Ashok Leyland: Meeting BSIV with iEGR

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Ashok Leyland has developed iEGR for its CVs to comply with BSIV emission regulations.

Story by:

Bhushan Mhapralkar

Ashok Leyland achieved the feat of complying with BSIII emission regulations when they were enforced in 2010 with an in-line mechanical fuel pump. The fuel governing system of the engine was suitably tweaked. To meet the BSIV emission norms that came into force pan-India from April 01, 2017, the commercial vehicle manufacturer has taken the Exhaust Gas Recirculation (EGR) route. It has developed what it would like to term as intelligent Engine Gas Recirculation (iEGR). Rather than adapt a Selective Catalytic Reduction (SCR) system, the company chose to tweak the engine combustion management system and EGR of both its engine families – H and N, that range between 130 hp and 400 hp. Announced Vinod K. Dasari, Managing Director and CEO, Ashok Leyland, that the technology was developed over four years, and with the view of eliminating challenges pertaining to SCR system in terms of weight and operational costs. Claiming that his were the only company in the world to comply with BSIII emission norms using a mechanical pump, Dasari mentioned, “Better fuel efficiency (of up to 10 per cent), and reliability from the absence of SCR associated electronics are the two outcomes of the iEGR endeavour.” With the elimination of POC, and additional sensors, the BSIV trucks, the company offers, promise to deliver higher payload because of the weight saved. Stating that they have been offering SCR since 2010, and came to conclude that it is useful in long runs at constant speeds, Dasari averred, “India is a value conscious market.” What makes iEGR interesting is the low acquisition cost of the vehicle as compared to the one that is equipped with a SCR system.

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Impact of SC order

Like other Indian automakers, Ashok Leyland was also affected by the Apex Court’s order to stop selling BSIII vehicles beginning April 01, 2017. Not the one to push inventory on to its dealers, the company, according to Dasari, was left with 10,664 BSIII CVs. “It was panic”. “The successful development of iEGR over the last four years helped us to retain our confidence,” said Dasari. A decision to swap the BSIII engines in BSIII CVs was taken. The engines taken out will be sold in the aftermarket, mentioned Dasari. He claimed that no major financial impact was had, and even though the development was painful. “It is a pain, not fun, but we will get over it,” averred Dasari. Till date, 220 BSIII CVs have been converted to BSIV. The cost of swapping the engine per vehicle is roughly Rs.20,000. The BSIII engine costs Rs.1.4 lakh according to Dasari. In the aftermarket, it is expected to fetch a price of Rs.2.2 lakh. Ashok Leyland vehicles, expressed Dasari, are virtually sold on cash and carry basis.

Risk aversion

An endeavour to invade new markets overseas has proved to be of much use to Ashok Leyland in its effort to averse risk. With the Indian market showing signs of much cyclicity off late, the company, which according to Dasari, is the ninth largest truck maker and fourth largest bus maker in the world, is looking at increasing its export thrust. Said Rajive Saharia, President – Global Sales and Distribution, that the company is keen to export one CV for every two CVs sold in the domestic market. Expressed T Venkataraman, Senior Vice President – Global Bus, that the domestic and export sales ratio as far as buses are concerned is 58:42. Buses are exported, he averred, to the Middle East, SAARC, and African markets. Stressing upon the next quarter looking tough, Venkataraman expressed, “We are supplying Euro 5 vehicles to Ukraine, and are going to Latin America.” Quipped Saharia, that more trucks were sold overseas last year than buses. “ Close to 60 per cent of export sales was through trucks,” announced Saharia. The company is looking forward to export LCVs. When it does, the exercise would help it to inch closer to the target of exporting one CV for every two CVs sold in India. Apart from the Middle East, SAARC and African markets, Ashok Leyland is looking at Russia and Ukraine too. In an effort to arrive at streamlined manufacturing processes and higher efficiency, Ashok Leyland has replicated the Ras Al Khaimah plant at Bangladesh. A 200 to 300 unit market will make an attractive export market (in Bangladesh) according to Saharia.

