Tata Motors looks to wind up Spanish unit, sell factory

New Delhi: With losses mounting at Tata Hispano Motors Carrocera, parent Tata Motors Ltd has decided to wind up its operations at the Spanish subsidiary, three people aware of the development said, all requesting anonymity.

Tata Hispano employs more than 400 people at its manufacturing facility in Zaragoza, Spain and at least 200 in Casablanca, Morocco.

While Tata is exploring options to sell the factory in Spain, it will buy the plant in Morocco through an internal transaction.

“There is no plan to close Morocco Hispano. As part of the Spain Hispano closure, Tata Motors is buying the Moroccan company from the Spanish company,” a Tata Motors spokesperson said in reply to an emailed questionnaire, without disclosing financial details. The spokesperson did not reply to questions pertaining to the Spain unit.

In September, Tata Motors said it would stop production at the Zaragoza factory due to mounting losses and falling demand.

In July, another commercial vehicle maker, Ashok Leyland Ltd, a Hinduja Group company, decided to stop production at its Czech Republic subsidiary Avia’s plant in Prague, blaming the decision on the global economic slowdown. Avia Ashok Leyland Motors had been part of Ashok Leyland since 2006 and was producing trucks in the range of 6.5-12 tonnes.

The company hasn’t been able to find a buyer for its manufacturing facility in Spain, said one of the three people familiar with the development at Tata Motors. “They have not been able to get buyers for the Spain unit,” this person said. “It is possible that the plant may be sold in bits and parts.”

The other two people familiar with the development confirmed the company was looking for buyers for the Zaragoza plant.

During the Johannesburg International Motors Show in October, when Mint asked Tata Motors managing director Karl Slym if the Spain unit was on the block for sale, he said, “Anything is possible. All the options are open”.

Tata Motors may move “critical manufacturing assets” such as dies to India and sell the paint and weld shops at the Spain plant, said the first person cited earlier.

The company is in the process of offering “golden handshakes” or “separation salaries” to Tata Hispano employees in Spain, the first person quoted above said.

Tata Hispano manufactures bus and coach body works in Spain and Morocco that it sells in several European countries. It is present in the city bus, suburban bus and intercity coach segments.

In 2005, Tata Motors bought a 21% stake in Hispano Carrocera SA. Then in November 2009, Tata Motors acquired the remaining shares in an attempt to remedy the company’s losses, and renamed Hispano Carrocera as Tata Hispano Motors Carrocera.

Despite the investments, the impact of the 2008 global economic crisis and the resultant fall in demand caused huge losses that accumulated to more than €60 million over the past five years. Tata Hispano ended 2012 with a loss of more than €14 million.

Tata Motors is looking to curtail operations that do not have long-term potential, A Tata group official said.

“Hispano had a lot of potential when we started investing in it, but then the market dynamics have changed dramatically in the last 8-9 years,” he said, requesting anonymity. “It does not make sense to keep afloat such businesses.”

In recent years, sales at Tata Hispano fell steeply, primarily due to the worst decline in Europe’s bus market. According to data provided by lobby group Society of Indian Automobile Manufacturers, barring the UK, in all other European markets sales volumes declined in the first eight months of 2013.

Tata Hispano’s balance sheet suffered an erosion in net worth and the company is unable to meet its financial obligations to its creditors, a sector analyst, who also spoke on condition of anonymity, said.

“As a result, Tata Motors has sunk ₹ 700 crore that are now recognized as unrecoverable leading to a write-down, which has happened in three separate quarters,” the analyst said. “On the top of it, Tata Motors has given corporate guarantee for working capital loans at the subsidiary.”