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Last Updated : Jul 08, 2019 09:58 AM IST | Source: Mint

Maruti Suzuki lobbies banks to ease lending norms for dealers

The move by the Suzuki Motor Corp. unit underscores a squeeze on dealer cash flow with passenger vehicle sales staying muted for several months while banks have cut financing for dealers due to worries whether the loans would be repaid.

 
 
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Maruti Suzuki India Ltd is in talks with banks to nudge them to ease their strict lending norms and offer retail financing to dealers of the country’s largest carmaker, a senior company executive said.

The move by the Suzuki Motor Corp. unit underscores a squeeze on dealer cash flow with passenger vehicle sales staying muted for several months while banks have cut financing for dealers due to worries whether the loans would be repaid.

Bad loans have risen in the auto sector as weak retail sales have forced the closure of several dealerships. This has led major banks such as the State Bank of India, HDFC Bank and others to tighten credit norms for automobile dealers. The liquidity stress at non-banking financial companies (NBFCs) which emerged last September with defaults on debt repayments at Infrastructure Leasing & Financial Services Ltd (IL&FS) has worsened the situation.

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“We recently tied up with Bank of Baroda and are in close touch with other banks to strengthen funds availability for inventory financing by our dealer partners. We are in talks with all leading banks to further support the industry with increased allocation of funds for auto sector," Shashank Srivastava, executive director, marketing and sales, Maruti Suzuki said in an interview.

NBFCs comprise nearly 20% of financing for retail sales and stocks purchase for Maruti dealers, he said, adding as much as 80% of Maruti cars are bought on loans.

Maruti is also trying to strengthen the business model of its dealers by focusing on revenue generation from other streams such as vehicle servicing, insurance, auto accessories and selling used cars through the True Value outlets, Srivastava said.

Automobile sales have stayed subdued since the second half of FY19, prompting automakers to cut production significantly to adjust wholesale with retail demand. Maruti Suzuki has also trimmed its production for four months in a row starting February to reduce dealer stocks.

Srivastava said Maruti Suzuki always been conscious of the profitability and viability of its dealers and that is one of the big factors why its dealers continue to run their business even in the current tough retail scenario. “Maruti Suzuki has a sustainable and robust dealer business model which helps them to generate revenue not only from new car sales but also from other strong revenue streams. There are multiple business opportunities include vehicle service, finance, insurance, spare parts and accessories sales and also our True Value, pre-owned car sales initiative," he said.

Mint on 18 June reported that lenders have decided to pare their exposure to automobile dealers due to increased defaults over the last two fiscal years.

Data compiled by the Federation of Automobile Dealers Associations (Fada) showed that 64 dealerships have shut operations in the Greater Mumbai area alone in the last year-and-a-half, with 61 associated with passenger vehicles.

During the same period in the National Capital Region, some 42 dealers have shut shop, with all but one of them having been in the business of selling passenger vehicles. Besides manufacturers like Renault India Pvt. Ltd, Nissan Motor India Pvt. Ltd and Ford Motor India Pvt. Ltd, dealers of leading manufacturers like Hyundai Motor India Ltd, Maruti Suzuki India Ltd, Honda Cars India Ltd and Mahindra & Mahindra Ltd also feature in the list of companies whose dealerships have closed in the past 18 months.

Due to the uncertainty in the overall financial sector and slowdown in economic activity, Maruti’s sales in the April to June period fell 20% from the year-earlier to 369,985 units. The company has forecast a modest growth of 4-8% in its domestic vehicle sales for this financial year.
First Published on Jul 8, 2019 09:58 am
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