Rediff.com  » Business » Upgrading car safety may cost Rs 12,000 cr to auto makers

Upgrading car safety may cost Rs 12,000 cr to auto makers

By Sharmistha Mukherjee and Swaraj Baggonkar
Last updated on: November 27, 2014 14:45 IST
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The government is likely to notify a proposal making it mandatory for all personal vehicles to come equipped with safety features such as airbags and anti-lock braking systems.







Image: A woman driving a car. Photograph: Marcelo Del Pozo/Reuters    

Car makers in India might have to take a collective hit of up to Rs 12,000 crore or Rs 120 billion if the government notifies a proposal making it mandatory for all personal vehicles to come equipped with safety features such as airbags and anti-lock braking systems.

The dent in their financials will occur only if manufacturers desist from passing on the rise in vehicle prices of around 10-15 per cent due to improved safety features.

Industry experts said if the average price of Rs 400,000 was considered for annual sales of around three million passenger vehicles, the automobile industry would have to shell out 10-15 per cent of its revenue (Rs 8,500-12,000 crore) for 2.1 million cars (around 30 per cent of sales of three million units today come from variants having safety features) in equipping cars with basic safety features, depending on modifications required for fitment and economies of scale.

The government is considering a proposal to make it mandatory for cars to come equipped with airbags and anti-lock braking systems.

These features, standard in Europe and the US, are offered only for high-end variants sold in India. Car makers fear the price increase of Rs 35,000-40,000 per vehicle for airbags and anti-lock braking system fitments will hurt sales.

A senior executive at Maruti Suzuki said, “We do offer airbags and enhanced safety features such as anti-lock braking systems in top-end variants.

Customers can opt for them according to affordability. If such features are made mandatory across all variants and all models, it will result in increasing the price of vehicles and affect sales, especially at the entry level.”

Maruti Suzuki offers driver and passenger airbags and anti-lock braking systems in top-end variants of its premium hatchback Swift. But the safety equipment come clubbed with many added features, which keep the price gap with the base variants at Rs 1,40,000-1,50,000

Puneet Gupta, associate director at automotive consultancy firm HIS, said, “Vehicle safety is important but given that per capita income is low in India, implementation of safety norms will have an adverse impact on sales. It may affect purchase decisions of consumers looking at upgrading from two-wheelers.”

Around 15 million two-wheelers are sold in India every year. Industry insiders point out raising the affordability barrier for vehicles might affect consumers looking at upgrading to a four-wheeler.

Mayank Pareek, president (passenger vehicle business unit) at Tata Motors, told Business Standard, “In India, 50 per cent of the customers are upgrading from a two-wheeler or ‘no-wheeler’. For them, any four-wheeler is safer. That aspect should be kept in mind. If putting airbags makes cars too expensive, motorisation will not happen.”

In India, only 18 people in 1,000 have cars, compared with 30-35 in some neighbouring countries.

“Even if you increase the price by Rs 5,000, the customer may not buy some of the entry-level cars. If a person is buying a Rs 1 crore car and the price increases by 10 per cent, nothing happens. But a person buying a Rs 300,000 car, paying that extra Rs 5,000 becomes important. The cut-off line is Rs 5,000, if you increase the price beyond that, they put off the buying decision,” Pareek added.

The country’s roads are among the most unsafe in the world, with one death reported every three minutes. “If issues related to vehicular safety need to be addressed effectively, the government should focus on all kinds of vehicles and not only cars. There should be similar norms for three-wheeler, trucks and light commercial vehicles,” another industry executive said.

Abdul Majeed, partner, PricewaterhouseCoopers, offered a different perspective.

“With road infrastructure improving, the average speed on Indian roads has been going up. As much as 30-40 per cent of road accidents happening in the country can be avoided if cars are equipped with basic safety features. It is true the cost will go up but if customers are educated, sales should not be a problem. Nobody would want to risk their lives for Rs 35,000-40,000,” he said.

The rising concern over vehicle safety in India arose after the UK-based Global New Car Assessment Programme declared some of the country’s top-selling models, including the Maruti Suzuki Alto 800, Maruti Suzuki Swift, Hyundai i10, Ford Figo, Volkswagen Polo, Tata Nano and Datsun GO, as unsafe in frontal crash tests conducted at its labs.

These tests were conducted by Global NCAP according to western safety norms at 64 kmph. The cars meet standards prescribed in India.

Safety first?

Government is likely to notify a proposal making it mandatory for all personal vehicles to come equipped with safety features such as airbags and anti-lock braking systems

Carmakers fear an increase of Rs 35,000-40,000 per vehicle for an airbag and ABS fitments will lead to shrinking affordability levels among buyers, adversely impacting sales

Industry insiders say raising affordability barriers for vehicles could adversely affect consumers who are looking at upgrading to a four-wheeler

The rising concern over vehicle safety in India has come after UK-based Global New Car Assessment Programme declared some of the country's top-selling models as unsafe

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Sharmistha Mukherjee and Swaraj Baggonkar
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