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If Bangladesh is the largest truck export market for Ashok Leyland, the company has began exporting the Boss to Russia. Said Saharia, “Supply of bus kits to Ukraine is on, and local converters are building bodies on them.” Ashok Leyland’s strategy to averse risk and grow faster than the industry reflects from its decision to exit some of the STU businesses. This, for a leading bus player in the country was not an easy task. Said Dasari, “We exited some STU businesses for low profitability.” In its quest to put the Dollar where the returns are, Ashok Leyland made it a point to concentrate on innovative products. The result of this is the introduction of Captain, Guru, Circuit electric bus, Sunshine school bus with roll-over protection, and the Oyster (safest) school bus in the Gulf. Due to its growth potential, Ashok Leyland paid attention to the coal tipper and construction truck market.

Tapping growth

Selling over 200 Guru ICVs till date, Ashok Leyland witnessed good uptake in 10×2 and 8×2 mining tippers and construction trucks. It sold over 1500 units according to Dasari. The share of Ashok Leyland’s mining tipper and construction truck market, claimed Dasari, grew by 50 per cent over the industry average of 30 per cent. From the time it was launched, the company has sold over 3000 Sunshine school buses. There is a waiting list of 500 vehicles. Despite a single product (Dost), Ashok Leyland’s LCV portfolio, said Dasari, witnessed a growth of 4 per cent. Expressed Nitin Seth, President, LCV and Defence, “We are now looking at running faster. We will launch the passenger version of Dost followed by the bigger version of Dost called the Dost+. An eight-metre long bus on the Mitr platform will be introduced. We will also address the demand for 32-seater school bus and a CNG vehicle. These would be developed in left-hand drive variants as well by keeping in mind the export markets.” Ashok Leyland is keen to tap world’s 80 per cent LCV market that is left-hand drive oriented. To cater to the market for smaller buses, the left-hand drive Mitr will be Ashok Leyland’s ace card.

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Apart from expanding the three LCV platforms the company currently has, the plan, according to Seth, is to develop new LCV platforms by 2019-2020. Well aware of the domestic LCV market turning eight-per cent positive for the first time this year, Seth is looking at hitting a six-lakh volume by 2021. Seth is also hoping the LCV to be a bigger player with the coming of GST. In the export markets, Seth is keen to leverage the fact that Nissan LCVs are marketed in many markets making them a familiar sight. With stress on filling up the gaps in the LCV product portfolio by developing new platforms, Ashok Leyland is looking at quadrupling the sale of LCVs with the Nissan joint venture behind it. Keen to sell one LCV for every two LCVs sold in the Indian market, the company is banking on Dost+, which offers a 1400 kg capacity and rides on 15-inch dia. wheels to further increase its LCV market share in the near future. The Dost+ comes equipped with six leaf spring suspension at the rear, and a four-leaf spring suspension at the front.

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Defence business

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Providing further impetus to its defence strategy, the supply of Stallion vehicle kits grew 7.4 per cent, from 3076 numbers to 3304 numbers. With an ambition to cater to 25 per cent of the defence budget, the company has invested in a new defence vehicle facility at its Ennore plant. Special focus is on catering to defence vehicle market. Close to 95 per cent of the UN peace keeping forces in Africa, informed Dasari, use Ashok Leyland vehicles. The company has received 4×4 mine protected vehicle order from the Indian Army, he revealed.

Investing in the right solutions

Happy with the genset volume growth of six per cent on the back of new product variants, Ashok Leyland has begun selling automotive engines. It has received first customer order from USA. Said Gopal Mahadevan, Chief Financial Officer, Ashok Leyland, “We have been doing away with all those inside processes, which do not add value to a shareholder, vendor, customer or a large investor. We are automating a lot of them, eliminating, and streamlining them. With limited resources, we have been judiciously investing employee cost in product development and marketing. Much focus is being paid to achieve a high rate of success.” Claiming that Ashok Leyland is one of the few companies in the world to possess sub-BSIII capabilities since it caters to such markets, Mahadevan averred, “We have BSIII in-line and common-rail tech, and we have BSIV EGR and SCR.”

