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Tata Motors ushers in austerity measures

by ET Posted on 18 Dec 20124,056 Views1 Comments

Company's new MD Karl Slym urges departments and employees to cut down expenses to tackle dwindling revenues from its commercial vehicles business

 

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Bracing for tough times ahead, Tata Motors, India's largest automobile manufacturer in revenues, has embarked on a major belt tightening exercise. The company is making efforts to tide over a market dip in demand for its key commercial vehicles business.

 

ET learns that Karl Slym, the new managing director of Tata Motors, has asked departments to reduce spends and to rationalise travel, stay and even curtail production operations and certain spends on product development.

 

An email sent by Karl Slym to employees said, "Given the seriousness of the current business scenario, there is an immediate need to cut back on every discretionary expense. One of the big ticket expenses is travel. I would expect air travel, especially overseas, to happen only for the most inescapable reasons."

 

Slym urged that employees should make better use of technology-enabled conference rather than face-to-face meetings. The measures are not restricted to Indian operations. Even international subsidiaries like Tata Motors Thailand are undertaking measures to cut down the cost.

 

The finance vice president of company's Thailand subsidiary, Abhishek Sinha in an email told the employees. "We have very little choice but to conserve cash at all costs and it can be done with support of each of you. The situation will definitely ease out in the future once the sales volumes can be re-generated."

 

Sinha has urged the team to revise the sourcing plan with an eye to improving stock position and rely on video conferencing as much as possible instead of travelling in person. An email sent to Tata Motors did not elicit any response.

 

ET learns that the auto major has embarked on periodic block closures across plants, as demand for heavy and light commercial vehicles have shrunk across the industry.

 

Tata Motors as the market leader is impacted the most due to extraneous factors such as severe curtailment of mining and a slowdown in infrastructure spends.

 

Plant closures are become a recurring feature. Most factories now function on a five-day week, against seven-day week earlier. ET's sources say that the Lucknow plant has been asked to operate on a four-day week basis from Monday.

 

Also, production of passenger cars in the Pune plant has been halved. Despite posting intact domestic numbers for the commercial vehicle division, the contribution of Medium and Heavy Commercial Vehicle (M&HC) has been declining. Substitution of M&HCVs by small commercial vehicle segment has led to declining margins and the cash condition of the company is in a poor state. As a result, the company has discontinued basic allowance such as subsidies for house rent.

 

"Tata Motors has been suffering at the operational level in both the segments — M&HCVs and passenger vehicles. Offering of higher discounts, higher promotional spends and lower volumes have shrunk its margins considerably. We expect the near term environment to remain challenging for the company," commented Yaresh Kothari, auto analyst, Angel Broking.

 

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