Maruti Suzuki, Tata Group, M&M warm up to vehicle-scrapping units

Companies in talks on joint ventures and exploring tie-ups with suppliers

Top automakers including Maruti Suzuki, Tata Group, and Mahindra and Mahindra have evinced an interest in setting up vehicle-scrapping units in public-private partnership mode and will respond to government tenders on this.

The Ministry of Road Transport and Highways is aiming to set up 50 such facilities in the country by March 2023, a senior official said.

State governments will be roped in as part of the tender process because such centres require large tracts of land, which belong to local governments, according to the official.

“According to estimates we have made from discussions with the industry, it will cost around Rs 18 crore to set up a scrapping centre if the land is leased; but if the land is purchased, a centre is likely to cost around 33 crore.”

In the public-private partnerships being considered, the government may not hold equity but lease land at a cost to companies willing to set up such facilities.

All three companies refused to comment on queries relating to the subject.

People aware of the development said the companies were in talks on joint ventures and exploring tie-ups with suppliers.

Maruti Suzuki has a joint venture with Japan’s Toyota Group for vehicle dismantling and recycling in India. The joint venture has set up facilities in Noida. Mahindra Accelo, the steel-processing subsidiary of Mahindra and Mahindra in a joint venture with state-owned MSTC called CERO, has set up two such facilities in Noida and Chennai.

Industry sources said Tata Group would enter vehicle scrapping through Tata Steel.

“Many top automakers have shown an interest in setting up such units,” the official said.

The government is planning to set up a large facility in Alang, Gujarat, which is popular for its ship-breaking industry.

Setting up vehicle-scrapping units is part of the government’s policy, through which it intends to push out old, polluting vehicles through disincentives like higher re-registration charges while giving incentives like waivers on road tax, rebate on goods and services tax (GST), and a 5 per cent discount from manufacturers.

The centres will be responsible for scrapping vehicles, segregating material, disposing of non-reusable parts, and issuing certificates of vehicle scrapping to the registered owner of the motor vehicle.

High-grade scrap will revert to high-grade steel, to be used in industries such as equipment manufacturing and automobiles.

A head of production in a large passenger vehicle manufacturer said in scrapping, cars were stripped, and the leftovers — mostly steel and aluminum — were shredded and then melted to make recycled steel.

“Reusing steel can lower carmakers’ costs by 20-40 per cent. Extrapolate that for vehicle manufacturers that have large-scale operations and churn out more than 100,000 vehicles per month. The savings in cost are huge,” he said.

In order to make the business lucrative, the Ministry of Finance in 2019 announced corporate tax incentives for setting up scrapping centres. This benefit is available to companies that do not commence their production until April 1, 2023.

Also, such companies will not have to pay minimum alternate tax.

R C Bhargava, chairman of Maruti Suzuki, when asked about the potential of scrapping in India, said the cost of setting up such facilities was high and the returns would depend on the number of vehicles being scrapped.

“The companies have to import equipment from the US and Europe for such plants. Only through effective scrapping policies, where unfit vehicles have to go out of the road, can the business be viable,” Bhargava said.

A senior official of MSTC said in the next three years, the joint venture with Mahindra planned to set up 25 more centres. The number of end-of-life vehicles after the BS VI transition was around 28 million vehicles, which are 18-19 years old. So when the policy is put into effect, there will be an immediate need to scrap these vehicles with an incremental addition every year. So, there is huge potential for collection-cum-dismantling sectors as well as shredding plants,” the official said, adding that the joint venture with Mahindra had clocked a profit in Q3 of FY 21.