Owning German SCR specialist Albonair, which supplies Euro6 SCR systems to Volvo, Ashok Leyland, it is surprising, chose to develop iegr rather than to deploy SCR. Said Dasari that stress was laid on offering what would best suit the Indian market. He gave an example of trucks being washed by the river-side with buckets of water. Expressed Mahadevan, “We are attributing growth to addressing the exacting needs of the market. We are the only manufacturer to increase the price of our products in January 2017 by four per cent. We are the only one to gain maximum market share in March 2017.” Averred Dasari that the company’s market share grew from 24 per cent to 32 per cent. Of the view that they have seen good growth despite hiking product prices, Gopal averred, the solutions we offer are about total cost of ownership. Working on multiple channels, Ashok Leyland, to tap growth, worked on increasing the points of presence. “50 to 1,600 is a disruptive force,” said Mahadevan. Putting money on channel expansion rather than discounts, the company concentrated on efficient breakdown services, he added. This, mentioned Gopal, was necessary because the vehicles sold by them are often misused, and are therefore prone to a breakdown.

Apart from investing in the channel, Ashok Leyland has also invested in new products. The Boss, Captain, Partner, Janbus, Mitr, Guru, and others are a point in case. The company leveraged technology to address the requirements of the customers at any given time. This helped the company to secure an order from USA. Claiming that dealers appreciated company’s policy to not push inventory, Gopal opined that a clear focus is on return on investment at Ashok Leyland when it comes to technology. He explained, “As far as technology is concerned, ours is the only electric bus that climbed the Rohtang pass without a breakdown.” Ashok Leyland is building its capabilities in parallel. It is digitising. Mentioned Rajive Saharia, that Ashok Leyland is banking on digital initiatives for growth.

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Digitisation

Digitisation for Ashok Leyland, apart from common-rail engines, means telematics and a slew of ‘support’ technologies. Mentioned Dasari, “We developed a new way of providing telematics in the form of a single device that works on any Ashok Leyland vehicle, and without any kind of engine or associated architecture. It provides driver information, diagnostics, etc., and is found on BSIV CVs.” Ashok Leyland has developed a scan tool for onboard diagnostics for a fraction of a cost, and sans the need for a laptop. The company has also developed Ley Assist, which according to Dasari is a Bluetooth operated phone based tool to diagnose error without any physical connection. Looking at autonomous vehicles and vehicle platooning technologies as the future, the folks at Ashok Leyland are working in that direction, albeit with limited resources. Expressed Mahadevan, “I have limited Dollars, and I am spending them efficiently.” “Our net price realisation in March was better than in February, and it is something that is hard to believe but true,” he added. Ashok Leyland is paying attention on logistics and supply chain. It is also paying attention to improve the capabilities of tier 2 suppliers. Revealed Mahadevan that stress is on pertinent technology; technology that will sell. “We are thus keen to build an engine portfolio, and turn it into a separate line of business. A lot of our engines are used for marine applications besides gensets,” he signed off.

DICV: Meeting BSIV with SCR

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Daimler India Commercial Vehicles has developed SCR technology for its CVs to comply with the BSIV emission regulations, sans a price hike.

Story & Photos by:

Ashish Bhatia

The words ‘Profit Technology’ are doing the rounds at Daimler India Commercial Vehicles (DICV). They concern the move up to BSIV commercial vehicles – trucks, which the company unveiled recently at Chennai. Also termed as HDTs, the trucks claim to deliver best-in-class productivity, efficiency and safety. Promising low cost of ownership, what the BSIV BharatBenz HDTs best offer perhaps is the lack of price differential between them and their BSIII breathrens. There’s been no price increase with the move to BSIV. Expected to provide DICV a solid advantage, the BSIV HDTs hint at a technological leap that reflects upon Daimler’s long standing experience in building trucks the world over, and the frugal engineering abilities that India has come to be known for. Flaunting a local content of upto 85 per cent, and supported by over 400 suppliers, the BSIV BharatBenz HDTs point at a distinct ‘value proposition’. Announced Erich Nesselhauf, Managing Director and Chief Executive Officer, that the company planned much before the BSIV mandate was enforced. Left with 200 BSIII CVs, the company is confident of gaining an edge.

