09 Sep 15 Car prices to rise due to upcoming 2017 safety norms

Globally, safety is one of the top three parameters considered by buyers while purchasing cars. In India, we still lack stringent regulations related to basic use of safety features in vehicles. The government is working towards covering this important aspect but the actual implementation still seems far away.

India accounts for ~15% of global traffic deaths though it has only 1% of the world’s cars (Source: World Bank estimates). During 2014, one out of every eight road accidents (12.1%) involved passenger cars. As per National Crime Records Bureau (NCRB), almost half of the accidental deaths in 2014 were due to speeding (48%), followed by careless driving (41%). These statistics depict the necessity of safety features like ABS and airbags in passenger cars.

Price sensitivity of customers shapes attitude of OEMs / dealers

• The overall car price goes up by ~Rs 40,000-50,000 due to the additional safety accessories like ABS and airbags.
• There is no additional incentive for car dealers or OEMs to sell cars with ABS and airbag variants. The dealers do not push the ABS-airbag variants, as customer’s are very price sensitive.
• Holding inventory for both ABS / non-ABS car variants leads to higher inventory costs.

Indian safety norms will soon be upgraded

• New car crash standards will become mandatory under the Bharat New Vehicle Safety Assessment Programme (BNVSAP) from October 2017 wherein, all new cars will have to undergo mandatory rating.
• The rating will be done based on the frontal, rear, anti-lock braking system (ABS), seat belt reminder, child lock functionality and other safety test results.
• The implementation will happen in phases in the next 3-4 years as the OEMs need time for making changes in the assembly line and product designs.

Most OEMs are waiting for the regulations, though some like Toyota are proactively installing safety features in all their local models.

What to expect post safety regulation

• Car prices may rise as much as 10% after the implementation of the safety norms.
• The impact of price rise will be more evident in low end cars as most premium cars already have these features.
• The price difference between two-wheelers and cars will widen, while the difference between A segment and B segment cars will narrow.
• OEMs will need to invest in product design and manufacturing to incorporate assembly of additional products.
• ABS, airbags and manufacturers of other safety accessories will benefit from a rise in demand – as will Tier 2 suppliers providing sub-components, assemblies and software.