Mumbai, Aug 17: PAL-Peugeot, the joint venture company of Premier Automobiles and Automobiles Peugeot of France, has closed the doors of its paint shop to the Fiat Uno. According to sources, the decision was initially intended to pressure PAL to pay its dues to the company.

But later, with relations between the two partners deteriorating, Peogeot has decided against giving PAL any leeway even though the latter has paid up some of the dues.

The two parties entered into a understanding last year that the Uno would be painted at the PAL-Peugeot plant in Kalyan, north-east of Mumbai, till the commissioning of PAL's own paint shop at the Kurla factory in central Mumbai. The first despatch of Unos to Kalyan began last November at the rate of around 20 cars daily. The painting charges worked out to nearly Rs 20,000 per Uno - or an average of Rs 4 lakh daily.

To PAL, this was a practical solution as the bodies needed to be transported across a distance of barely 40 km from its Kurla plant. The other option would have been to use the paint shop facilities of other manufacturers like Mahindra & Mahindra at Nashik (in Maharashtra) or Ashok Leyland in Hosur (Tamil Nadu). These would have only added to costs at a time when the Kurla plant was going through a partial lockout.

Meanwhile, cracks began developing in the relationship between PAL and Peugeot when the Indian partner conveyed its decision to withdraw from the venture.

In February, Peugeot offered to buy out 50 per cent of PAL's 31.7 per cent stake at Rs 42 crore but this was unacceptable to the latter.As this impasse continued, losses at the Kalyan plant began mounting. PAL was categoric that it would block any move by Peugeot to infuse funds into the project till its entire equity was bought out at Rs 84 crore. With the French partner being as obstinate, issues became more complicated. The supply of kits for the Peugeot 309 began running out, threatening the very survival of the venture.

The decision to stop painting the Uno is a parallel move by Peugeot to plan legal action against PAL for getting into a separate joint venture with Fiat.This is being perceived by the French automaker as a clear violation of the non-competition clause in the joint venture agreement signed with PAL three years ago.

Sources say that Fiat will now supply painted bodies of the Uno directly from its plants in Turkey and South Africa so that work continues uninterrupted. However, this will prove to be a more expensive and time-consuming process.

The other option for PAL is to use the facilities of other carmakers who have state-of-the-art paint shops that can meet the requirements of the Uno. This would result in higher transport costs which may have to be absorbed by PAL if it does not wish to hike the price of the Uno. There is also no guarantee if these automakers, be it General Motors India or Mahindra & Mahindra, would be willing to hire out their facilities in the first place.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.