SCR for BSIV compliance

Even as the 31-tonne GVW 3123 8×2 rigid haulage truck took the centre stage at Chennai, Nesselhauf drew attention to having sold more than 1000 BSIV trucks since August 2015; much before the enforcement of pan-India BSIV emission norms on April 01, 2017. Out of the range of HDTs, from 16- to 49-tonne, the 3123 flaunted a 60-litre AdBlue tank as part of its BSIV hardware. Powered by the 235 hp, 6372 cc, six-cylinder engine, the truck came fitted with a SCR exhaust gas after-treatment. The SCR has NOx sensors at the core of it apart from the AdBlue injector nozzle. The system is controlled by an ECU, and the AdBlue solution – made of Urea, is sprayed into the exhaust gas stream, with the NOx sensors sensing the amount of reduction in nitrogen oxide emissions as per the prescribed BSIV emission norms. What comes out of the tail pipe is harmless nitrogen and water. The BSIV trucks that DICV is offering, are claimed to have been tried and tested internationally. They are robust according to Nesselhauf. Drawing attention to the NOx sensors, which are indicative of the higher electronic content the BSIV trucks have come to carry, Nesselhauf explained, “Harnesses, sensors, electronic bits and software were added.”

Promising significant increase in fuel-efficiency, the BSIV BharatBenz trucks were subjected to weight shaving of upto 400 kg to compensate for the weight of the BSIV hardware. Claimed to weigh as much as the BSIII CVs did, the BSIV HDTs, according to Nesselhauf, are set to transform the commercial vehicle segment.

Operational support

Other than the 3123, the BSIV BharatBenz HDTs the company is offering, include the 1617, 2528 and 4023. Their AdBlue reservoirs (as part of the SCR system) will need to be topped-up at long intervals. For this, the company has made requisite arrangements at its dealers. It has also tied up with petrol pumps. Supply of quality Adblue solution is essential. Any compromise in quality may lead to the truck going into a limp mode, affecting operational efficiency as well as performance and emissions. It is this very aspect that links the reliability and performance of BSIV trucks rather closely with that of the dealers. With considerable uptake in electronics, DICV, it is not surprising, has invested in time and resources to bring its dealer network up to speed. Averred Nesselhauf, “We urged our dealers to look at areas of gain.” DICV also undertook upon itself to educate and address the concerns of its customers, both existing as well as new. Said Nesselhauf, “With fuel saving of 10 per cent, a fleet owner stands to save 1000 litres annually on each truck that he operates for 18,00,000 kms. In terms of pure carbon savings per litre of diesel, BSIV engines result in carbon emission reduction of 2.5 kg per litre. Significant savings are also achieved in the case of NOx emissions.” He opined, “It is the inefficient engines, which are a cause of global warming among others. Special focus was laid on optimising engines while moving to BSIV.”

Face-lift

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DICV has utilised the opportunity to treat its trucks to a face-lift as part of the move upto BSIV. The trucks now feature a bold new face. The grille has got bigger and wider; there are LED DRLs built into the head lamp assembly. The bumper is body coloured on higher spec models. DICV has also added a host of new features to turn its trucks into a better value proposition. With ABS standard on BharatBenz trucks since 2012, new features like auxiliaries have found their way into the truck. Aerodynamic improvements have been carried out, and also efforts to reduce friction. In an effort to reduce driver fatigue, the trucks come with ‘cruise-control’. The head lamp design with built in LED DRLs is claimed to offer better visibility. The higher spec models come with a reverse camera. Advocating the deployment of AC in truck cabins, the BharatBenz BSIV trucks come with AC as optional. A brief drive revealed the difference in how the BSIV truck feels over the BSIII version. If an improvement in NVH is noticeable, the 2528 construction truck felt as capable and pro-efficient as its BSIII brethren. A differential lock buzzer in the cab indicated the engagement of active differential lock as the truck drove on an earthern path with hurdles. An interesting feature the BSIV BharatBenz trucks come with is the fuel-theft protection device.

