Vehicle scrappage policy can provide positive push to new automotive circular economy: EY

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India’s vehicle scrappage policy can give a positive push to start a new automotive circular economy, offering opportunities for new and existing players to build a robust go-to-market product that will help consumers with the end-of-life vehicle’s resale or purchase processes, according to consultancy firm EY.

In its latest report — Scrappage policy for the automotive sector is here! Mobility Roadmap in Circular Economy — EY India said original equipment manufacturers (OEMs) are responding to the new dimensions of mobility such as connected, autonomous and shared, new forms of ownership and an increased environmental focus across stakeholders.

There is an opportunity to set up new business models where new players and the traditional automotive ecosystem come together in an organised manner to provide products and services to consumers, EY India said in a statement.

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Commenting on the new possibilities EY India Partner, Automotive sector, Som Kapoor said, “We are at a point where we could see the emergence of a new business model that extends the current auto ecosystem, where both new players and traditional players can be involved to deliver solutions in an organised manner”.

“The scrappage policy will provide novel opportunities for both new and existing players to build a robust go-to-market offering and provide consumers solutions to ease the end of life of vehicle resale/ purchase processes,” Kapoor added.

As per the Voluntary Vehicle-Fleet Modernisation Programme or Vehicle Scrapping Policy, a rebate of about 5 per cent will be offered to new car purchases in lieu of the scrapping of the old one. The government has advised manufacturers to provide a discount of 5 per cent on the purchase of new vehicles against the scrapping certificate.

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Under it, personal vehicles will require a fitness test after 20 years, while commercial vehicles would require it after the completion of 15 years. The Centre has also advised states to offer a road tax rebate of up to 25 per cent for personal vehicles and up to 15 per cent for commercial vehicles.

EY India said while there is a lot more to be done in the future, the scrappage policy does bring to the table a lot of positives. It should lead to a reduction in emissions, act as a catalyst for vehicle sales, drive savings on imported raw materials and lead to an expansion of the overall automotive ecosystem, including fitness centres, new aspects of the supply chain, scrapping centres, and automation.

The scrappage policy can also provide some obvious benefits related to the reduction in pollution, cut in the fuel import bill, improved recycle or re-use of parts, generation of replacement related demand and providing impetus to structuring this part of the automotive ecosystem, it added.

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EY India Partner and Automotive Sector Leader Vinay Raghunath said, “Automotive OEMs have an opportunity to revolutionise the recycling industry by evaluating interesting business models which would help them achieve both environmental and economic goals”.

They can potentially leverage the supply chain associated with recycled materials to reduce input material costs, impact vehicle prices positively, improve shareholder value and offer a choice to consumers, he added.

The consultancy firm also said the COVID-19 pandemic has made the industry realise the vulnerability associated with the current value chain structure at both the consumer and the supplier end.

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