Scrappage scheme can boost CV sales by 65%

6.8 lakh CVs worth Rs 66,500 crore were sold in fiscal 2016, the V-VMP scheme could lead to incremental sales of 4.4 lakh CVs (primarily MHCVs) worth Rs 66,000 crore.

The Voluntary-Vehicle Modernisation Programme (V-VMP) announced by the Ministry of Road Transport & Highways can boost commercial vehicle (CV) sales volume by a cumulative 65% (over sales in fiscal 2016) between fiscals 2018 and 2020, an analysis by Crisil Research shows.

6.8 lakh CVs worth Rs 66,500 crore were sold in fiscal 2016, the V-VMP scheme could lead to incremental sales of 4.4 lakh CVs (primarily MHCVs) worth Rs 66,000 crore.

Scrappage scheme can boost CV sales by 65%

In addition, 2 lakh CVs would get scrapped and replaced in the normal course through the three fiscals, given the current junking rate of 67,000 CVs annually. Hence total vehicles opting for the scheme would be 6.4 lakhs, said the Research.

More than 85% of the incremental sales would be of medium and heavy trucks because of their lifespan of 20 years. Sub-1 tonne CVs would benefit the least given that the segment was created only in 2005 and vehicles would have been purchased after the V-VMP cut-off date.

Says Prasad Koparkar, Senior Director, Crisil Research “Based on the equation of current resale value versus benefits offered under V-VMP, 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.”

Says Binaifer Jehani, Director, Crisil Research “Transporters scrapping old CVs, are not buyers of new CVs, 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 V-VMP incentive certificate issued to transporters tradable.”

Crisil added, “The government could consider a cap on the engine cc differential between scrapped and new CVs bought under the scheme. Alternatively, the government could provide different incentives based on engine cc of new CVs bought versus that of old one scrapped – or offering lower benefit for higher differential in engine cc.”

Source: https://goo.gl/mFaMNp