What Bharat Stage VI emission standards mean for the car buyer

Mumbai: Monitoring pollutants emitted by your car in real time on its dashboard, as you are seated behind the wheel, will be possible in less than three years from now when Bharat Stage VI emission standards kick in from 1 April 2020. Among other things, the norms make on-board diagnostics (OBD) mandatory for all automobiles.

The OBD unit will be able to identify likely areas of malfunction by means of default codes stored on a computer, thus ensuring that the sophisticated emission control device which is fitted in a BS VI vehicle runs at optimum efficiency through the life of the vehicle.

To be sure, OBD is just one of the visible changes that will be effected when India’s automobile market leapfrogs to the strictest emission norms and comes on par with other advanced auto markets the world over. New vehicles will go through a slew of changes under the hood, in the cabin and other areas.

“Consumers will get internationally compatible models driven by regulations and not demand,” said Rashmi Urdhwareshe, director at Automotive Research Association of India in Pune, the automotive testing and research agency. But the clean technology will come at a price. Prices of models across segments will go up.

Though car segmentation will remain the same, there will be a disruption in the concept of small cars in terms of price and size, said executives at auto firms. Existing models will have to go through structural modifications on account of safety and emission regulations.

Changes to ensure vehicles meet new crash-test norms such as addition of airbags and anti-lock braking systems, and installation of diesel particulate filters and selective catalytic reduction technology to help diesel cars meet BS VI emission norms will add to the costs, making a cheap small car a thing of the past, they said.

While cost of all diesel vehicles will go up, small diesel cars will see a sharper increase in prices, said Rajan Wadhera, president (automotive sector) at Mahindra and Mahindra Ltd (M&M). An addition of Rs80,000 to a model that costs Rs6 lakh will pinch a lot more than addition of the same amount to a model that costs Rs10 lakh, he said. On an average, prices of small cars are expected to go up by Rs50,000 to Rs1 lakh, added Wadhera.

Automakers will not be able to simply pass on any increase in costs to buyers and will have to work on the price-to-value ratio—meaning, an average buyer should see enough value in the price increase, said Puneet Gupta, associate director at IHS Markit, a sales forecasting and market research firm.

“While they will have a sense of pride in terms of driving a technologically superior and environment-friendly car, that may not be enough. Indian buyers are value-conscious and it may not be easy for firms to simply pass on the additional costs without a perceptible value-addition,” he said.

Even as automakers are putting their energies into meeting stringent emission norms, a question comes to the fore—do buyers really care about how environment-friendly their car or motorcycle is?

Not really, says Roshan Sachdev, 39, a senior executive at a multinational media firm in Mumbai and a car enthusiast. “Honestly, it doesn’t matter to me whether my car is BS IV or BS VI. As long as the driving pleasure is not compromised, and I get the desired power, mileage and safety features promised by the manufacturer, I am fine,” he said. “However, if car prices go up, it will be of some concern to me.”

It’s people like Sachdev who need to be convinced by auto companies. Therefore, the criticality of associating value with a price hike is not lost on them.

It’s a manufacturer’s job to ensure that a buyer perceives great value in what he or she is paying for, said Wadhera of M&M. “One has to manage the buyer’s expectation in a manner that the actual cost should be much lower than the price the buyer is willing to pay. If the cost is X, the value perceived by the customer should be 2X, that’s the game,” he explained. Wadhera called this process “expectation management”.

Buyers of motorcycles and scooters will also have to pay more for vehicles that meet BS VI norms. The costs can go up by 20% from current levels, said Deepak Jain, managing director at Lumax Auto Industries. The company supplies lighting systems to most two-wheeler firms.

“You don’t see a Euro VI bike with an engine size of 110cc in any of the Euro VI markets. Hence, the challenge would be to get not only the technology but get it at an affordable cost,” he said.

The price hike will also disrupt the choice of fuel and skew demand in favour of petrol models, said Rajeev Pratap Singh, auto sector head at Deloitte Consulting. When the industry moves to BS VI norms, the increase in prices of diesel cars will be far more than petrol ones, widening the price gap between the two fuel types further, he explained. This is even as the price difference between the two fuels will reduce. “The two things will be acting against each other,” said Singh. Net result: The demand for diesel vehicles will go down sharply, he said. “Over the next five years, the portfolio of diesel-run vehicles will come down to 30-32% from 46-48% now.”

Timothy Leverton, chief technology officer at Tata Motors Ltd, agrees. “The biggest change that you will see after BS VI is the end of small diesel vehicles. They will be replaced by high performance gasoline engines or hybrids,” he said.

To be sure, emission standards will not be the only development to watch out for in 2020. India’s auto market is expected to reach several more milestones by the turn of the decade. Here are a few of them: The country is expected to become the third- largest market globally, from fifth-largest now. It’s also set to witness sea changes in buying behaviour. Almost 70% of annual auto sales (about 19 million units or $40 billion) is set to be digitally influenced by 2020, a ~2.3x increase from today’s $18 billion, according to a Bain-Facebook study released in April 2017.

By then, the government’s resolve to reduce the dependence on fossil fuels and promote electric mobility, as well as the concept of a shared economy are expected to gain traction.

With changes happening at a far more rapid pace than anticipated, automakers will have their hands full over the next three years.

Come 1 April 2020, India’s auto market will change forever in ways more than one, as the industry leapfrogs to the strictest emission norms—Bharat Stage VI from the current Stage IV. In a three-part series Mint deep dives in to the transition, it’s impact on the environment, automakers and their supply chain, and car and two-wheeler buyers.

Shally Seth Mohile

Source: HT