffer in respect of the so-called small number of such vehicles”.
The court decision has left automobile makers, primarily Tata Motors, Ashok Leyland and Hero, saddled with a large inventory of BS-III vehicles estimated to be worth Rs 6,000-7,000 crore at the end of the month. According to reports, the companies, along with their dealers, are left with an unsold inventory of about 8,00,000 BS-III vehicles, mostly two-wheelers and commercial vehicles. 
Though miffed at the abruptness of the SC decision, the automobile industry has put up a brave front and expressed its willingness to comply with it. “I find it quite frustrating that something like this happens. The main issue for the industry was the availability of BS-IV fuel across the country,” Mr Vinod Dasari, Managing Director at Ashok Leyland and President, Society of Indian Automobile Manufacturers, was quoted in PTI. He added that that “there will be utter chaos in the next few days for the dealers and the finance companies which have sold BS-III.” However, he said, the impact on his company would be “minimal” and it would look at exporting the unsold vehicles or upgrading them to BS-IV.
Meanwhile, an official statement issued by SIAM said, “The industry would abide with the orders passed by the Court.” Auto Industry, it said, has been ready with BS-IV manufacturing since 2010.  However, the sale of BS-IV vehicles was not possible, nationwide, due to lack of BS-IV fuel.  “Auto Industry is law- abiding and is in full compliance with the emission norms set by Government that stipulates date of “manufacturing”. The historical implementation of emission norms also reinforces the current law that stipulates “manufacturing”.  Auto Industry has had the capability of making BS-IV vehicles since 2010, but lack of proper BS-IV fuel prevented it from selling such vehicles, nationwide.  Running a BS-IV vehicle with BS-III fuel can cause severe problems to some vehicles”, said SIAM chief Mr Dasari
While no one, he said, pushed for BS-IV fuel availability for seven years to changeover faster, this sudden decision – just a few days before the changeover - is rather unfortunate as it causes undue stress on the entire industry, and causes loss of jobs.  “Auto Industry, anywhere in the world, requires a stable and predictable policy which allows for long term planning and investments”, Mr. Dasari added.
Mr Pawan Munjal, CMD and CEO of Hero MotoCorp, welcomed the decision “in the interest of public health”. Mr Munjal said, “We have reduced our inventory significantly in the past few months with the aim to minimise our stakeholder losses. However, environmental protection will take precedence over temporary financial benefits”.
Media reports suggest that Bajaj Auto may be left with a small number of BS-III two-wheelers at the end of March. Mr S Ravikumar, President (Business Development) at the company, told a business daily that one of the options before the firm was to take back the unsold stocks from dealers and divert them to export markets. “We are the largest exporter of two-wheelers. So, that should not be an issue”, he was quoted.
Tata Motors called the decision an “unexpected and unprecedented move” that will have a material impact on the entire automotive industry, original equipment manufacturers and dealer network. It said the decision is a penalty on the entire industry.
A release issued by automaker Mahindra said, the company respects the order of the apex court and shall fully abide by it. It went on to say that “the company was working on various options to work within the framework provided by the court order, even trying to liquidate as much of the company’s and its dealers’ BS-III inventory as possible by March 31, 2017 and will make every attempt to minimise the one-time impact of this order on the company’s financials.” 
Mr. Erich Nesselhauf, Managing Director and CEO, Daimler India Commercial Vehicles, said, “The decision of the Supreme Court reassures us in our belief that industry interests must go together with the interests of the society at large. The BS-IV standard will bring much needed improvements in terms of air quality, to the benefit of the people and the environment. ” At Bharat Benz, he said, “We had made the strategic decision last year to only focus on BS-IV vehicles, and we have worked relentlessly for more than a year to achieve this. Consequently, we gradually phased out BS-III in our business system and have made the switch to produce only BS-IV vehicles in March, exactly according to plan.” 
In a statement, Mr. Nishant Arya, Executive Director of JBM Group, said, “We have moved to BS-IV emission norms for all our products including intra-city buses. We manufacture CNG and diesel versions at present and are in the process of rolling out India’s first 100 per cent electric buses very soon. All the versions are ahead of time in technology and comfort. While CITYLIFE CNG and CITYLIFE diesel buses are BS-IV compliant, the electric bus (ECOLIFE) is going to be completely emission-free. In auto component segment too, we have been manufacturing BS-IV compliant products for all our clients from a long time. Our OEM clients are committed to reduce carbon emission”.
Mr Sridhar V, Partner at Grant Thornton India LLP, said many automobile companies are left with a few options to cut loss and get themselves out of this knot- sale of discounted vehicles, upgrade the BS-III vehicles to BS-IV and finding markets outside of India in countries which are still plying with BS-III vehicles or a combination of these to quickly come out of this mess. Going forward, said Mr Sridhar, “the message from the Government is clear to work towards BS-VI by April 2020 and one wishes the OEM do not forget history and plan for an effective transitioning at that time.

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