As Supreme Court Bans BS III Vehicles, Unsold Cars Worth Rs 12,000 Crore Are Now Useless

Top commercial vehicle makers such as Tata Motors, Ashok Leyland and Mahindra & Mahindra, and two-wheeler majors Hero MotoCorp, Honda and TVS are saddled with a near-junk inventory worth over Rs 12,000 crore, after Supreme Court's decision to disallow sale and registration of BS-III vehicles from April 1. Companies also face dealers' wrath as they complain of inventory holding costs and possible defaults in bank loans taken to buy stocks.

bccl/representational image

The companies were hoping for a relief from SC as they pleaded for the sale of BS-III vehicles that had already been made and dispatched to dealers. While their plea received support from the government, SC was in no mood to relent as it pressed for the sale of only BS-IV vehicles, which are less polluting and more efficient.

"I am speechless," Pawan Goenka, MD of Mahindra & Mahindra and former president of industry body Society of Indian Automobile Manufacturers (SIAM), told TOI.

The total inventory of commercial vehicles, two-wheelers, three-wheelers, and passenger vehicles was 8.24 lakh units as on March 20, though the companies would have managed to sell some of this. With no extension, the dealers may be forced to liquidate unsold inventory at huge discounts, and may get support from manufacturers in the process, sources said.

afp/representational image

The auto industry blamed fuel companies for BS-III inventory, saying the poor availability of BS-IV fuel across the country hurt the transition. "While no one pushed for BS-IV fuel availability for seven years for a faster changeover, this sudden decision ¡ª just a few days before the changeover ¡ª is rather unfortunate as it causes undue stress on the entire industry," Siam president Vinod Dasari said.

"Auto industry, anywhere in the world, requires a stable and predictable policy which allows for long-term planning and investments," Dasari, who also heads CV maker Ashok Leyland, said.

What baffles many is the fact that commercial vehicle makers continued to make BS-III vehicles even in the first quarter of this year when they knew that these vehicles could be phased out from April.

Companies are now exploring all options to tackle the issue, including the upgradation of vehicles to BS-IV (if possible), or export. However, officials said both the measures will require additional costs and will be a financial drain.

"The commercial vehicles segment will be impacted most on account of sizeable inventory levels, potential costs associated with inventory re-call (from dealers) and upgradation to BS-IV norms. Further, in order to liquidate existing stock, OEMs (original equipment manufacturers) will also be pushed to offer higher discounts," an analysis by ICRA said.

bccl/representational image

Apart from the green lobbies, the push for a ban on the sale of BS-III vehicles was also spearheaded by a section of the industry itself. Companies such as Bajaj Auto and Daimler's commercial vehicles arm Bharat Benz led the campaign to bar BS-III vehicles from April 1, and argued that the industry had sufficient time to upgrade production to BS-IV. SC-mandated Environment Pollution Control Authority (EPCA) had in October last year directed vehicle manufacturers that no non-BS-IV vehicle will be registered after April 1.

Ashok Leyland, which had an inventory of around 17,500 vehicles as on March 20, claimed that the impact will be minimal as it hopes to sell a large part of the left-over stock, while having the capacity to upgrade the remaining ones or export them.

Pawan Munjal, chairman of Hero Moto, said the inventory levels are under control.

"We have reduced inventory significantly in past few months with an aim to minimise stakeholder losses. However, environmental protection will take precedence over temporary financial benefits."

"The decision... is an unexpected and unprecedented move that will have a material impact on the entire automotive industry, OEM's and dealer network," Tata Motors said.

"The industry had planned the current transition into BS-IV in line with the accepted past practice of stopping production of earlier emission standard vehicles effective from the transition date. In the context of this previous experience, this decision by the apex court is a 'penalty' to the entire automotive industry," Tata Motors added. Stocks of some of the leading automakers, including commercial vehicle major Ashok Leyland and two-wheeler leader Hero MotoCorp, closed sharply lower on Wednesday after the Supreme Court banned the sale of vehicles which are not compliant with BS-IV emission norms, from April 1.

ap/representational image

In Wednesday's market, the Hero MotoCorp stock closed 3.2% lower at Rs 3,223, while Ashok Leyland lost 2.8% to Rs 84. Among other automakers, Tata Motors closed 0.7% at Rs 469, Maruti lost 0.6% to Rs 5,941, while Bajaj Auto was up a marginal 0.3% at Rs 2,831.

The rupee meanwhile stormed to a new 17-month high and closed above 65, a level not seen since October 2015, on heavy dollar selling by speculative traders and exporters.