Now only Supreme Court, OEMs hold answer to dealers' BS IV stock woes

by Sumantra B Barooah 26 Mar 2020

The Indian automobile market is all set to move into the new and stringent BS VI emission regime in less than a week. It’s the dealers, barring a few maybe, who are not ready yet. That’s because of the sizeable amount of BS IV vehicles in their showrooms and warehouses.

As of March 21, an estimated Rs 6,350 crore worth of BS IV vehicles (two-wheelers, passenger vehicles, commercial vehicles) remained in dealerships. The automobile retail industry pins hopes on support from OEMs and before that, on a hearing and favourable judgement tomorrow at the Supreme Court. The Federation of Automobile Dealers Associations (FADA) has already filed an interlocutory application on March 17, seeking an extension of the March 31 deadline of selling and registering BSIV vehicles, due to the Covid-19 virus outbreak impact.

“There are two options of support for us now. An extension of the deadline, or support from OEMs in taking care of the BS IV stocks,” Ashish Harshraj Kale, president, FADA told Autocar Professional today. There was a third option of registering unsold stocks in the people in the dealers’ network by March 31, and selling them later as pre-owned vehicles. The nationwide lockdown from March 25 has stalled that plan. Dealer sources say that even though some RTOs may be operating, lack of manpower there and dealerships being shut the documentation work is getting affected.

FADA had earlier also approached the Society of Automobile Manufacturers (SIAM) seeking support in addressing the potential problem of unsold BS IV stocks. In response, the dealership body was told that respective OEMs will take calls individually, based on their policies. One OEM –  Bajaj Auto – has made its view clear in this matter. The company's managing director Rajiv Bajaj reportedly is of the view that dealers with unsold BS IV inventory should be reimbursed by their respective OEMs. “We are hopeful that others will also take a similar stand,” says Kale.

Sum of all parts: disassemble BS IV vehicles to sell as spares
A senior executive of another OEM is also of the opinion that there should be support to dealers to deal with the unsold BS IV inventory problem. Another senior executive from the CV industry finds an alternate solution that could be perhaps applied by OEMs who have very low inventory level of BSIV vehicles. That’s to disassemble the unsold vehicles and sell the components, sub-assemblies as spares. “For example, there are accident repair jobs in workshops quite often. Our dealership workshops can use various parts, the engine/cabin as a whole, or even the chassis for such jobs,” says the executive, who wished to remain anonymous.  

Talks underway between dealer councils and OEMs 
It is learnt that dealer councils of OEMs are engaged in talks with senior executives of their respective OEMs to find a solution to the BS IV inventory problem in the event that there’s no intervention by the Supreme Court. Kale shares that the unsold inventory could be disastrous for dealers, especially in a situation when the dealerships’ manpower, rentals and loan interest costs continue without any sales revenue due to the ongoing 3-week-long national lockdown. The automobile retail business may not retrench any employees, in line with the call by the government to avoid job cuts. “We are not looking at any job cuts as of now,” says Kale.

There are around 15,000 automobile dealers in India, with around 26,500 outlets. Around 25 lakh people are employed in the industry. What literally added the problem of unsold BS IV stocks is the approach taken by some dealers hoping to cash on the celebration of the new Hindu lunar calendar on March 25, as Gudi Padwa in Maharashtra and Ugadi in Karnataka, according to a Mumbai-based dealer. That opportunity, to leverage the significant price difference without any discount between BS IV and BS VI models, was lost as the national lockdown to tackle the virus outbreak started on that very day.

Except for dealers of a few brands who have ran out of BS IV stock, all eyes of others are now on the Supreme Court and their respective OEMs. Whether it will be March 2016 redux, when the SC refused to extend the BS III deadline or will it be different in the current never-before situation, we’ll get to know very soon. On another level, it does also lead to a debate on whether there’s uniformity in the OEM industry with regard to preparation for a new emission regime.