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Digitisation

To go with the higher electronic content on the BSIV BharatBenz trucks, DICV is working to streamline processes. Seeking feedback from owners, operators and drivers to improve products and services, the company has devised a mobile application, ProServ. The ProServ app. enables customers to analyse vehicle data or access maintenance instructions. Sales and customer service representatives across the brand’s network have access to all relevant information as well. This equips them to provide effective consultation and support to customers. Averred Nesselhauf, “We have trained our dealers to deal with BSIV vehicles.” Apart from training, the dealer staff is supported by an online technical information platform called Ascent (After Sales Central). It is a multilingual, animated system to facilitate information access at all DICV service centres. In addition, mobile service workshops, claimed DICV sources, are equipped to reach out in case of an emergency (in four hours flat). Customers can reach out to the company network through a 24×7 helpline number.

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Future ready

With attention to the future, DICV is keen to double its market share in HDTs. Said Nesselhauf, “We are future ready.” He is of the opinion that the implementation of GST in July will eliminate inefficiencies in the transport industry. In the wake of the global headwinds and the slowing down of many markets in the world, India, it is not surprising, is assuming greater importance in the scheme of things at Daimler. A big chunk of CVs made at DICV’s Chennai plant are exported to over 14 markets under the Fuso brand. It is the DICV built HDTs that have led to a change in Fuso’s perception. Fuso is now being increasingly looked at as a heavy-duty truck brand. As a matter of fact, averred Nesselhauf, that they are confident of the new range boosting volumes. A big draw is the price, which has not increased despite the additional BSIV hardware that has been incorporated. In 2016, DICV sold 13,100 trucks as compared to 13,997 numbers in 2015. To further strengthen its position and market reach, the company could soon launch a sub-nine tonne (seven-tonne) truck for the export market. The Indian market launch is expected to happen sometime later.

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Shaving weight to compensate for BSIV hardware

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To enhance the performance and comply with BSIV emission norms, DICV, to fit an exhaust gas after-treatment (SCR), resorted to light weighting. The engineering team went through the entire truck; analysed every nut and bolt to achieve weight reduction of upto 400 kg. The team turned to value analysis. Functions of different parts were analysed. Material analysis was carried out. The exercise, expected to shave up to 300 kgs on lighter trucks, led the team to choose materials that would balance cost and weight. Material and design changes played a crucial role, and also the non-load bearing members. The grade of material was improved to facilitate a reduction in thickness, and in-turn weight. Without sacrificing performance or reliability, weight reduction was achieved through the use of superior grade material. In many application areas, the use of ‘Domex 650’ high strength steel was resorted to. This steel grade is used by many body builders to build containers in North India, and leads to substantial weight saving. The Domex cold forming steel the company is claimed to have used, is thermo-mechanically rolled. Its heating, rolling and cooling processes are carefully controlled.

To increase fuel efficiency, DICV compartmentalised the function of engine and the after-treatment system. SCR was chosen since it reduces the engine effort to meet tighter emission norms. With the chemical process limited to the after-treatment system, the SCR is often looked upon as an advanced active emissions control technology system that injects AdBlue into the exhaust gas stream while the engine is operating. Reducing (Nitrogen Oxide) NOx emission primarily, the SCR helps to achieve better fuel efficiency by putting hardly any burden on the engine. Engine performance is thus not compromised. Nitrogen Oxide (NOx) flows into the SCR system for reduction reactions to take place in an oxidising atmosphere. SCR reduces the level of NOx using ammonia as a reducing agent within a catalyst system. For the chemical reaction Diesel Exhaust Fluid (DEF) is used as a reducing agent that reacts with NOx to convert the pollutants into nitrogen, water and less amount of CO2. DEF also enables the engine to use less EGR and higher oxygen levels for better combustion. With the use of SCR, NOx can be reduced by up to 90 per cent. The system, it is clear, seeks a balance between fuel efficiency and emissions.

