Those being asked to go with severance packages of a few lakhs of rupees (worth a few months or a years pay), include both executives and workers across six plants and regional offices. Tata Motors, part of the $97-billion salt-to-software Tata Group, employs over 30,000 people.
The company has made an ERO to several executives which was, however, largely compulsory, sources said. Those who have rceived the ERO have over 20 years of service, are over 45 and have had the lowest appraisal rating of Contribution Needs Improvement in the last cycle.
Some, however, are junior executives. One such employee claimed he was forced to accept the offer although it was an ERO. A Tata Motors spokesperson said the scheme provides for a financial package and continuing benefits including medical and post-retirement support.
The cost cuts were started by Tata Motors late MD Karl Slym who had also put in place other measures such as combining the sourcing of components for different vehicle businesses.
Slym also integrated the sourcing for Jaguar Land Rover (JLR) and the number of vendors supplying to the company has gone down. He had also asked executives to keep expenses on travel and hotel stays in check.
The ERO serves the dual purpose of offering an option of early retirement to those who want to avail of it to pursue other interests and also addresses our concerns on headcount and cost. The process will offer long-term benefits to the company, the spokesperson said. The early retirement applications received will be screened for alignment with our manpower plans with the near-term organizational goals and business realities. The early retirement option is not specific to any location, the spokesperson added.
Tata Motors decision to sharply cut the workforce follows subdued volumes in Commercial Vehicles (CV) over two years due to negative consumer sentiment in a difficult macro-economic environment. The slide started in FY13 when Tatas passenger vehicle (PV) sales fell 15% to 3.14 lakh units and CV volumes dipped 6% to 4.44 lakh units largely on a because of a 31% dip in heavy & medium CV sales to 1.43 lakh units. The fall has continued in the current year with PV volumes in April-February FY14 sliding 37% to 1.82 lakh units and CV volumes falling 28% to 2.87 lakh units.
In comparison, the total PV industry in April-February FY14 has seen a lower dip of 6% to 22.65 lakh units, while total CV industry volumes in April-February FY14 are down 20% at 5.68 lakh units. In April-February FY14, Tata Motors had a 8% market share of the PVs and a 51% share in CVs.
In the quarter ending December 31, 2013 (Q3FY14), Tata Motors domestic business came back to black with a net profit of Rs 1,251 crore, as compared to a net loss of Rs 458.49 crore in the same period a year earlier. In Q2FY14, the company had posted its first overall profit in a year (71% jump at Rs 3,542 crore) due to strong performance at JLR, though the domestic business had recorded a net loss of Rs 804 crore.
The Tata Motors scrip closed 3.2% down on Monday at Rs 395.90 on the Bombay Stock Exchange.