Carmakers in a Catch-22 situation, face bumpy ride to BS-VI roll-out

With less than 24 months left for India’s automobile industry to switch to Bharat Stage (BS)-VI emission norms, manufacturers are in a catch-22 situation. Even as the production and research and development (R&D) departments of automobile firms are bracing up for a big technological leap, most of them are faced with a dilemma whether to launch models slated for 2019 with BS-IV or BS-VI technology.
 
The confusion stems from demand uncertainty – Whether customers will advance purchases to beat the price hike, thereby bumping up demand in the run-up to the introduction of the BS-VI standards, or whether they will postpone purchases till the new norms kick in.
 
Depending on the fuel and body type, the price increase in the mass BS-VI passenger vehicle models could be anywhere between Rs 25,000 and Rs 150,000. In terms of percentage, the hike could be steeper for small diesel cars compared to their petrol variants.
 
India will leapfrog from the current BS-IV emission standards to BS-VI from April 1, 2020. 
 
Companies will need to stop producing BS-IV vehicles at least by January-February of 2020 to avoid the stockpiling of unsold inventory, which may not be allowed to be sold after March 31, 2020. Amid shrinking product lifecycles, growing consumer aspirations and heightening competition, automobile companies prefer to dot their calendar with new launches to sustain buyers’ interest and keep up the sales momentum. But this strategy may have to take a back seat in the transitory phase, and companies may have to forfeit volume and market share goals for 2019-20.
 
While top executives in most of these companies conceded they were facing this dilemma, none had clear answers as to how they planned to tide over the anticipated disruption. “In my view, any car that is launched in the second half of 2019 should be BS-VI compliant, because you cannot bring a BS-IV car for just a few months,” said R C Bhargava, chairman, Maruti Suzuki India. “People will have to work out their strategies,” he added.
 
Even if companies do take a call on launching BS-VI models ahead of schedule, the availability of BS-VI fuel across the country will be critical. “You cannot run a BS-VI car on BS-IV fuel. So, one does not know how things will work out,” said Bhargava.
 
Shekar Viswanathan, vice-chairman at Toyota Kirloskar Motor, agreed. “There will be a lot of interference in the sales processes. It is tough to predict how the year (2019-20) will pan out in terms of volumes for individual players,” he said.
 
There “will be a lull” in the market as new launches might get postponed, he said. “If model X is slated for a September 2019 launch, it does not make sense to launch the model with a BS-IV engine and then relaunch it for BS-VI six months later,” said Viswanathan.
 
Companies are also not sure how car buyers will behave.
 
“Nobody knows how the consumer is going to behave. It can cut both ways,” pointed out Viswanathan.
 
“Consumers are likely to be circumspect in the initial stages of BS-VI implementation, given the likely increase in the acquisition cost of a vehicle. There may be some preponement of purchase just prior to the transition,” said Rajan Wadhera, president (automotive) at M&M.
 
Others were more guarded in their response. A spokesperson for Honda Cars said the company was committed to meeting the schedule of BS-VI implementation. “We are not in a position to share the model-wise implementation schedule at the moment,” she said.
 
Rajendra Petkar, chief technology officer, Tata Motors, said even though the transition was a complex exercise, Tata Motors was in advanced stages of migration. BS-VI vehicles, he added, could not be introduced without the availability of the fuel of the requisite quality throughout the country for sustained emission performance.
 
Sugato Sen, deputy director-general at industry body Siam, said so far, there had not been any formal communication from the petroleum ministry on the supply of BS-VI fuel before April 2020. “If they do it in advance, it will help companies plan launches and roll out better,” he said.

What are BS standards?
 

The Bharat Stage (BS) standards have been instituted by the government to control tailpipe emission of pollutants from motor vehicles. These standards turn more stringent with every new stage of BS.