Coronavirus no reason to extend the BS IV product deadline: Rajiv Bajaj

by Ajit Dalvi 26 Mar 2020

A week from today, as March moves into April, India Auto Inc will officially make the technological shift to BS VI emission norms. It is a laudatory achievement on the part of all stakeholders, particularly vehicle manufacturers and component suppliers, because the leapfrogging of BS V norms to BS VI has come about in a scant three years. In comparison, Europe took close to eight-odd years to achieve the Euro 4-5-6 transition.

Almost all vehicle manufacturers worked in conjunction with their component suppliers from India and overseas to achieve BS VI compliance, ahead of the April 1 deadline. While a few rolled out BS VI-compliant products last year itself, the pace of greener products being launched picked up from January 2020. What's more, oil marketing companies also confirmed their readiness to supply BS VI fuel across the country. On March 16, Indian Oil Corporation confirmed its readiness to dispense BS VI fuel, at nozzle level, from its over 27,500 fuel stations across the country.

Getting a fix on BS VI
Achieving a judicious balance between reducing production of BS IV vehicles, which will not be allowed to be sold or registered from April 1, 2020 and manufacturing and supplying BS VI-compliant vehicle to dealers across the country, can be likened to a black art. And in a vast country like India, it constitutes a massive supply chain exercise. Think of multiple products, multiple variants, multiple plants and scores of dealerships and you can be sure there's a lot of math involved, not to mention continuing investment and a logistical nightmare. All this necessarily calls for meticulous planning for dealer stocks and a switchover to production of BS VI  products well in advance of the mandated deadline.

It is understood that till end-January, inventories of all vehicle segments, other than two-wheelers, in India were in relatively good shape and the industry was moving positively towards minimal or no stock of BS IV vehicles. A number of automakers including Maruti Suzuki India, Ashok Leyland, VE Commercial Vehicles and Honda Motorcyle & Scooter India began production of BS VI-compliant vehicles in 2019 itself, giving themselves ample time to achieve the arduous transition to the BS VI regime. However, it looks like a few manufacturers had continued to produce and supply BS IV products well into February, not heeding their dealers' opinions and as a result of which some dealers are saddled with substantial stock of BS IV products, which will have zero value after midnight of March 31-April 1.

Unconfirmed market estimates are that 700,000 two-wheelers, 12,000 passenger vehicles and 7,000 commercial vehicles with a BS IV stamp and worth around Rs 6,400 crore will become a cropper on April 1.

On February 14, the Supreme Court heard the application of the Federation of Automobile Dealers Associations (FADA) with respect to granting extension for sale and registration of BS-IV vehicles beyond March 2020. However, the apex court did not consider the appeal and reconfirmed its order of October 24, 2018 for March 31, 2020 as the deadline for sale and registration of BS IV vehicles.

Following that, on February 15, the FADA president Ashish Kale issued a statement saying, "Considering the long downturn which has lasted well over a year now and the current dynamic demand situation, selling 100% of the BS-4 vehicles currently in stock with our members by 31st of March is a tough task. FADA hence appeals to all OEMs to shift completely to BS-6 vehicles for all wholesale despatches to dealers and stop further billing of BS-4 vehicles with immediate effect to dealers, thereby helping liquidation of current BS-4 inventory for a smoother transition to BS-6.”

As retail sales nosedived with the onset of the coronavirus pandemic, on March 17, FADA once again approached the Supreme Court and filed an Interlocutory Application along with an application seeking modification in Writ Petition No. 13029 of 1985 in the matter of M. C. Mehta Vs Union Of India & Others, dated 24th October 2018 whereby it has been directed that “ motor vehicle conforming to emission standard Bharat Stage-IV shall be sold or registered in the entire country with effect from 01.04.2020.”

Decision awaited
On March 27, the Supreme Court is slated to hear an appeal from some OEMs as well as the apex dealer body in the country seeking an extension to the BS-IV deadline. Unlikely to get an extension from apex court, FADA has now sought OEMs' help/assistance to contain the substantial losses.

But whether the beleagured OEMs themselves can lend a helping hand is a concern given that from mid-March, government and company directives has seen virturally all manufacturing plants and city closures due to the onset of coronavirus. Clearly, automobile dealers across vehicle segments, who were tasked with the liquidation of BS IV inventories, find themselves in a bind. That's because of no customer footfalls whatsoever, market sentiment at its lowest and the country's focus, and rightfully so, on keeping the impact of coronavirus to the minimum.

Bajaj Auto MD firm on disallowing extension of BS IV vehicle sale
Meanwhile, Rajiv Bajaj, managing director of Bajaj Auto, has come out strongly against any extension of the date for sale of two-wheeler BS IV vehicle stock/inventory. Speaking to Hindu Business Line, he said that Bajaj Auto will continue to object to any such extension because this "unjustly penalises those of us" who have complied with the law in "letter and spirt". He added that, defaulting companies must reimburse their dealers for "redundant BS IV stocks, if any, on April 1."

Rajiv Bajaj's stance is similar to the one the company had taken during India Auto Inc's shift from BS III to BS IV three years ago. At the time, Bajaj Auto had said that the government should send a strong message by not giving any amnesty. If at all any short-term amnesty was to be given, it should be accompanied by a sizeable financial penalty on a per vehicle basis on all BS-III- vehicles registered after April 1, 2017 to discourage this practice in future.

The future, BS VI and April 1, 2020 is now a week away. Like Bajaj Auto, TVS Motor Co, Royal Enfield and India Yamaha Motor are among the two-wheeler OEMs which have exhausted their BS IV stocks and are engaged in a smooth transition to BS VI.

Rajiv Bajaj told Hindu Business Line, "It is the job of management to anticipate and plan for a contingency. If the deadline is April 1, you must plan in advance”. An extension to BS IV vehicle sales would also be blatantly unfair to those OEMs, across segments, who have arduously and aggressively worked over the past three years to meet the April 1 deadline.

Some OEMs have done the BS VI job correctly
According to the Bajaj Auto chief, the key to this transition lay in smart advance planning, more so when the BS VI deadline was mandated very clearly. Yes, while the ongoing coronavirus pandemic is an unforeseen dynamic that has impacted people, countries and businesses the world over, that is no reason for facilitating an extension.

If some companies managed to meet the BS-VI deadline, it just meant that their managements did their job while others did not. The fact that BS IV stocks were still being fed into the dealer system till February 2020 also did little to help their cause.

Even during the transition from BS III to BS IV in 2017, the Supreme Court had come down heavily on those manufacturers which had saddled their dealers with excess stocks. Liquidating their piled-up inventories, at the 11th hour, proved to be an expensive exercise eventually since it involved substantial product discounts. According to Bajaj, by following the same strategy three years later with the shift to BS VI, some OEMs were only asking for trouble by pushing their luck all over again. “That is absolutely wrong. It is also shameful and stupid,” he added, the sole objective being to this was to increase market share.

Tomorrow is March 27, when the apex court will look into the appeal for the extension of BS IV vehicle sales. At this stage, the likelihood of that happening seems rather unlikely despite the onset of coronavirus, which is clearly centre-stage news and the country's all-out point of focus right now.

'Sizeable inventories creating panic among dealers and the lockdown is making things worse': Nikunj Sanghi

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