Persisting weak demand has forced Tata Motors take a three-day block closure at its heavy and medium commercial vehicles plant here between January 14 and 16, making it the fifth plant closure this fiscal. The plant has so far already seen a total of 16 days’ block closures in the current year, the last one for six days from December 25 to 31.
In a notice put up at the company's plant here, Tata Motors said that it will go for a block closure for three days starting January 14. The plant will resume production on January 17.
It is believed that the shutdown is being done to ensure that supply of trucks matches demand and the company wants to make sure that inventories remain at current levels. “We are doing the shutdown at Jamshedpur and it is to ensure that the production is made to align with the demand. Our inventory is under control and these steps are taken to make sure that it remains under control,” said a Tata Motors spokesperson.
Telco Workers’ Union (TWU) sources said the unit, which had produced around 3,900 HCV/MCV chassis in December 2012 is targeting a production of around 4,000 chassis in January, which is way down from the average monthly production figure of around 9,000 in favourable times.
In April-December 2012, Tata Motors' commercial vehicles sales fell 3% to 3.26 lakh units, according to the Society of Indian Automobile Manufacturers. The slowdown in industrial activity, especially in the mining sector, led to a 26% fall in Tata Motors' M&HCV segment. In this segment, Tata Motors sold 1.09 lakh units in April-December 2012 as against 1.47 lakh units sold during the same period last year.
“We expect the M&HCV segment to remain under pressure until certain policy measures relating to mining and infrastructure are announced by the government in the coming budget,” said Sudarshan Shreenivas, associate director – corporate, India Ratings. “We expect the trend of shutdowns to continue for now on both cars as well as M&HCVs,” he added.
“The market situation isn’t okay as yet; we are still in recession; we are producing chassis strictly as per market demand as raising inventory levels would only block funds,” said Chandrabhan Singh, general secretary, TWU, adding that an Army order the management was expecting hadn’t materialised so far.
Singh said though the government had announced some measures to kick-start the economy, there wasn’t enough mining activity taking place yet either in the coal or iron ore belts in the country which would spur demand.
Slow offtake of commercial vehicles has also forced adjunct units here like that of Tata Cummins, which supplies engines to the auto major, as well as that of subsidiary TML Drivelines, which produces axles and transmission systems, to act in sync and observe a similar production shutdown.
RK Sinha, president, Adityapur Small Industries Association (ASIA), a forum of around 1,000-odd medium and small ancillary units supplying aggregates and parts to Tata Motors here told FE that though the current three-day block closure matched with Makar-Tusu-Lohri festivities, which generally kept the workforce away from the Adityapur industrial area here, the commercial vehicles industry was in a “delicate health” and if things didn’t get better financially from April, many units would have to close down.”
Sinha said that Tata Motors’ output of around 3,900 chassis here in December, 2012 had been at 50% of its normal December output of previous years.
“At Tata Motors’ 50% output, we are unable to meet ancillary units' expenses; if they are not achieving at least 70% production we will continue to incur losses”, explained the ASIA president.
Sinha said though banks had become cooperative in rescheduling loans, the interest rate commencing from 13.5% onwards was hurting several of the ancillary units as they were “technically” competing in an international market today where the interest rate was much lower.
“Several ancillary units with ASIA membership which had undertaken expansion in recent times were not able to justify their capital investment as they aren’t able to utilise the additional capacity set up by them. That too is killing us,” said the ASIA president, adding that while no industry could run without a loan, especially for working capital and for making capital investments, units often got closed only due to high interest rates.
According to the ASIA president the current recession in the commercial vehicles industry was expected to continue “till at least the next six months”, with the chance however of a “small recovery” in February-March 2013 when all units associated with production of commercial vehicles in the country could, for showing a respectable production figure for 2012-13, go into production.
(With inputs from Shweta Bhanot in Mumbai)