BackTata Motors sets up council to fix vendor troubles
Tata Motors sets up council to fix vendor troubles
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Pune: Tata Motors Ltd has set up a so-called suppliers’ council that will address issues, including delayed payments, that have caused some friction between suppliers and the auto maker, India’s largest by sales that faces waning demand for its products, and whose prestigious Nano project is behind schedule.
“The company is behind on its payments by about three months and is telling us to wait since their business is doing badly just now," said a senior executive at a company that makes components for all Tata vehicles, adding his firm was owed Rs5-6 crore. This, together with lowered working capital limits extended by banks, makes business even more difficult, he added, asking that he not be identified.
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The council will have 20 members, including the heads of Tata Motors’ four plants at Jamshedpur, Pantnagar, Pune, and Lucknow; U.K. Mishra, vice-president of the firm’s ancillary development, materials and commercial vehicles business unit; Brakes India Ltd managing director V. Santhanam; Lucas-TVS Ltd CEO and managing director T.K. Balaji; and Lumax Industries Ltd chairman D.K. Jain.
The council, which will meet for the first time on 17 January, will be chaired by Surinder Kapur, chairman and managing director of the Sona group, India’s largest maker of steering systems. Bharat Parekh, who heads Tata Motors’ strategic sourcing division, will be the council’s co-ordinator, a person familiar with the development said.
A Tata Motors spokesperson declined to comment on the formation of the council, saying it was an internal issue. Kapur and Jain confirmed the creation of the council and their appointment to it. Executives at Brakes India and Lucas-TVS also confirmed that Balaji and Santhanam were on the council.
Kapur said the supplier council would meet soon “to discuss the agenda of this body".
“Essentially, this will be a place for suppliers to discuss their problems and to also explore joint opportunities, but things will be clear after the first meeting."
It is likely that some of the “problems" have to do with delayed payments, in some cases by as much as 100 days, and with the lack of financial help for vendors relocating their plant from West Bengal to Gujarat, trailing the Tata Nano plant that was relocated at Sanand in the western state after protests by farmer groups and political activists forced Tata Motors to quit West Bengal, the original location for the plant that will produce the so-called people’s car, one version of which will cost Rs1 lakh when it leaves the factory.
Executives?at three firms that supply parts to Tata confirmed that the auto maker is behind schedule with its payments.
The Tata Motors spokesperson declined to comment on such delays as well, saying, “The terms between the company and its vendors are internal to the company." Mint could not immediately ascertain the terms between Tata Motors and its vendors but auto firms typically pay suppliers within 45 days of delivery.
Tata Motors saw sales across passenger and commercial vehicle segments fall 47% in December. A number of the company’s vendors who set up operations are now struggling with idling capacities due to contracting demand while others who set up plants exclusively for the Nano project in Singur are hoping the company will help them make up for the money they invested there.
“It will be at least an year before the Nano is launched in volumes from Sanand. What happens to us in the meantime considering we have invested for the project in Singur?" asked one of the four executives at vendor firms cited earlier.
In the short term, an analyst said, a vendor group such as the one set up at Tata will “ensure better production planning" avoiding supplier problems such as large inventories. “In the long term, this will also help rationalize production and effect reduction of costs for the company," said S. Ramnath, director of research at IDFC-SSKI Securities Pvt. Ltd.
“With the auto industry in a complete mess, the company will now have to work with its vendors and get their cooperation to streamline processes to reduce costs, get better quality supplies and get to the market faster, with better products," said a senior executive at a fifth vendor firm who is also in the council. He asked not to be named citing a non-disclosure agreement with the company.
Another of the four executives at vendor firms cited earlier said issues concerning them would now be routed through the council.
“The council can also be used as a common platform for vendors and the company to negotiate better prices for raw materials. Companies such as Maruti Suzuki and Bajaj Auto have been bundling their requirements with that of their vendors and negotiating better prices for a few years now and if Tata Motors can do this now, it will be a win-win situation for both parties."
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