_ Bhargav TS

Indian CVs: The road ahead

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After a tumultuous last year, the CV industry is looking at a rare new period.

Story by: Ashish Bhatia

Supreme Court’s judgement to stop the sale of BSIII emission compliant vehicles on April 01, 2017, led to an unprecedented situation. CV manufacturers and dealers were left with an estimated inventory of 96,700 (and 40,048 three-wheelers) BSIII emission compliant CVs as on March 30, 2017, amounting to a sum of Rs.2500 crore approximately. With the Supreme Court order clearly stating that on and from April 01, 2017, such vehicles that are not BSIV compliant shall not be sold in India by any manufacturer or dealer, led CV industry stakeholders to look at quick ways of off-loading as many BSIII emission compliant CVs as they could in a short span of three-to-four days; from the time the Supreme Court gave the order and from the time BSIV emission norms came into force on April 01, 2017. The scope of the Supreme Court judgement can be had from the fact that it ordered all the vehicle-registration authorities under the Motor Vehicles Act, 1988, to not register such vehicles on and from April 01, 2017, that do not meet BSIV emission standards, except on proof that such a vehicle has already been sold on or before March 31, 2017. It was no secret that BSIV emission norms will come into force from April 01, 2017. The CV industry knew it. What the CV industry did not know, claimed an industry source, was if they should discontinue manufacturing BSIII vehicles such that there will not lie a single unit with them or their dealers on April 01, 2017. He drew attention to the fact that manufacturers were entitled to manufacture BSIII emission compliant vehicles till March 31, 2017. He also drew attention to the Centre’s response on pleas filed by Bajaj Auto and Environmental Pollution Control Authority (EPCA) in the Supreme Court, that the sale and registration of BSIII vehicles can continue after March 31, 2017, and the cut-off applies to manufacturing only. During the March 24, 2017, hearing, claimed an industry source, the court had considered allowing registration of BSIII vehicles by imposing a compensatory cess. The Centre’s response is said to have been based on two earlier instances of upgrading to BSII and BSIII emission norms respectively. Then, the sale of existing stock was allowed.

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Bone of contention

Mentioning in its order that the health of the people of India is of greater importance than the losses the auto industry would suffer (sic), the Supreme Court was not impressed by the argument that manufacturers be allowed to sale BSIII vehicles even after the BSIV regulation was implemented.

Claimed an industry source that the ministry of transport issued a notification on August 19, 2015, to switch to BSIV emission compliant vehicles on April 01, 2017. It did not however clarify whether production of BSIII vehicles would have to be stopped, or also their sale. Interestingly, the Supreme Court did not fail to observe the fact that an expenditure of Rs.30,000 crore was incurred by refineries to produce BSIV grade of fuel. The Court in its order stated that manufacturers failed to take pro-active steps despite being aware of the timelines. Much confusion prevailed until the Supreme Court issued an order on March 28, 2017, to stop the sale of BSIII vehicles on March 31, 2017.

Dealing with the impact

Left with no choice, CV industry stakeholders came up with the prospect of fire-sale. With the Court order coming out three-to-four days before April 01, 2017, the auto industry, and not just the CV industry saw fire-sale as a promising prospect, which is not surprising. Many two wheeler manufacturers too resorted to fire-sale of their BSIII vehicles as well.

