Slowdown bites: Tata Motors joins Maruti, M&M league, cuts staff

With car and vehicle sales continuing to reel under a prolonged slump, not only have companies halted fresh hiring, but layoffs have become a reality as they resort to production cutbacks to reduce inventory.

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After Maruti Udyog and Mahindra & Mahindra laid-off contractual workers, now it is Tata Motors’ turn.

According to a report in Economic Times ,Tata Motors has cut its workforce at the Pantnagar plant by almost 21 percent in the first quarter of the current fiscal. The company wasmaking its best-seller light truck Ace at this plant and employed 5,838 people as of end March 2013. The moveindicates that the slowdown has begun to impact even the better performing vehicles.

According to the report, between April and June this year, Tata Motors has fired around 1,208 employees at the Pantnagar plant, while other units at Sanand in Gujarat and Hubli in Karnataka have seen a decline in the employee headcount.

“Tata Motors has avoided blind replacement of superannuating employees and also done some adjustments in its requirement of temporary resources,” a company spokesperson was quoted as saying.

The company’s performance in July too has been dismal.Tata Motors’ total passenger vehicle sales in the domestic market stood at 10,824 units in July, down 58.75 percent from 26,240 units a year-ago.

Last monthMaruti sent 200 contractual workers at the Gurgaon plant on an indefinite leave, reducing one shift’s worth of production, while Mahindra sacked over 500 temporary workers at the Chakan plant in an announcement on July 15.The Hindu Business Line newspaper reported in June that cost cutting was an ongoing process at Honda Cars India .

In May, Maruti had even shut its two plants at Gurgaon and Manesar for a day ahead of a six-day scheduled maintenance closure on June 17-22. This cut had a trickle down impact on component makers. For July, Maruti saw compact segment decline by almost 12 percent to 13,882 units (15,759 units) whereas the utility vehicle (UV) segment fell 37.5 percent to 4,562 units (7,294 units).Even the sales of blockbuster models Swift hatchback and Ertiga were down significantly in July .

EvenM&M undertook production cuts in auto plants in July and announced further production cuts ahead. The company cut prices of the XUV5OO after reducing the ground clearance,thus avoiding the extra 3% excise.

According to Antique Broking, M&M is facing issues which aren’t entirely “cyclical”.

“For starters, the UV industry has a headwind in the form of a falling diesel-petrol disparity. Secondly, the SUV product launch pipeline is completely dry, at least for this year. Thirdly, the XUV has slowed substantially (reckon volumes this month were down >60% yearpn-year, while year-to-date volumes are down 50% YoY). This hurts top-line/margins more given that it’s a high value product,” said Antique’s auto analysts Ashish Nigam and Saksham Kaushal in a research report.

According to industry bodies Society of Indian Automobile Manufacturers (SIAM) and Automotive Component Manufacturers Association of India (ACMA), continuing demand slowdown and production cut back may lead to temporary excess overheads.

But despite the slowdown, carmakers arecarrying on with capacity expansion plans in the hope of a revival in sentiment from next fiscal.