In a reprieve to OEMs making cars and SUVs of 2000cc and above diesel engine capacity, the latest order from the Supreme Court will provide a fresh lease of life before the commencement of the festive season. In the firing line were Toyota Kirloskar Motor, Mercedes-Benz and Mahindra & Mahindra, among others.

In its 12 August 2016 order, the Supreme Court has allowed the sale of such diesel cars and SUVs in Delhi and the National Capital Region (NCR) on the payment of a 1 percent ex-showroom cost as environment cess.

The SC has also asked the Central Pollution Control Board to open an account in public sector banks to receive the green levy from big diesel car and SUV manufacturers. The transport authority will now register a big diesel car or SUV only if receipt of payment of green levy is shown according to the directive of the Supreme Court. The apex court will also decide whether the rate of green levy on big diesel cars can be more than 1 percent of the ex-showroom cost of the vehicle.

The Supreme Court has also maintained that it would decide at a later stage the issue of whether smaller diesel cars too should be brought under the purview of payment of environment protection charges. 

The Supreme Court was hearing the plea of luxury carmaker Mercedes-Benz that has offered to pay 1 percent environment cess in a bid to overcome the ban on registration of vehicles with engine capacity of 2000cc or more in Delhi-NCR.

SIAM says. . .  

Thanking the government for supporting the automotive industry by taking a balanced view Vishnu Mathur, director general of apex industry body SIAM, told Autocar Professional that the industry body is relieved at the ban being lifted as it was not felt to be scientific. Instead, the industry body had supported the symbolic cess charge.

“The Government of India is planning to undertake a study on the assessment of the cess required as well as appraisal of pollution levels. It will be either undertaken by the Ministry of Heavy Industries or under the direction of the Niti Aayog. That will be the real test as winter is coming when pollution levels also rise,” said Mathur.

The abetment agencies and all concerned stakeholders will have to consider various pollution sources – from dust, from burning of garbage, Diwali and wedding season firecrackers, the burning of fields in Punjab and Haryana due to which the smog and the smoke blows over Delhi-NCR and does not disperse easily especially during winter. These factors that cause pollution need to be recognised and all pollution should not be attributed to vehicular traffic, according to Mathur. 

Earlier this month, Mercedes-Benz India and Tata Motors had independently appealed against the ban on registration of diesel-engined cars in Delhi-NCR. While Mercedes-Benz moved the Supreme Court, Tata Motors has appealed to the National Green Tribunal (NGT). 

Mercedes-Benz India claimed that the ban has resulted in other states having started to impose similar restrictions on diesel vehicles. The luxury carmaker, which had indicated its willingness to pay a one percent environmental cess on the sale of diesel cars, recorded a marginal decline in sales in India during January to June 2016, due to the ban on registration of vehicles above 2,000cc in Delhi-NCR, which accounts for around 28 percent of its overall sales. The ban, in place since December 2015, has resulted in nearly all its cars and SUVs being affected. 

Auto industry heaves a sigh of relief

The Supreme Court decision ses the Indian auto industry heave a huge sigh of relief considering the amount of heartburn the December 16, 2015 decision has caused the industry and consumers alike.

OEMs like Mahindra & Mahindra and Toyota Kirloskar Motor, whose stable of vehicles is largely diesel-engined, had been badly impacted by the ban and both lost considerable sales and market share in the large-volume Delhi-NCR market. In fact, both companies have taken to developing petrol engines in the face of the uncertainty surrounding diesel.

On August 10, M&M said that it will offer petrol variants on its entire vehicle line-up by the next fiscal (2017-18). According to Dr Pawan Goenka, executive director, M&M, “Any product that we launch from a year after will come with a petrol engine. We are currently working on a 1.5-litre petrol engine. As a result, all our future vehicles will be equipped with either a 1.2-, 1.5- or 2.0-litre engine. After we launch the 1.5-litre engine, we would be as good as any other competitor with a petrol offering in India.” The carmaker is already working on petrol variants of the XUV500, which is scheduled to be launched in the fag-end of this fiscal along with a petrol variant of the Scorpio, which is set to launch in the early part of 2017-18, Dr Goenka said.  The company is said to be investing Rs 1,000 crore for developing its crop of petrol engines. Mahindra had introduced its first indigenously developed petrol engine with the KUV100 and so far the demand has justified its decision to venture into the petrol territory.

Likewise for Toyota, the lifting of the ban will give new momentum to its sales. To circumvent the ban which affected sales of its high-on-demand Innova MPV, it recently launched the petrol-engined Innova Crysta in India on August 8. The engine powering the India-spec Innova Crysta petrol is a 2.7-litre, four-cylinder unit that develops 166hp of power and 245nm of torque. The 2.7-litre unit (Codename 2TR-FE) is the same engine that powered the previous-generation Innova petrol in some international markets like the Middle East.