Expressed Vinod K. Dasari, Managing Director and Chief Executive Officer, Ashok Leyland, and President, Society of Indian Automobile Manufacturers (SIAM), that they are looking at exporting the leftover (BSIII vehicles) inventory to emerging markets, currently complying with BSIII norms. Claimed an industry source that those (vehicles) that are left behind will be dismantled. Some of the aggregates could be rescued. Alternatively, the vehicles could be upgraded to BSIV if possible. A statement issued by Mahindra & Mahindra announced that the Group is ramping up BSIV vehicle production. The OEM, the statement read, is also exploring options within the framework to minimise the impact. The brisk discount sales and incentives CV makers offered to off-load BSIII vehicles in the three-to-four days costed them in the region of Rs.2500 crore, claimed an industry source. According to a report by research firm Crisil, companies sold a little over half of their BSIII inventory by March 31, and have lost Rs 1,200 crore on discounts and incentives. They are expected to lose another Rs.1,300 crore to dispose off the unsold inventory.

Mentioned a Tata Motors source that the ban would have a material impact on all the CV industry stakeholders. They are, he mentioned, assessing unsold inventory that lies with the company and the dealerships. According to the Tata Motors spokesperson, the decision to ban the sale of BSIII vehicles was unprecedented and unexpected. Erich Nesselhauf, Managing Director and Chief Executive Officer, Daimler India Commercial Vehicles (DICV), expressed that they planned a year in advance to meet the BSIV deadline. The company, he added, has sold its 1000th BSIV truck in the state of Kerala recently. Kerala migrated to BSIV emission norms in November 2016, much before the pan-India BSIV regulation came into force last month. Despite prior planning, DICV has come to have an unsold inventory of 200 BSIII CVs, said Nesselhauf on the sidelines of the launch of BSIV BharatBenz HDTs at Chennai. DICV had its CVs shed 400 kgs to accommodate BSIV apparatus. The company has adapted SCR technology to meet BSIV emission norms unlike Ashok Leyland, which has adapted intelligent EGR technology to meet BSIV emission norms. DICV is supplying AdBlue solution to its dealers (and to petrol pumps) to ensure quality and reliability. The price of BharatBenz BSIV CVs is the same as the price of the

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BSIII CVs.

Dealer impact

The impact on CV dealerships was considerable. Dealers came under immense pressure to off-load BSIII CVs. If slow moving inventory made for a higher impact, dealers panicked at least in the beginning. Averred Piyush Jain of A V Motors, a SML Isuzu dealer, that the ruling is hard hitting, and has rendered dealers helpless. Jain compared the development with that of demonetisation. Demonetisation too hit us hard in the third quarter of FY2016-17, he said. “A strong (and clear) judgment should have been passed about discontinuing the manufacture of BSIII vehicles in 2016 itself,” opined Jain. “Had such a ruling been passed in 2016, it would have not resulted in the quantum of losses that we are staring at today,” he added.

Jain also touched upon the fear of electronics among CV buyers and operators. “The customer here is far from being accustomed with the high level of sophistication (electronic engine) BSIV emission regulation will call for,” said Piyush. He informed that he had an inventory of 20 BSIII vehicles. Apprehensive of the volumes in the first quarter of FY2017-18, Tej Ghatge of Chetan Motors, a Tata SCV dealer from Kolhapur said that he held an inventory of 55 vehicles as on March 31, 2017. Of these, he managed to fire-sale 20 vehicles. Huge discounts were offered. Discounts of Rs.50,000 on a Tata Ace was offered. Vimal Gujral of Cargo Motors, a Gandhidham-based Tata CV dealer, expressed that the development was shocking. He held an inventory of 500 vehicles as on March 31, 2017. If his regional centres would be accounted for, the count would go up to 700 vehicles. Not a happy prospect for certain, opined Gujral. With unsold inventory accounting mainly for Small Commercial Vehicles (SCVs) and pick-up trucks, Gujral revealed that they have hiked the discounts considerably.

