NGT’s diesel vehicle ban: What it means for you and the auto industry

The order is effective immediately and the NGT has also asked the Delhi RTO to share data of the vehicles that'll be de-registered. Like any sudden move, this one too brings in multiple implications for the users as well as the Indian automotive industry.

By: and | Updated: July 18, 2016 6:39 PM
While vehicle makers have reasons to enjoy on the back of replacement demand helping their sales, the used car market might face a negative impact due to this decision. (Reuters) While vehicle makers have reasons to enjoy on the back of replacement demand helping their sales, the used car market might face a negative impact due to this decision. (Reuters)

The National Green Tribunal (NGT) has ordered the Road Transport Office (RTO) of Delhi to de-register all diesel vehicles over 10 years old . The order is effective immediately and the NGT has also asked the Delhi RTO to share data of the vehicles that'll be de-registered. Like any sudden move, this one too brings in multiple implications for the users as well as the Indian automotive industry.

Most affected by this move will be the users of vehicles, that fall under the scope of this ruling. While this move was proposed by NGT some time back, there hasn't been enough time for the users to plan an alternative for their aging vehicles. If implemented properly, this rule will force many users to make a car purchase, the cost of which can be stressful for many when forced upon without notice.

Also read | All diesel vehicles plying for over 10 years banned in Delhi: NGT

Speaking about the development, Deepesh Rathore, Co-founder & Director – Emerging Markets Automotive Advisors (EMMAAA), said that “The move by NGT is commendable in the sense of being environment friendly. Old diesel vehicles are the biggest cause of vehicular pollution mostly because they are badly maintained. Vehicle manufacturers should be very happy as one of the biggest market will see thousands of vehicles eventually going off the roads and owners being forced to buy replacements.”

Abdul Majeed, Partner – Price Waterhouse and an auto expert, said “While NGT's decision to ban diesel vehicles over 10 years old will increase petrol car sales in the short term, I am not sure how sustainable the measure is. One has to understand that the objective of the ban is to reduce emissions that cause high pollution. Implementing this ban in phases will not solve the objective. People will find ways to skirt the ban. Look at London and Paris, they also plan to ban diesel cars, but ample time has been given to both the consumers and the auto industry to make the transition.”

Rakesh Batra, National Leader Automotive Practice at EY India, feels that while the auto industry will witness a positive impact in the short term, with sales of new cars going up, in the long term there may be a negative impact with sales of diesel cars going down. "Diesel cars will no longer be value propositions. Over a period of time the auto industry will have to shift to electric cars and other alternatives, which may not be a smooth ride," he says.

While vehicle makers have reasons to enjoy on the back of replacement demand helping their sales, the used car market might face a negative impact due to this decision. Speaking about this trend, Rathore added, “While in the short-term we may see a gain of 1-2% in sales volumes for the rest of the year, this move is likely to affect used vehicle prices quite adversely. In the medium to long-term, this makes vehicle buyers nervous and may push for new vehicle ownership models like leasing. Solely on diesel vehicle sales, this makes both manufacturers and owners nervous and nearly 20% of diesel vehicle sales may move towards petrol side.”

Says Batra of EY India, "Consumers will feel the maximum impact of NGT's ruling. Owners of diesel vehicles who have cars over 10 years old will be greatly inconvenienced. The only resale value of the vehicles will be outside the state of Delhi, and that too is complicated by the various laws. In a nutshell, what owners will get is just the scrap value of the car. These consumers will now look at second hand cars, based on their purchasing power, but even there dealers will face a supply shortage of petrol cars. From a diesel car perspective, the second hand sales market will suffer a blow."

Adding the perspective of a vehicle maker, a spokesperson from Maruti Suzuki said, “While we are not commenting on the order of the NGT, our position is that the issue of pollution needs to be addressed in a holistic manner. Deregistering vehicles older than 10 years in one go is extremely unfair to the consumers, who bought these vehicles conforming to the rules and regulations. This decision impacts their mobility and causes inconvenience to them. Besides, a long term sustainable solution is needed to address the core issue of pollution. The IIT- Kanpur report that clearly states that passenger vehicles account for only 2% of the PM 2.5, with the rest contributed by road dust, domestic cooking and industry. The Government's proposed scrappage policy is a superior solution. It will give the right kind of timeframe to vehicle owners as well as some sort of benefit for them to upgrade to the new vehicles. Worldwide scrappage policies have helped consumers and Governments to systematically phase out old technologies and accelerated adoption of newer technologies.”

Although the move may sound beneficial for carmakers, considering most of them have petrol and diesel engines and with flexible production lines, they won't have much trouble switching production, reality could be bitter. Rathore believes that the move by NGT is unplanned and arbitrary and vehicle makers should actually be nervous about the decision. To this point he added, “While we are all concerned about badly maintained vehicles causing pollution, the solution to that is to make annual vehicle health checks mandatory, something that the western world takes very seriously. However, this requires hard work and systems to be created and the lazy Indian legislative system has once again decided to side-step the real challenge and pass a decision that impacts the health of the industry. If today the NGT can do this thing without any warning, any planning or any heads up then in five years the same can be done for petrol vehicles as well.”

Interestingly, this decision of NGT could affect parties beyond consumers and vehicle makers, right up to the Government of India and its policies. Explaining the rationale, Rathore said, “For vehicle manufacturers, this sets a challenge and impacts their long-term plans for the Indian market. Considering most multinationals, barring Suzuki & Hyundai, are making losses in the Indian market, such a move by NGT means that the Indian operations would have even lesser pulling power in their respective global headquarters. In a way, it also hurts India’s chances of becoming a global automotive powerhouse, Modi’s Make in India mission and the overall future of the automotive industry in India.

Speaking about the economic impact of the policy, Majeed added that “Whatever policies are brought to reduce levels of pollution, should not cripple economic activity. In the short-term this will also impact the government's tax revenue stream.

Adds Batra of EY India, "I believe that discussions are going on between the government and interested parties and the matter is also in the Supreme Court. To that effect, NGT's order could have been more coordinated and it could have waited for a more comprehensive policy from the government's end (cash for clunkers, BS-VI) before implementing this ban."

From the auto industry's perspective, I think companies should now start focusing more on cars that use alternative sources of energy. The government should also look to incentivise the same. The second-hand car market will suffer a blow in Delhi, because diesel cars will find virtually no buyers, unless of course the sale is made to areas outside Delhi. But, then again, that is not a sustainable solution.”

The effects of this ruling however could spill far beyond the scope covered in this article. With NGT's tough stand against diesel vehicles, similar rulings could be implemented in more cities struggling with high-levels of air pollution. With the number of cities going up, the economic impact of this policy might create more problems for all stakeholders supposed to follow this rule.

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