Auto dealers have been saddled with huge unsold BS-IV stock as the deadline for selling the vehicles ended, with the Supreme Court mandate to sell 10 per cent of the unsold stock within 10 days of the end of lockdown offering little solace.
As many as 7 lakh two-wheelers, 12,000 to 13,000 passenger vehicles and 8,000 commercial vehicles, all of which are BS-IV compliant, remain unsold , adding to the woes of the industry, grappling with shutdowns on account of the Covid-19 pandemic. Besides, the Supreme Court order was not applicable to Delhi-NCR, a major market for vehicles.
Dealers stuck with such huge inventory will now need the auto makers to bail them out. “Faced with a year-long downturn that started late in 2018 and continued through 2019 till the first couple of months of 2020 before the unprecedented Covid-19 lockdown completely stopped sales, many in the retail chain will experience a sales washout,” said an industry source. Auto companies are going to take back the unsold inventory from the dealers and export them in markets that allow BS-IV vehicles or will dismantle the vehicles and sell the parts, he added.
According to analysts, the unsold inventory is worth Rs 7,500 crore: Rs 4,000 crore to Rs 4,500 crore for scooters and motorcycles; Rs 2,500 crore to Rs 3,000 crore for commercial vehicles; and Rs 800 crore to Rs 1,000 crore for utility vehicles.
According to an Icra report, “allowance of 10 per cent inventory by the Supreme Court will not provide any material respite to the industry participants. Credit profile of industry participants will remain under pressure over the next two quarters. It has been observed that dealerships across segments have witnessed stress on their capital structure owing to high inventory and low demand.”
Sources said it would be an uphill task to sell BS IV vehicles despite the court directive. “Usually a new vehicle sold is registered within two or three days after full payment. But here it is going to take much longer as Supreme Court will first approve the list. Banks and NBFCs may not be willing to finance such vehicles, too. One way to sell them is as used vehicle as the deadline does not apply for such a category of vehicles,” said a dealer.
Hero Moto Corp has the highest BS-IV inventory of around two weeks, Bajaj Auto also has unsold stocks but is confident of retailing most of its stocks through export. However, sources said that because of weak demand, the company might not be able to liquidate its stock.
Among passenger cars, Tata Motors has some unsold BS-IV cars.