Leyland to form JV at Nissan facility

Chennai: Ashok Leyland is considering the option of setting up its joint venture with Nissan at the Nissan-Renault facility coming up at Oragadam.

Mr K. Sridharan, Chief Financial Officer, Ashok Leyand, while emphasising that there were no changes in the structure and legal framework of the Ashok Leyland-Nissan joint venture for light commercial vehicles (LCV), said that the company was considering various options relating to the location of the project, the model of vehicles to be introduced and the size of investment.

The possibility of locating this joint venture along with the Nissan-Renault joint venture at Oragadam, where land is available, is something that will help to speed up the implementation of the project.
The alternative was to wait for the State Government to allocate land at another location, which could take some time. The LCV plant, which was originally scheduled to begin production in 2010, was six months behind schedule.

The scale of operations was also under discussion. Earlier, both partners planned to invest a total of Rs 2,400 crore with an equity of about Rs 1,200 crore shared equally in three projects – for technology development, power train manufacture and vehicle production.

There are no changes in the essential structure of the projects and only Ashok Leyland and Nissan are involved. The partners are also discussing the appropriate models to introduce into the domestic market and target for the export markets, he told reporters here on Friday.

Mr Sridharan said that the scale of operation is being reconsidered in the light of the slowdown in vehicle sales. Ashok Leyand has itself cut back significantly on capital expenditure, he added.
Financing arm.

Ashok Leyland has floated a vehicle finance company, Hinduja Leyland Finance Ltd, to drive commercial vehicle sales.

Mr Sridharan said the company was awaiting Reserve Bank’s approval to commence operations.
The company is reviving its finance business because “99 per cent of commercial vehicle sales” are supported by loans from banks, money lenders and non- banking finance companies.

The capital structure would be decided later. He expected this captive financing arm to account for nearly 15 per cent of vehicles sold.

Commercial vehicle sales, which are going through an unprecedented low, are further hit by the lack of clarity on interest rates. Loans to commercial vehicles are primarily on fixed interest rates.
When the Government and banks signal the need for a drop in interest rates, buyers decide to wait for the drop in rates and “tend to hold back purchases”.

It is important a clear message is sent on the interest rate situation to support commercial vehicle industry, Mr Sridharan said.
A captive finance company’s advantage was in the market information available with the vehicle manufacturer.

“That is what Ashok Leyland brings to the table,” he said.

Ashok Leyland would use its dealership network and customer knowledge to help the finance company take a calculated risk in credit support to buyers.