The Supreme Court, while granting partial relief to automobile dealers across the country, came down heavily on India's auto sector. During the course of the hearing, Justice Arun Mishra observed, "FADA just wants to take advantage of the lockdown. We cannot keep extending BS-VI deadline in the name of coronavirus".
The court made it clear that there was no justification to extend a deadline set almost two years ago. The order was another reminder to automobile companies to think about the health of dealerships and allow actual retail numbers and not wholesale billing to be a barometer of growth.
Considering that the apex court had made it clear on 24th October 2018 that no BS-IV vehicle can be sold after 1st April 2020, shouldn't the industry have been better prepared? The answer is a resounding yes.
The dealers association told the Supreme Court bench that 7 lakh two-wheelers, 15,000 passenger vehicles, and 12,000 commercial vehicles in the BS-IV category were in stock as of 27th March 2020.
Hero MotoCorp and HMSI argued before the court that COVID-19 created an unprecedented situation and dealers could not sell the stock due to the lockdown.
Both Hero MotoCorp and HMSI like a few others, continued making BS-IV vehicles till the middle of February, while several other players including Bajaj, TVS, Royal Enfield and Maruti Suzuki which stopped BS-IV production in January had manageable or no BS-IV stock.
Clearly, those who produced BS-IV products well into February are under greater stress today and their dealers are at the receiving end.
Officials at Hero MotoCorp and HMSI argue that they could have easily liquidated the BS-IV stock had it not been for COVID-19. No doubt that coronavirus came as a body blow to the auto industry in March, but OEMs could have definitely managed the transition better.
The signs of trouble were always there. The auto sector has been in a slowdown for over a year and by the middle of January 2020, the coronavirus outbreak in China had started hitting supply chains, thereby disrupting production plans.
CNBC-TV18 has learnt that Hero MotoCorp's BS-IV stock is less than two lakh units and HMSI's BSIV inventory would be less than a lakh units.
After the verdict, Hero MotoCorp Chairman, Pawan Munjal addressed a video town hall of one thousand dealer partners where he assured them not to worry about BS-IV stock that remains unsold after 31st March.
“We will not let you suffer on account of the BS-IV stock. Our teams are working diligently and tirelessly to find ways and means to absorb or utilise the stocks and they will connect with you soon on this. We are all in it together and we shall overcome this together", said Munjal, according to dealers present at the conference.
Speaking to CNBC-TV18, Rajiv Bajaj, MD & CEO Bajaj Auto said, "Our BS-IV stock will be less than 25,000 by 1st of April and even lesser after we sell 10 percent of unsold stock after the lockdown period. Of course, we will ensure no loss to our dealers."
Bajaj had earlier strongly opposed Hero MotoCorp's plea to seek an extension of the BS-IV deadline and urged all OEMs to reimburse dealers for unsold BS-IV stock.
Such assurances definitely bring relief to dealers but OEMs are yet to formally share whether they plan to take back all unsold BSIV stock. Automobile companies would definitely have to take back unsold stock from Delhi and NCR, as Supreme Court has refused to give any relaxation for the region. Selling BSIV stock in global markets would also be a challenge amidst lockdowns and a global downturn.
Rahul Mishra, Principal Lead, Automotive at Kearney India warns that dealers could face more stress in the coming weeks.
"The lockdown and its likely extension will definitely have an impact on vehicle purchase, as this may not be an immediate priority soon after economic activities resume. The immediate impact will be faced by the dealers who run the risk of being left with unsold BS-IV stock. It is very unlikely that OEMs will take back any unsold stock and explore alternative ways to liquidate it. The stock will have to be managed by dealers and possibly sold off at a significant discount as a used vehicle".
However, Mishra believes that the present distress is due to a black swan event, which left very little time for contingency planning. Dealers who are the backbone of the auto industry hope that this order will change the outlook towards automotive retail.
KVS Prakash Rao, Former President of Federation of Automobile Dealers Association said, "This market share myopia is killing us. This is the reason why we get saddled with an inventory. It's time to look at market share from a retail point of view and not wholesale billing".
He further said, "Auto retail is not a simple business. Retailing is also as organized as manufacturing. Next one or two years will redefine how auto retail is seen". Like make other dealers, Rao hopes that OEMs in the future would be guided by retail sales and not push dealers to buy stock in order to shore up market share.
First Published: Mar 30, 2020 5:47 PM IST
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