Lenders have become worried as some dealers were not using the money provided to them for car financing.
India’s largest carmaker Maruti Suzuki has asked banks to take a case-by-case approach for dealers instead of tightening norms for all.
This comes against the backdrop of multiple dealerships shutting shop due to liquidity crunch.
The Indian auto industry is going through one of its worst phases, with passenger vehicle sales falling the most in nearly two decades in the April-June quarter, underscoring the subdued consumer sentiment, a slowdown in economic activity, farm distress, and a liquidity squeeze.
“We had long discussions with our banks with regards to liquidity crunch for our dealer partners.
"It is true banks have become wary of lending to lenders due to slowdown, but what we have asked them is to not paint all dealers with a broad brush and instead take a case-by-case approach,” Shashank Srivastava, executive director, marketing & sales at Maruti, said.
“Dealers with a good repayment history should continue to enjoy low-cost financing,” he added.
According to Srivastava, lenders had become worried as some dealers were not using the money provided to them for car financing.
Maruti is working with banks to ensure there is adequate follow-up on the use of dealer finance.
“We have told banks that as a company we can give you a better view of the asset.
"As soon as the car is sold to a customer, banks get the information about the sale,” said Srivastava.
Estimates by the Federation of Automobile Dealers Associations (FADA) said that over 200 dealers have wound up operations and shut 300 outlets as their businesses had turned unviable.
An estimated 3,000 people have lost their jobs. Maruti, however, has seen only seven dealers shutting shop.
“In light of slowdown, banks had become overcautious in lending to dealers.
"We asked the government to relax the terms and conditions,” Saharsh Damani, chief executive officer of FADA, a lobby group of dealers, had said.
“For us, shutting shop has been for other reasons rather than liquidity crunch,” said Srivastava.
As part of the revised terms, State Bank of India (SBI) has decided to halt lending to dealers of Hyundai Motor India unless they provide a minimum of 25 per cent collateral.
Dealers, who have already received loans from the bank, will also have to provide security between 25 per cent and 50 per cent of the loan amount.
But recently after a meeting of industry executives with Finance Minister Nirmala Sitharaman, SBI has decided to extend loan repayment time for stressed automobile dealers by 15-30 days amid slowing car sales.
“We are talking to banks to reduce the margin money for our dealers. Some banks have also agreed to taking lesser initial down payment from dealers after our discussions,” said Srivastava.
Margin money is the initial down payment dealers have to make to banks whilst buying a car from manufacturers.
Due to slowdown in sales, dealers have been burdened with higher inventories.
For this reason, Maruti is not pushing further stock to dealers despite the upcoming festive season.
“I think after a lot of effort we have been able to rationalise the inventory level for our dealers to 30-35 days, which is in line with the industry.
"We will wait for signs of uptick in demand before pushing any stock to our dealers,” Kenichi Ayukawa, managing director at Maruti, said.