Leaving India: The Peugeot Story

After having partnered Fiat in India for a significant time, PAL entered into a new technical agreement to assemble the Fiat Uno at its Kurla plant and the technical agreement was changed into a joint venture in 1997. The June 1996 production slowdown at the Kalyan plant had its roots in the problems at PAL's Kurla plant where the workers had gone on strike over issues related to wages, incentives and VRS. PAL was manufacturing the Premier Padmini and the Premier 118NE at the Kurla plant (later the Uno and Siena models as well) and the Peugeot 309 and the 118NE at the Kalyan plant. The Kurla and Kalyan plants were dependent on each other as the Kurla unit was the sole supplier of components such as gearboxes and rear axles to the Kalyan plant...

PAL claimed that Peugeot was just not interested in increasing the indigenization level of the vehicle. There were reports of disagreements over the high price of the CKD from Peugeot as well. Due to the 1996 labor problems, the company had to bear heavy inventory carrying costs. To compensate for this, PAL reportedly asked Peugeot to cut down the CKD prices and release funds as loan to the joint venture.

PAL sources said that Peugeot could have advanced loans to the company by treating CKD and other equipment with the venture as security for the loan. PAL even requested Peugeot to use its name to raise bank loans abroad for the joint venture, where the cost of funds was much lower than in India...