Why a 10-day extension of BS 6 deadline is unlikely to help the auto industry

The 10-day extension of BS 6 deadline granted by the Supreme Court due to the lockdown is unlikely to do "any good" to the automobile industry amid the coronavirus outbreak, a report said on Monday.

The existing emission norms or Bharat Stage (BS) 6 were to be replaced by new BS 6 regulations from April 1. However, the apex court on March 27 relaxed the March 31 deadline and allowed the sale of the unsold stock of BS 4 vehicles for 10 days after the expiry of the lockdown period, except in Delhi and the NCR.

The deadline was stretched on the plea of the Federation of Automobile Dealers Association (FADA), which had sought additional time of two months to clear the BS 4 inventory.

The nationwide lockdown imposed on March 24 will last till April 14.

"While the industry players were looking for a three-month extension (till June 30), the 10-day extension post the lockdown by the Supreme Court is not expected to do any good to the industry given the current situation due to Covid-19 (the disease caused by coronavirus)," ratings agency CARE Ratings said in a report.

According to CARE Ratings, the buying sentiment after the lockdown period is likely to be "low" and consumers will be cautious in spending, particularly on luxury and big-ticket items, thereby not meeting the desired objective of clearing the BS 4 inventory with the dealers.

During the April-February period of 2019-20, sales witnessed a decline of about 12.7 per cent year-on-year (y-o-y) on account of weak demand for commercial vehicles, two- and three-wheelers as well as passenger vehicles, it said.

Currently, the two-wheeler industry is left with BS 4 inventory worth ₹4,600 crore, while dealers are left with an approximate inventory of 8.35 lakh units, according to CARE Ratings.

Additionally, with the auto production temporarily suspended due to the lockdown, the Society of Indian Automobile Manufacturers (SIAM) has already estimated a minimum loss of around ₹2,300 crore per day, it said.

Continued impact of increased cost of ownership in passenger vehicles and two-wheeler segments due to new safety norms and higher insurance costs, increased axle norms and high base of the previous year in the case of commercial vehicles led to the overall decline of automobiles during the April-February period of 2019-20, according to the report.

Also, going forward, with the implementation of BS 6 norms from April, the cost of ownership is further expected to increase by about 12-15 per cent, it added.

Overall demand for exports increased by about 5.4 per cent y-o-y during 2019-20 (April-February) as against a double-digit growth of over 15.5 per cent during the corresponding period of the previous year, on the back of slowdown in the global economies as well as the coronavirus outbreak.