In a judgement that will have far-reaching implications for many automotive retailers in India, the Supreme Court has allowed a conditional extension for the BS4 vehicle sales deadline. The Supreme Court was hearing a last-ditch plea from the Federation of Automobile Dealers Association (FADA) to extend the registration timeframe for BS4 vehicles beyond the original March 31, 2020 deadline, bearing in mind the impact of the nationwide lockdown enforced due to the novel coronavirus (COVID-19) outbreak. As per today’s Supreme Court order, automotive retailers can only sell 10 percent of unsold BS4 inventory for 10 days post the prevailing lockdown. The Supreme Court noted that “there was no justification to extend the time” beyond the original March 31, 2020, deadline but took cognizance of the loss of sales due to the lockdown. Allowing automotive retailers to sell 10 percent of BS4 inventory should make good the six days of sales lost in the March lockdown, the Court ruled. The unsold BS4 inventory with dealers across the country comprises 7,00,000 two-wheelers, 15,000 passenger vehicles and 12,000 commercial vehicles. Interestingly, Delhi NCR has been left out of the purview of the order, meaning no sales of BS4 vehicles can take place in the region post March 31.
The Supreme Court also made a ruling for cases where a BS4 vehicle has been sold but could not be registered by the March 31, 2020 deadline. The court has allowed the registration of such vehicles up to 30th April, 2020. As per documents with the court, there are 1,05,000 two-wheelers, 2,250 passenger vehicles and 2,000 commercial vehicles that have been sold but could not be registered. The ruling comes as a great relief to buyers caught between the process.
Crisis for dealers
Dealers across the country had banked on their ability to clear the leftover stock by March 31, and also offered heavy discounts, but the sharp rise of coronavirus cases across India in the month of March weakened demand in an already-hampered market. The outbreak of the deadly virus necessitated a 21-day nationwide lockdown, which means there will be no way for dealers to be able to sell all the leftover BS4 vehicles by March 31. What also remains unclear at the moment is the Supreme Court's definition of '10 percent unsold BS4 stock'.
This Supreme Court judgment will cause huge losses to dealers across India, as there are still lakhs of BS4-spec vehicles lying unsold. While most vehicle manufacturers transitioned to manufacturing BS6-compliant vehicles by the end of 2019 or start of 2020, dealers still have plenty of leftover stock that hasn’t found any takers at a time when buyer sentiment is seriously weak. At this time, there are still over seven lakh unsold BS4 vehicles all across India, cumulatively worth over Rs 6,300 crore.
The Supreme Court’s decision comes as a bit of a surprise at a time when the government has granted relief in several sectors, including extension of deadline for tax filings and allowing a three-month moratorium on EMIs for bank loans.
While dealer councils had approached manufacturers to ask them to reimburse dealers for the losses they are set to suffer, other solutions had been mooted as well. Dealers also considered registering remaining BS4 vehicles in their own name to later sell them off as pre-owned vehicles. Some dealers also suggested the manufacturers take back the remaining vehicles to disassemble them and use them as spares.
We are still awaiting responses from manufacturers and dealer bodies. Stay tuned for updates.