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Shift To BS 6 Norms Could Be A Blessing For Used Car Market

  • Apr 24, 2019
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The Indian auto industry is set to make a shift from current BS 4 emission norms to BS 6 emission norms from 1 April, 2020. Carmakers in India are preparing for the shift as you read this, and some luxury carmakers like BMW and Mercedes-Benz have already started to offer cars that adhere to BS 6 emission standards. With cars getting powertrains that are more nature-friendly, these are going to become more expensive as well.


Every time the prices of new cars have gone up, it has left an impact on the used car market as well. With the used car market now bigger than the new car market, we analyse whether this increase in new car prices can lure buyers towards the used car market. Also, are there any other factors in this shift that will positively impact used car sales in India? Let’s take a look.


There are a number of reasons why car prices go up. Some of the common reasons are increase in input costs and fluctuation in foreign exchange rates. While these do result in an increase in new car prices, it’s the change or upgrade in technology that happens once in a while that leaves a greater impact on market dynamics. The shift to BS 6 emission norms will be one such event that will change the market scenario completely.


In order to make cars ready for the BS 6 era, carmakers will have to upgrade their engines. For carmakers, updating existing engines to meet BS 6 emission norms won’t be tough since they’re already offering engines that meet Euro 6 emission norms overseas. In fact, in some of the cars, carmakers won’t even have to change the engines entirely, but just update the existing engines to improve the quality of exhaust. However, making those changes will involve some input cost and that is what will make cars more expensive.


To cite an example, Maruti Suzuki has now launched the Baleno petrol with a BS 6 engine, an upgraded version of the same engine that powered the Baleno previously. The updated model is up to Rs 19,000 more expensive than previously. This increase in price is likely to be in the same range for all petrol-powered small cars ranging from Rs 3 lakh to Rs 8-10 lakh. An increase in ex-showroom price by around Rs 20,000 means an increase of around 5 per cent cost for an entry-level car. Add to it the increase in cost of variables like insurance and road tax and the price increase becomes even more significant.


When buying a new car becomes more expensive, it’s obvious for buyers to start considering used cars. While increase in the price of new cars is one of the reasons why used cars start to appear more value for money, this increase in new car prices leads to an increase in the price of the same model in the used car market as well. So, for example, if the price of the new Maruti Suzuki Ciaz goes up by Rs 30,000, there is an opportunity there in the used car space to up the asking price.


With an event like the BS 6 shift, when the entire new car market will see a price increase, there will be this sentiment that will favour an increase in the cost of the used cars as well while still making used cars appear more value than new ones. And this is where this shift can prove to be a blessing for the used car market.


Until now, we have discussed how petrol cars will get dearer in the BS 6 era and how this will impact the used car market. But the increase in the price of petrol cars in the BS 6 era will be negligible compared to just how expensive diesel cars will get. In order to meet BS 6 emission norms, the diesel engines will have to be equipped with things like DPF (diesel particulate filter) and Selective Catalytic Reduction (SCR), and these updates to the engines will be expensive.


Since diesel engines will require a heavier modification to meet the more stringent norms, prices of these cars are expected to go up by over four to five times than those of the petrol cars. Maruti Suzuki, for example, said late last year that it is expecting its diesel cars to become more expensive than petrol ones by about Rs 2 lakh in the BS 6 era, that would mean an increase in prices of almost one lakh rupees.


Take the example of a car like the Maruti Suzuki Dzire, the most affordable diesel variant of which costs Rs 6.68 lakh (ex-showroom Delhi), making it almost Rs 1 lakh more expensive than its petrol counterpart. In the BS 6 era, where you can expect the Dzire petrol to start from just under Rs 6 lakh, the diesel version will be priced closer to Rs 8 lakh. With the Dzire diesel starting from around Rs 8 lakh and going over Rs 10.5 lakh, it’s only obvious that the demand and, therefore, the price of the diesel Dzire will shoot up in the used car market.


Move away from the mass-market space and talk about luxury cars, and since these cars are already expensive, an increment in the price of around Rs 50,000 to Rs 1 lakh doesn’t matter as much as it does for the less expensive cars.


So is it all going well for the used car market then?


To start with, the answer is a big yes. The move to switch to BS 6 emission norms appears to be a blessing in disguise for the auto industry, especially the used car industry which is already bigger in size than the new car segment. Apart from an increase in outright buying cost of new cars, BS 6 diesel cars are going to be more expensive to maintain than their BS 4 counterparts, making BS 4 used diesel cars an even more lucrative a deal.


But while the used car industry can thank policymakers for making us skip the BS 5 emission norms and going straight for the more-stringent BS 6 norms, they also have to keep in mind that we’re yet to implement scrappage policy, which will have an equally great impact on the used car industry.

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