What Happens If Car Dealers Are Stuck With Unsold BS-IV Inventory?

Here are some options car and bike dealers have to deal with unsold BS-IV inventory post lockdown.

Newly manufactured Maruti Suzuki cars are seen parked inside the company factory in Manesar near Gurugram, on 4 September 2019. Image used for representation.

(Photo: PTI)  

Maruti Suzuki recently informed the stock exchanges that it had written of Rs 125 crore worth of parts meant for BS-IV cars. The company clarified that it had completely exhausted its stock of BS-IV cars much before the 31 March 2020 deadline to switch to BS-VI emissions compliant vehicles.

However, it did have a number of components in the system for the earlier cars. The company has discontinued most of its diesel offerings as the shift to BS-VI norms was not cost-effective when it came to ex-showroom prices for its vehicles.

While Maruti managed to just write off parts, there are other companies, including two-wheeler makers that have had to write off fully built BS-IV vehicles that couldn't be sold by the deadline.

Even though the Supreme Court allowed a 10-day extension of the deadline to sell 10 percent inventory of BS-IV, there is still likely to be quite a few cars and bikes that cannot be sold.

Given that the lockdown because of the COVID-19 pandemic has been extending, car showrooms have only now been able to start operating. Across the country, except in the Delhi-NCR region, they have 10 days to sell 10 percent of their old stock. What happens to the rest?

Here are some ways they can be gotten rid of.

Sold As Parts

Car and bike dealers who find themselves stuck with inventory, but are unable to sell them owing to the change in emission norms could strip these down for parts with scrap dealers and parts dealers. That way the dealer can recover some of his cost on the inventory at hand.

Company Buyback Schemes

Some companies may offer to buy back the unsold inventory, although at a lower price. These vehicles can then be recycled at the plant to be made into BS-VI vehicles. Or these vehicles can be sent to export markets where BS-VI (or equivalent Euro-VI) emissions norms aren't in place yet.

Sold As Second-Hand Vehicles

To get around the 31 March deadline for old BS-IV vehicles dealers often get the vehicles registered in names of their staff or other individuals. According to some reports, nearly 60 percent of dealers resorted to doing this to get rid of inventory. Once registered, the BS-IV vehicle can then be sold in the used car or bike market, even though it is practically new. Of course, these will be sold at a slight discount as the buyer will end up being the second owner on the vehicle's papers at least.

Since 30 April 2020, no new BS-IV vehicle can be registered in the country. However, the transfer of ownership on second-hand vehicles is possible. New cars and bikes available now only conform to BS-VI norms. The fuel quality across the country also has been upgraded to BS-VI standards.