However, it is to be noted that the Japanese carmaker has continually reposed its faith in diesel and its Group company Toyota Industries Engine India opened an all-new diesel engine plant in Bangalore in March 2016 (pictured above). This plant, which has an annual production capacity of 108,000 engines per annum, produces 2.4- and 2.7-litre engines for the Innova Crysta. Expect this plant to now run at full capacity to cater to new demand as consumer sentiment will return towards diesel. 

Investment flow to re-open  

Automotive investments have a long gestation period and OEMs make investments in manufacturing operations expecting a stable policy environment.  

The lifting of the diesel ban will help automakers re-align their planned investments in India, many of which were put on hold. Following the Supreme Court decision of December 16, 2015, a number of OEMs which had invested heavily in diesel engine plants were in a dilemma whether to continue with their diesel gameplan, resulting in investments worth an estimated Rs 50,000 crore being held up.

Some of the automakers which have invested big in diesel engine programmes and manufacturing in India include Maruti Suzuki India (Rs 1,700 crore), Hyundai Motor India (Rs 1,500 crore), Honda Cars India (Rs 500 crore), Toyota Kirloskar Motor (Rs 1,100 crore) and Volkswagen India (Rs 240 crore). 

CEO comment

Captains of the Indian auto industry are already lauding the Supreme Court's decision to lift the ban. Dr Pawan Goenka, executive director, Mahindra & Mahindra,  said: “We are very relieved with the decision of the Supreme Court today. Hope this decision will put all controversy surrounding diesel fuel behind us and we will be able to focus on the more important task of making our vehicles compliant with BS VI norms by April 2020.”

In a press note, Mercedes-Benz India commented: “We have followed the earlier direction of the Supreme Court and filed an Interim Application seeking relief on the ban on our cars. Following the court suggestion, we as a voluntary interim measure, offered to pay 1% of the ex-showroom price of the vehicle towards the anticipated Environment Compensation Charge as a deposit, and not on the premise that our vehicles are polluting the environment. We reiterate that, being the pioneers of numerous technological innovations, Mercedes-Benz has the technology available and can switch our entire fleet to BS VI by 2018. However, we need compatible fuel to do so to provide our customers with the latest technologies which are available worldwide. We welcome the government’s decision to pre-pone mandatory BS VI to 2020. We think the introduction of BS VI fuel is the best viable option to curb pollution. Mercedes-Benz India is waiting for compatible fuel quality and as soon as the required diesel fuel is made available we are ready to switch our portfolio quickly to the EU 6 standard.”

Joe King, head, Audi India, said: "We welcome the decision of the Supreme Court. It is pleasing to get clarity. The lack of clarity has already had a severe negative impact with the worst affected being people working at dealerships. There have already been job losses due to the impact this ban has had on business in the Delhi NCR. Short-term decisions lead to increased uncertainty for the future. It creates a lot of confusion for the market in general. What we really need is a long-term roadmap. We need clarity on policy direction and time to amend our strategy in line with the customer demand. It is however pleasing to see this welcome step and hope that this will lead to some stability for business in the Delhi NCR.”

Meanwhile, speaking to Autocar India, an official from Toyota Kirloskar Motor said that the decision by the Supreme Court certainly comes as a relief but the company has already paid the price of the ban. “Delhi-NCR accounts for around 8-10 percent of our sales and such a ban definitely had an impact on volumes. Moreover, with the launch of the Innova Crysta, if not for the ban, the Delhi-NCR region could have accounted for even 12 percent of the sales. With regard to the 1 percent cess, it will most probably be passed on to the buyer.”

Ban prompts shift in demand for petrol

According to industry figures, diesel vehicle sales across various segments in India constitute 40-45% of the total vehicle sales in the country. The shift in demand for petrol vehicles, especially in the PV segment, had already started even before the ban was imposed, but it was surely accelerated due to the uncertainties surrounding the future of the fuel in India.

Of the total PVs sold in FY2014-15, 48% were diesel and 52% petrol. In FY2015-16, this ratio turned even more in favour of petrol -- of the total 27,89,678 PVs sold, 44% were diesel and 56% petrol, a significant change.

Since the ban was imposed in December, the trend of consumer demand shifting towards petrol vehicles has amplified even further. This is evident from the fact that of the total PVs sold in June 2016, only 41% were diesel and 59% were petrol. Acknowledging this trend, most automakers had to take rejig their manufacturing lines to churn out more petrol vehicles and in some cases even take a relook at their investments.