Tata Motors, Ashok Leyland may agree to rework deals with vendors

Tata Motors, Ashok Leyland may agree to rework deals with vendors
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First Published: Mon, May 19 2008. 12 00 AM IST
Updated: Mon, May 19 2008. 12 00 AM IST
Boston: Under pressure from vendors reeling under a 40% hike in steel prices, executives from India’s top two commercial vehicle makers, Tata Motors Ltd and Ashok Leyland Ltd, are separately meeting key suppliers of auto components to discuss a hike in previously negotiated prices.
Senior executives of Tata Motors, including chief of strategic sourcing Bharat Parekh, are scheduled to meet more than a dozen key suppliers at the company’s Uttarakhand factory on 26 and 27 May, people close to the development told Mint.
For Tata Motors, the meeting is crucial with the year-end launch of the Nano, the world’s cheapest car at Rs1 lakh and the company’s most ambitious project yet.
Debasis Ray, head of corporate communications, Tata Motors, in response to email queries related to the development, said the terms between the company and its suppliers are confidential.
Ashok Leyland executives, too, have convened a meeting with vendors at the company’s new integrated plant coming up at Pantnagar in Uttarakhand. An Ashok Leyland executive said in an email reply that the meeting is to help vendors in setting up units at that location, and not for price renegotiations.
“It is impossible for us to continue supplying to the company, especially for the Nano project, at prices that were fixed so long back,” said a senior vendor for Tata Motors. “Steel has become so expensive that it does not even make sense for us to continue supplying to the project.”
He added that his company, which is also a supplier to Hero Honda Motors Ltd and Maruti Suzuki India Ltd, has asked for increase in prices from all its customers. “There is no other way out.”
Vendors have asked for a 30-35% rise on the previously negotiated prices, he said. The vendor, who did not want to be identified since he is not authorized to speak on the subject, said Tata Motors has indicated it would discuss and finalize higher prices during the meeting.
Vendors have asked for price increases across the board.
“We asked Tata Motors for a price increase in early April. There are no two ways about it. This (rise in steel prices) is the largest I’ve seen so far,” said Rahul Kejriwal, vice-president at Remson Industries Ltd, a maker of control cables and gear shift systems.
Steel accounts for more than 60% of a car’s value, say experts, and even a small rise in its price can throw costing calculations into disarray.
Another vendor said senior executives from the material and component purchase department of Tata Motors recently told him that the company was thinking of revising rate contracts for vendors involved in the Nano.
“A senior Tata executive admitted it is likely the company will relook the pricing of the Nano,” this vendor said.
“There was practically no profit margin on the Nano supplies to begin with, as the company wanted to keep the cost of the car very low. The rise in prices means we are suffering losses,” a third vendor said recently.
Global auto giants are watching the project with keen interest.
Earlier this week, international car makers Renault SA and Nissan Motor Co. Ltd announced they would jointly make a $2,500 (about Rs1 lakh) car in India with India’s No. 2 bike maker Bajaj Auto Ltd.
Auto makers in India are actively thinking of raising the prices of their vehicles. Tata Motors reported a record sale of 582,401 vehicles, including exports, for the fiscal year 2007-08, its highest and a growth of 1% over 578,862 vehicles it sold in 2006-07.
Ammar Master in Mumbai contributed to this story.
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First Published: Mon, May 19 2008. 12 00 AM IST