Discount & Export: Two Ways OEMs Are Likely To Deal With BS III Inventory Pileup

The Supreme Court of India on Wednesday (March 29) gave a big blow to Indian auto industry when it barred sales of all Bharat Stage III (BS-III) compliant vehicles from April 1, leaving manufacturers and dealers loaded with unsold stocks of more than 800,000 units.

The manufacturers are now looking at export markets to finish their stocks. Some of them are also considering to sell as many as possible before the deadline by giving huge discounts on the BS-III vehicles.

India’s leading automaker Tata Motors said the Supreme Court's ban on selling BS-III models was "unexpected and unprecedented penalty" on the entire industry.

"The Supreme Court order banning the sale of all BS-III vehicles from April 1 is an unexpected and unprecedented move that will have a material impact on the entire automotive industry, OEMs' and dealer networks and is a penalty to the entire automotive industry," Tata Motors said in a statement.

Before the court verdict, Tata Motors managing director Guenter Butschek had said that if the verdict went against the industry, he would have to explore export opportunities to clear the unsold inventory to markets like Africa, Nepal, Bangladesh and Sri Lanka.

Apart from Tata, other companies having a large inventory pile-up is leading two-wheeler player Hero MotoCorp and commercial vehicle maker Ashok Leyland. Passenger vehicle will be the least impact as they have an inventory pile-up of around 16,000 units.

Rajiv Bajaj, MD, Bajaj Auto said they have a little BS III inventory pending and will export it. “My dealers and vendors have some inventory with them, we will compensate them for it. We will export it to other markets. We will take care of every last unit back,” he said.

Vinod Dasari, MD of Ashok Leyland said that they don't have much inventory left. “The unsold inventory will be sold in export markets.”

However, export has its own glitches. Companies will have to bear extra cost to ship and modify the vehicles to meet the local regulatory requirements in export markets.

Though many companies haven't come-up yet and announced discounts on their BS-III inventory, many reports suggest they have silently started giving discounts in showrooms. High demand due to the festive season may further help companies to lower its old stock.

“Despite being a market leader with 50 per cent share in 3-wheelers, we will have practically zero stock of BS-III 3-wheelers at March end, at our dealerships as well. Desperate discounting in the range of Rs 2,000 to Rs 12,000 per vehicle by our main competitor, had some impact on our retail sales," said S Ravikumar, president business development, Bajaj Auto.

CV makers who are likely to bear maximum impact may offer bigger discounts than others. “To liquidate stock, commercial vehicle makers will be pushed to offer “higher discounts, which continue to be at elevated levels for the past few years,” Rating agency firm Icra said.

Luxury two-wheeler maker Ducati has been left with a little stock of BS-III compliant bikes and is giving a huge discount to finish its old inventory. Its entry level bike Scrambler, which available only in the Urban Enduro variant in wild green colour, is being offered at a discount of Rs 1.5 lakh in its BSIII form and is now being sold at Rs 6.68 lakh. The company is also offering a discount of Rs 2 lakh on Diavel model (black colour) and it would now cost Rs 13.62.

According to the figures submitted by SIAM to the Supreme Court, vehicle manufacturers currently have an inventory of 8,24,275 BS-III vehicles. Out of this 96,724 are commercial vehicles, 6,71,308 two-wheelers, 40,048 three-wheelers and 16,198 passenger cars. The market value of the inventory has been estimated to be Rs 12,000 crore.