Scrappage scheme can boost commercial vehicle sales by 65%: Crisil

Between fiscal 2018 and 2020 more than 85% of the incremental sales would be of medium and heavy trucks because of their lifespan of around 20 years, Crisil Research said


Close to 680,000 commercial vehicles were sold in fiscal 2016 Photo: Bloomberg.
Close to 680,000 commercial vehicles were sold in fiscal 2016 Photo: Bloomberg.

Mumbai: A voluntary vehicle modernization programme unveiled by the ministry of road transport and highways could boost commercial vehicle (CV) sales by a cumulative 65% between fiscal 2018 and 2020, Crisil Research said in a statement on Wednesday.

Close to 680,000 CVs were sold in fiscal 2016. The scheme could lead to incremental sales of 440,000 units, primarily heavy-duty trucks, it said.

In addition, around 200,000 CVs would get scrapped and replaced in the normal course through the three fiscal years, given the current junking rate of around 67,000 units annually. Hence, total vehicles opting for the scheme would be 640,000.

More than 85% of the incremental sales would be of medium and heavy trucks because of their lifespan of around 20 years. Hence, many of them bought before the March 2005 cut-off date for the scheme, would still be plying.

Intermediate commercial vehicles and tractor-trailers, too, have a similar lifespan, but those purchased before March 2005 are comparatively fewer.

Pick-ups, upper light CVs and medium and heavy commercial vehicles, which have a lower lifespan of 15-17 years, will have a smaller share in vehicles being scrapped—and most of them would anyway be scrapped.

Sub-one tonne CVs would benefit the least given that the segment was created only in 2005 and vehicles would have been purchased after scheme’s cut-off date.

“Based on the equation of current resale value versus benefits offered under the modernization scheme, we expect trucks that are 13 years old or older opting for it. For trucks newer than 13 years, current resale value is more than the benefits offered under the scheme. In case additional dealer discounts are not offered, cut-off age of trucks opting for the scheme could go to 14 years.”

Given that the scrap value offered by the scheme can be availed of by transporters even in the open market, the actual additional benefit in the scheme would be on account of excise duty and road tax waivers, and some additional dealer or manufacturer discount.

However, dealers are already offering 8-10% discount on purchase of new trucks, so further sops would be hard to come by.

“Transporters scrapping old CVs are not buyers of new vehicles, since their business is viable using only an older truck. Considering this, the government needs to either provide a cash discount to those junking old vehicles or make the incentive certificate issued to transporters tradable,” said Binaifer Jehani, director, Crisil Research.

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