Ashok Leyland has a plan for riding out the BS-III ban: MD Vinod K Dasari

The Supreme Court's decision to disallow the sale and registration of BS-III vehicles from April 1 will not only impact auto makers but also other stakeholders, according to Vinod K Dasari, managing director of Ashok Leyland and president of Society of Indian Automobile Manufacturers (SIAM).

Dasari also said that companies will find ways and means to address the challenge, including looking at export markets and converting the vehicles to BS-IV. The latter could see the cost of the vehicles increase by 8-10 per cent.

However, while speaking to Business Standard, he admitted that the apex court's ruling would hurt suppliers, original equipment manufacturers (OEMs), dealers, financiers and others.

According to Dasari, Ashok Leyland, however, had a Plan-B in mind if something like this happened.

"I find it wrong. Because it's not like the auto industry did not know how to make Euro IV vehicles, which they have been making since 2010. The only reason why we could not switch over was due to fuel availability. Wherever fuel is available we were selling only BS-IV vehicles," said Dasari, adding, "If you run BS-IV vehicles with BS-III fuel, the vehicle will stop. Nobody talks about this." BS-III vehicles run on fuel with 350 parts per million of sulphur, while BS-IV vehicles need fuel with 50 parts per million of sulphur.

While overall estimated loss for the industry could be Rs 20,000-30,000 crore, Dasari said that it would be far less than that since OEMs would find ways and means. "Nobody will write-off, contrary to popular belief. They will covert it (BS-III vehicles), whatever production has to happen for BS-IV from April will be delayed," he said, backing his argument with an example drawn from the inventory of commercial vehicles (CVs).

Commenting on the inventory, he said that an OEM will have 4-6 weeks of inventory, dealers will have 2-4 weeks of inventory and the customers take about 4-6 weeks to convert it into a vehicle before it is registered. "That adds up to anywhere between 10-16 weeks of inventory and on an average there are around 60,000 CVs sold in India a month. This would mean 150,000 vehicles for a normal pipeline of 10-16 weeks. We have committed to bring this numbers down to 75,000, which is half of the lowest level of inventory. On top of this, about half of this inventory is now allowed to be registered, if it is sold before (sold by April 1). This will leave us with 35,000 vehicles. The Supreme Court has agreed that while you can't sell, you can register whatever has been sold and that would take care of the rest of the inventory," he said.

As far as Ashok Leyland is concerned, he said that the company would export its inventories to Bangladesh, Nepal and Sri Lanka. He also said that the conversion of existing vehicles to BS-IV from BS-III would be minimal due to differences in technology and the fact that the company uses all kinds of engines. "While the industry's average inventory is around 4-6 weeks, leaders maintain around 2-4 weeks, while Ashok Leyland maintains two weeks. The company hopes to address the inventory issue in the next 2-3 weeks," said Dasari.

He added that the cost of conversion of existing vehicles was centred around the engine. The converted cars would come with additional cost, which anyway would be the same as that of the new BS-IV vehicles. The shipping-in and shipping-out and changing cost will be additional.

"Customers, especially CV customers, who want a vehicle, will definitely buy," Dasari said.

He did not agree with the argument that dealers would be wiped off or would be impacted to a large extent. For example, Ashok Leyland has made it clear that none of its dealers should be stuck with the vehicles. Further, the company would not push the vehicles and maintain very low inventory of two weeks at dealers. There is enough demand to retail it out. If anybody is stuck with the inventories, we will bring the vehicles and convert. We will not let them hang with the vehicles. Very rare chance of that happening," he said.

Dasari also asked that if there was such an interest in converting to BS-IV standards, then why was not anything done for the past seven years. "Two days before the change, somebody says something and everybody follows the law, which gave time till March 31, 2017, to manufacture. Suddenly, two days before, you are saying don't sell, why cause such disruption?" he questioned.

He echoed the wider industry's argument, that while no one had pushed for BS-IV fuel availability for the past seven years, this sudden decision – just a few days before the changeover – was rather unfortunate as it would cause undue stress on the entire industry and cause loss of jobs. "Auto Industry, anywhere in the world, requires a stable and predictable policy which allows for long-term planning and investments," Dasari said, adding, "As a proactive measure to reduce pollution, the auto industry has been asking for years for banning of older vehicles. This would have a substantial impact on air quality. Further, the industry worked with the government for the fastest adoption of BS-VI in the World (in 3 years), skipping BS-V."