Mumbai headquartered Tata Motors to discontinue production of multi-seater carriers. The decision comes amidst the introduction of new safety regulations and crash norms. The implementation of the new norms will commence from July 1, 2019.
One of the leading automobile manufacturers in India, Tata Motor plans on abandoning some vehicles off their portfolio. Tata Ace, which is among Tata’s popular models wouldn’t be upgraded as per the new norms leading to its termination.
New Safety norms & regulations
Society of Indian Automobile Manufacturers (SIAM) is the apex body responsible for regulating automobile manufacturing and safety measures in India. It has now become mandatory for vehicles having less than 9 seats to include the following features:-
2) Reverse parking assistance
4)Speed warning systems
In addition to the above-mentioned measures, the vehicles are required to undergo a crash test. The crash test is a type of test where vehicles undergo through rigorous evaluation of safety systems and durability.
The newly implemented norms will escalate the cost of manufacturing and ultimately lower margins for the company.
Tata Motors has decided to drop Tata Magic, Magic CNG, Magic Mantra, Magic Iris & Magic Express from their portfolio.
These vehicles have light-weight bodies and lack the necessary safety features which are usually found in modern vehicles. These vehicles consist of soft steel tops which further weakens the vehicles and makes them prone to damages and unsafe. Such light-weight vehicles are classified under the M1 class vehicles segment.
The sales in this segment are shrinking as they are permit controlled. However, upgrading the vehicles to meet new standards, will raise costs and weights of vehicles. This will lead to a further decline in the sales of vehicles in this segment.
According to the Automobile regulator SIAM, M1 segment witnessed the sale of 115,403 units for 2018-19. This is a 2% decline in sale compared to 117,681 units sold in the previous financial year.
The Diesel Crisis
The newly announced safety regulations are adding to the ongoing diesel crisis. Introduction of BS-6 which regulates the output of air pollutants from vehicles has damaged vehicular portfolio of many car manufacturers.
BS refers to Bharat stage emission standards. These are the emission standards the Government of India sets to control air pollutants from internal combustion engines and Spark-ignition engines equipment, which includes motor vehicles.
The cost of manufacturing vehicles compliant with BS-6 would be high which would result in declined demand for the cars. This has resulted in the paring of Zest & Bolt from Tata Motors.
The share price of Tata Motors on 21st May ’19, when they decided to discontinue production of multi-seater carriers dipped 7.05% to Rs.176.6. On 6th June ’19, the stock movement in Tata Motors was -0.4% at Rs.173.40.