Stating that the higher price differential between BSIII and BSIV emission compliant CVs is yet to result in a clear picture as far as the demand in CV industry goes, Gurjral said, “We are yet to witness demand for BSIV CVs.” Mentioned a prominent CV dealer, that they have been advised by their principal to register (BSIII) vehicles in their name. “There is a limit to the number of vehicles we can register in our name,” he said. Suresh Jain of Veerprabhu Marketing, a CV dealer from Jodhpur, expressed that inventory levels are usually higher at the end of the financial year. This is done to realise depreciation benefits by billing the inventory over the financial year end. With customers expecting unrealistic discounts, and at times below the cost of goods sold, it is not a happy prospect since the dealer has already been billed for local transportation, local taxation and sales tax among other charges, averred Jain. Jain’s dealership held an inventory of 200 vehicles as on March 31, 2017.

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As a desperate measure CV dealers are known to give an extended credit of up to 30 days to some of their large fleet operator clients to off-load BSIII inventory. Said a dealer on the condition of anonymity, that the impact of Supreme Court’s order and the slow demand for BSIV CVs will reflect in the sales statistics for the first quarter of FY2017-18. The CV industry, he averred, will perform worst than when it was impacted by demonetisation.

Expert analysis

With the Crisil report pegging the CV industry loss at Rs.2,500 crore, the total impact of the Supreme Court order is claimed to be 2.5 per cent of the annual revenues of listed CV manufacturers. According to the Crisil report, an expense of another Rs.1,300 crore will be incurred to dispose off unsold inventory of BSIII CVs. The effect of this development, claimed an industry source, will be spread across FY2017-18. The discounts offered during the fire-sale of BSIII vehicles is also expected to negatively impact EBITDA margins by 100 bps (one per cent) in FY2017-18. Expressed Rakesh Batra, Partner and automotive sector leader at Ernst and Young Services, that it is necessary to consider that the CV industry works globally on 20 to 30 days of inventory. This is within the distribution channel, and should have been accounted for as part of the plan to transition from BSIII to BSIV emission norms. An ICRA report pegged unsold inventory of BSIII CVs to between Rs.4600 and Rs.5800 crore approximately. Despite being caught off-guard by the SC ruling, SIAM’s latest report states the overall commercial vehicle segment to have registered a 4.16 per cent growth in FY2016-17. Medium and Heavy Commercial Vehicles (M&HCVs) grew by 0.04 per cent over the same period last year. Light Commercial Vehicles (LCVs) witnessed a 7.41 per cent growth while CV exports registered a 4.99 per cent growth.

Looking for clarity

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The Society of Indian Automobile Manufacturers (SIAM) has written to Prime Minister Narendra Modi, seeking a meeting, claimed an industry source. The letter, he mentioned, speaks about the auto industry wanting to thrive in an environment where there is policy clarity and certainty. Especially, due to the long gestation period involved. Claimed a source on the condition of anonymity that the recent Supreme Court ruling contradicts the 2015 notification by the transport ministry. He mentioned that this has been mentioned by SIAM in the letter it wrote to the Prime Minister. The  fact is, the die has been cast. BSIII CVs are history. The road ahead lies on the frame work of tightening regulations starting with BSIV. With the crash regulations said to come into force from next fiscal, the road ahead for the Indian CV industry is going to be as challenging as it has been for sometime now. With GST round the corner, the CV industry, it is looking like, is already anticipating big changes. In 2020, the bridge to BSVI emission norms will have to be crossed too.

Pre-buying ahead of BSIV

According to an ICRA report, CV sales are likely to remain subdued until the liquidity situation improves. The report mentions that the industry is also expected to witness some pre-buying in Q4 FY 2016-17 as the country progresses to Bharat Stage (BS)-IV emission norms in April 2017. The domestic CV industry, the report states, is unlikely to meet earlier forecast. Likely to register an overall volume growth of 5-6 per cent in FY2016-17 over the previous year, in the medium-term, the report mentions, that the CV industry will register a growth of 8-10 per cent per annum on the basis of demand from infrastructure-related segments, improving macro-economic scenario and favorable regulatory developments such as emission and fuel efficiency norms. Government’s proposed vehicle modernisation program along with NGT’s thrust on phasing out old diesel vehicles may trigger replacement demand.