The Transition -- BS4 To BS6

  • May 20, 2019

The transition from BS 4 to BS 6 emission regulations is set to be one of the biggest changes in the Indian automotive industry yet

The automotive sector is amongst the biggest industries in India. Talk about total volume, and India is currently amongst the top five countries in terms of new passenger car sales! Add to it the annual sales of two-wheelers, commercial vehicles and used vehicles in both the organised and unorganised sector, and the industry size will be phenomenal, to say the least. When such a mega market switches from one emission norm to the other, it impacts more than just those involved in the manufacturing and sale of automobiles.


The entire Indian automobile industry will have to adhere to BS6 emission norms from 1 April 2020. While transitioning into BS 6 norms is a welcome move, given that it ensures cleaner mobility, it is worth noting that the Indian auto industry is skipping BS5 norms and making a big stride in the emission switchover. The process involves upgrading the current technology used in vehicles, be it cars, two-wheelers, trucks or buses. It also means that the cost of manufacturing is set to rise, resulting in a substantial increase in the cost of the final product.


How does it impact the industry or those who’re involved in the business of automobiles is hard to predict, but we try to gauge the impact from an outsider’s point of view.


Manufacturers and suppliers - Exercising caution


In order to avoid any confusion about the expiry of sales of BS 4 automobiles, it was announced that there would be no sale of BS 4 vehicles from April 2020. For vehicle manufacturers, it means that any BS 4 vehicle parked in their stockyard or facility that doesn’t meet BS 6 emission norms is not saleworthy from 1 April 2020.


In order to make sure they have no BS 4 inventory left, automobile manufacturers are practicing rigorous predictive manufacturing. In the mass manufacturing of automobiles, predictive manufacturing is routine, but because the stakes are high in the case of this transition, there is a greater effort being put into monitoring the demand and adjusting the supply accordingly.


Now when a manufacturer is monitoring production by the scale of tens or hundreds of units instead of thousands, it is bound to impact its suppliers in some way or the other. The chain, in fact, doesn’t end there. These suppliers are vendors to other smaller manufacturing companies and there’s also logistics involved. So, while the manufacturers are trying to make sure they sell as many vehicles as possible, their caution in manufacturing the right number of automobiles impacts a lot of other businesses.


In order to have no BS 4 inventory, or practically no loss of vehicles in the transition process, a lot of manufacturers have already started to produce BS 6 vehicles. Carmakers like Mercedes-Benz, BMW and Maruti Suzuki have rolled out models that already adhere to BS 6 emission norms even when most oil companies produce only BS 4 fuel. Over the course of the year, more automobile manufacturers are expected to adopt the same approach in order to minimise any losses due to expired BS 4 inventory.


Sales and marketing - Pressure cooker-situation


The state of manufacturing vehicles with caution doesn’t mean manufacturers don’t want to maximise their sales. In fact, the transition from BS 4 to BS 6 norms can be seen as an opportunity for manufacturers to lure buyers into preponing their purchase given that BS 6 vehicles will be substantially more expensive compared to BS 4 vehicles, especially in the case of diesel-powered vehicles. That puts the sales and marketing teams of these automakers in a spot of bother. On the one hand, they are supposed to set the sales registers ringing, and on the other, they have to also consider the fact that the pace of manufacturing will be slower than usual and the plan of manufacturing is subject to abrupt changes.


Buyers - Playing the waiting game?


Automobile sales is lower than usual in 2019. While it’s hard to ascertain the exact reason for the slowdown, keen followers of the market and automobiles in general suggest that vehicle sales are usually slower in the year of General Elections. While they’ve observed in the past that the market picks up post the elections, the year 2019 could be an exception because there has never been such massive shift in emission regulations before.


Speaking of buyers in general, they have their own reasons to advance or defer the purchase of a new vehicle. One of the reasons for signing the dotted line in advance for a BS 4 vehicle could be to save money as BS 6 vehicles will be more expensive. But there are also those who’re postposing their purchase to make the most of any benefit that they would get near the transition period owing to heavy discounts to clear stocks. It goes without saying that some of the manufacturers are making their task tougher by rolling out BS 6 vehicles in advance.


The pre-owned vehicle industry - Least impacted


The pre-owned vehicle industry should be the least impacted by the switch in emission norms. In fact, given that there will be a significant increase in vehicle costs in the BS 6 era, it will only lead to a higher asking price for a pre-owned BS 4-compliant vehicle.


In the light of the recent order to remove vehicles that have crossed their legal age from the roads of Delhi, the used car industry was impacted. If BS 6 diesel vehicles are permitted to ply in Delhi or the rest of the country for as long as their petrol counterparts, the used car space might not benefit much from this transition.


While it remains to be seen how the market reacts to the transition, it will prove to be a learning curve for the industry. The transition will test the foresight and planning potential of manufacturing, which not only forms the core of the automobile industry but can also be considered the backbone of India’s growth.


Besides manufacturing, the phase of transition will also test the retail business to its limits. The retail end of the automobile industry can be considered at a greater risk than any as it is not only impacted by the market slowdown, but also by the pressure to match the demand and supply to perfection in order to emerge from this situation without any loss.


The transition to new emission regulations is planned for the betterment of the environment, so it is a welcome move. But its impact on the manufacturing sector and automobile industry on the whole will only become clear a year from now.


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