Could compulsory airbags make car stocks unsafe?
According to RC Bhargava, chairman of Maruti Suzuki India Limited, India’s auto industry could see a downturn if airbags are made mandatory in cars. Airbags have come a long way from being offered as an accessory for an extra charge to becoming mandatory in the front and driver seats.
Union Transport Minister Nitin Gadkari has proposed that all new models produced after October 1 should be fitted with all six airbags. Although the proposal has not yet been approved, stakeholders are divided on the issue.
Original equipment manufacturers (OEMs) such as Maruti that make smaller cars for the mass market could feel the pinch if such rules are enforced. Indian cars at the lower end are generally naked vehicles with the most basic features to make them affordable for India’s large, aspiring middle class. However, the trade-off results in cars lacking several key safety features.
Adding airbags could add up to Rs 50,000 to the cost of a car, driving up the price of small cars. For example, the base model of Alto costs around Rs 3.25 lakhs, and adding mandatory airbags costing Rs 30,000-50,000 would increase the price by at least 10-15%.
A change in the number of airbags would require a change in vehicle design, especially if curtain airbags were to become mandatory. Therefore, some OEMs who cater to the low-end mass car market believe that the market may be unable to absorb such a large price increase and ultimately lead to a drop in demand. These entry-level cars generally appeal to first-time buyers who are looking for cheaper options to upgrade to a four-wheeler.
Usually, OEMs are slow to upgrade the features of lower variant cars to avoid a contraction in demand. Even critical elements such as immobilizers or anti-braking systems were not assembled in cars before, but were offered as accessories after or during purchase. However, in recent years, these features have started to appear by default, even in basic models.
From the government’s perspective, making airbags mandatory would help prevent deaths and serious injuries to passengers. Minister Nitin Gadkari said 13,022 lives could have been saved in 2020 if vehicles had been fitted with airbags. According to a World Bank report in 2021, India owned only 1% of the world’s vehicles but accounted for 11% of global deaths. While the death rate is three times lower than that of road accidents in a low-income country, road accidents remain a source of concern for the Indian government. However, this is not the first time the government has sought to make airbags mandatory.
Previously, in 2017, the government had planned that by July 1, 2019, all four-wheeled vehicles would be fitted with airbags, seat belts, reverse parking sensors and central locking. with manual control. Nevertheless, the rule has not become a reality and cars continue to be sold with minimal safety features. However, the best variants from most companies come with several security features. Even export models are usually equipped with these features because customers are willing to pay for these features, and other governments have made many of these features mandatory.
The emphasis on mandatory safety features is a relatively new goal for the Indian government, with the driver’s airbag only becoming mandatory in April 2019, while the passenger airbag becomes mandatory on January 1, 2022.
The automotive sector is already going through tough times, even as OEMs grapple with the technological disruption in the space with the advent of electric vehicles. A shortage of raw materials has resulted in high entry costs for these players and adding airbags would only increase the cost. The increase in costs comes at a time when demand is low and price increases cannot easily be passed on to customers.
Auto parts companies involved in manufacturing safety components could stand to benefit if safety features become mandatory. But the possible decline in sales of four-wheelers after a price increase would dampen overall demand for auto parts. Therefore, the announcement might not offer immediate rewards for these businesses. Nevertheless, the whole situation hinges on the government continuing with its plan to improve passenger safety on Indian roads.