Motor traders in a tug of war over state vehicle tender policy

The Sri Lanka Government has been caught up in the middle of a tug of war between franchise motor dealers and used car dealers in a bitter dispute over the current vehicle procurement policy for state institutions.

The Vehicle Importers Association of Sri Lanka (VIASL – mostly used car sales) is lobbying hard for the removal of the present monopoly enjoyed by automobile franchise dealers (local agents of brand new vehicles) in bidding for government vehicles tenders amidst stiff opposition of vehicle franchise dealers.

Sri Lanka is losing a colossal sum of money by allowing only franchise motor dealers to bid for government vehicle procurement tenders as a matter of policy, used car dealers alleged at a media conference in Colombo recently.

The VIASL has appealed to the Government to remove the current monopoly enjoyed by automobile franchise dealers (local agents of brand new vehicles) in bidding for government vehicle tenders.

The Ceylon Motor Traders Association (CMTA- franchise dealers) in a media release stated that it was not in favour of creating competition in vehicle procurement.

Government tenders are effectively sales agreements between the manufacturers of motor vehicles and the Government of Sri Lanka.

The local agent is often not a party to this contract. The manufacturer nominates its local agent to act on their behalf and carry out pre delivery inspections and give warranty support, etc, the CMTA explained.

This procurement process is internationally accepted. By the Government dealing with the manufacturer, they are assured of not only the best price, but the most suitable vehicle for the conditions of the country of operation, the association said.

Further, the vehicles are supported by manufacturers’ warranty.

The CMTA expressed confidence that the Government of Sri Lanka will continue to adopt internationally accepted practices and not deviate from their present procurement procedures for motor vehicles.

These franchise car dealers have an unfair advantage as new vehicles imported by parallel importers or used car dealers do not receive the applicable brand new status even though the vehicle is brand new, VIASL Chairman Ranjan Peiris told journalists recently.

He noted that this was detrimental to their ability to pursue government tenders while the monopoly given to franchise vehicle dealers has enabled them to quote a much higher price than the market value.

The purchase of vehicles for government institutions has been restricted and the Treasury will be giving approval for vehicle procurement for state agencies considering the requests on case by case basis, a senior Finance Ministry official told the Business Times.

The Government has suspended the purchase of new vehicles for ministries, state institutions and agencies and instead allows the hire of brand new or unregistered vehicles.

Hiring will be permitted for vehicles with a mileage of less than 1,000 km through operational leasing method (use and return option) for a 5-year period on a fixed monthly rental basis ranging from Rs.139,100 to Rs. 300,000, the national budget circular No:1/2016 issued by the Treasury has revealed.

The Treasury has imposed the ceiling allocation on monthly hiring charges as well as types of vehicles permitted to be hired, the senior official said adding that this would reduce millions of rupees being paid as installments and interest for the procurement of vehicles under the earlier leasing arrangement with the Bank of Ceylon and the People’s Leasing Company.