Consumers planning to purchase a vehicle towards the end of this year may consider postponing their purchase as automakers may offer big discounts in February and March in an attempt to flush out old stock ahead of the shift to BS-VI fuel standards.
According to a judgement by the Supreme Court, no automaker can sell a BS-IV branded vehicle after March 31, the switch-over date.
This is unlike earlier transitions when only the manufacture of old models were banned and not their sale. In other words, in the earlier transitions, companies could still sell outdated models after the cut-off date as long as they stopped producing them.
However, to avoid confusion and the possibility of certain players gaming the system, the Supreme Court has imposed a hard cut-off for sales on the same day as the production stops.
Pawan Goenka, MD of Mahindra & Mahindra, calls it March 31, 2020 the Y2K moment of Indian auto sector.
“It is the Y2K moment of the auto industry because of a lot of uncertainties,” he says.
“By 31st March 2020, we have to consume all stocks of BS-IV. Unlike BS-III to BS-IV conversion, it is not possible to retrofit BS-IV [to BS-VI]. So any vehicle left-over in BS-IV cannot be sold in India after 31st of March.”
This requires companies to plan their production of existing models very carefully, so that not even a single unit is left unsold as of March 31.
This can have its impact on consumers.
First, companies will try to make sure that they don’t ‘overproduce’ the outgoing models and are likely to stop producing fresh stock by January or February.
In some cases, this could result in underproduction, where stocks run out by February or early in March and fresh stock of BS-VI vehicles take time to come.
In other cases, it could result in a mad rush by dealers to clear out the inventory of their old BS-IV vehicles in March.
This could end up in the form of big discounts on slow-moving models.
To deal with the transition, said Goenka, Mahindra & Mahindra will start shifting some of its production to BS-VI models from January itself.
“We will start producing BS-VI [in January] and start bringing down BS-IV [production] and there will be a 2 or 2.5 months overlap,” he said.
The challenge in doing so will be to make sure that BS-VI fuels are available from January itself, as these new vehicles cannot run on BS-IV fuel, which can damage them.
“As far as we are concerned at Mahindra, we expect that the first BS-VI vehicle will be ready around mid December. By 31 March, we will be ready for all but one model.
“Engineers are trying to make that one model also ready by 31 March. Therefore, we do not see any impact of not being ready because of BS-VI,” he added.
While companies are getting ready to make the shift to the new standard, it remains to be seen how many of the component suppliers are on the same page.
A large chunk of the components of a vehicle are made by third-party suppliers and not by the company at its in-house factories.
“Being ready from the engineering viewpoint is not a problem,” pointed out Goenka. “Where the challenge will come will be from the suppliers’ view point, and that challenge is there for the whole industry and not just for one player.”