Vehicle Scrappage Policy: Cash, and more, for clunkers

April 5, 2021 6:30 AM

The policy should lead to reduction in emissions, catalyse vehicle sales, savings on imported raw materials, and an expansion of the overall automotive ecosystem

Vehicle Scrappage PolicyThe scrappage policy can act as an important catalyst for the Atmanirbhar Bharat and as a platform for job creation.

By Vinay Raghunath & Som Kapoor

In the current decade, automotive original equipment manufacturers (OEMs) have entered an era of unprecedented uncertainty as the industry faces challenges on several fronts. OEMs are responding to the new dimensions of mobility (connected, autonomous, shared and xEV), new forms of ownership, and also an increased environmental focus across stakeholders. In addition, the Covid-19 pandemic has made the industry realise the vulnerability associated with the current value chain structure at both the consumer-end and the supplier-end.

Environmental issues and sustainability are now among the main priorities with a focus on minimal use of non-renewable resources and minimal emission from pollutants. An important aspect of aggregated emission reduction is to increase the circularity across the automotive industry’s value chain, including new processes and operating models related to end-of-life vehicles (ELVs). In this context, a scrappage policy can provide some obvious benefits related to reduction in pollution, reduction in the fuel import bill, improved recycle or reuse of parts, generate replacement-related demand, and provide an impetus to structuring this part of the automotive ecosystem.

The increasing use of lightweight materials, electronics and multi-material concepts in vehicle design has also created challenges around import dependencies and the ability of vehicles to achieve greater levels of sustainability.

The scrappage policy can act as an important catalyst for the Atmanirbhar Bharat and as a platform for job creation.

There is an opportunity to set up new business models where new players and the traditional automotive ecosystem come together in an organised manner to provide products and services to consumers. We are at a point where we could see the emergence of a new business model that extends the current auto ecosystem, where both new players and traditional players can be involved to deliver solutions in an organised manner. The scrappage policy will provide novel opportunities for both new and existing players to build a robust go-to-market and offer consumers solutions to ease the end of life of vehicle resale/purchase processes.

The scrappage policy can provide an opportunity to new and traditional players to set up an organised operating model and ease the transition into a circular economy whereby the value embedded in relevant ELVs’ components and materials is recaptured through reuse, recycling and recovery. Select players in the market are already thinking through material treatment and opportunities to maximise the preservation of material quality. This may also make automotive OEMs and suppliers rethink the ways that vehicles and their materials are designed, constructed, used, and handled at end of life.

Internationally, 85-95% of the vehicle is recovered with vehicle designs being well-suited for easy dismantling and disposal. Europe and Japan have led the way and mandated 90-95% of vehicle recovery from 2015. India can learn from other nations and adopt a path that focuses on multidimensional aspects of recycling and remanufacturing components.

While there is a lot more work to be done in the future, the scrappage policy does bring to the table a lot of positives. It should lead to reduction in emissions, act as a catalyst for vehicle sales, savings on imported raw materials, and an expansion of the overall automotive ecosystem including fitness centres, new aspects of supply chain, scrapping centres, and automation.

Raghunath is partner & leader, and Kapoor is partner, Automotive Sector, EY India

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