Home / Companies / News /  Crisis in auto sector worsens as more firms defer payments

Alliance partners Renault India Pvt. Ltd and Nissan Motor India Pvt. Ltd, as well as Ashok Leyland Ltd, have decided to defer payments to suppliers because of the adverse impact of covid-19 on their domestic businesses, said three people aware of the development, requesting anonymity.

Renault Nissan Automotive India Pvt. Ltd (RNAIPL), a joint venture between Renault and Nissan for procuring spare parts, wrote a letter informing suppliers about its decision. Hinduja Group-owned Ashok Leyland informally told suppliers that there could be a possible delay in payments.

Renault and Nissan, who share a manufacturing unit in the outskirts of Chennai, were the first passenger vehicle manufacturers to hold back payments to suppliers amid the disruption caused by the pandemic. “RNAIPL shall not be responsible for its failure to perform any obligation under the master purchase agreement, as a result of the pandemic, preventive steps or our compliance with the relevant government orders, instructions and directives," Biju Balendran, managing director, RNAIPL, told suppliers.

The company will clear dues of suppliers that had accumulated before “these exceptional circumstances", but future payments might be delayed, Balendran said. “There may be certain delays in payment that are a consequence of the force majeure events highlighted in this letter and we shall not be responsible for such delays and non-payment," he said.

In March, commercial vehicle and two-wheeler manufacturers, including Volvo Eicher Commercial Vehicles Ltd, the alliance between Eicher Motors Ltd and AB Volvo, Eicher-owned Royal Enfield and Hero MotoCorp Ltd, had informed their suppliers about a possible delay or complete halt in payments. The largest motorcycle manufacturer, though, took a U-turn and decided to resort to bill discounting to pay a section of its suppliers.

Most auto component suppliers are medium, small and micro enterprises, and delays in payments might force such firms to reduce salaries or resort to job cuts to stay afloat.

As the number of persons infected with covid-19 surged in India, leading automakers and component manufacturers, decided to shut shop to protect employees and comply with the state and central government’s efforts to ensure social distancing.

The component industry will lose 1,000-1,200 crore in revenues because of production loss, according to an internal estimate of Automotive Component Manufacturers Association. Lobby group Society of Indian Automobile Manufacturers pegged the daily loss at 2,300 crore.

Payment delays by major vehicle manufacturers were not expected, more so as the financial health of the supplier ecosystem is important for the entire auto industry to recover from such a setback, said one of the persons mentioned above.

Email queries to Ashok Leyland on 31 March and Renault India Pvt. Ltd and Nissan Motor India Pvt. Ltd on 6 April, remained unanswered.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.
Recommended For You
Edit Profile
Get alerts on WhatsApp
Set Preferences My ReadsFeedbackRedeem a Gift CardLogout