Tata Motors is reportedly going to announce a Voluntary Retirement Scheme (VRS) for around 1,600 permanent employees across its commercial and passenger vehicle segments. This call comes at a time when the auto major is facing several constraints in terms of sluggish growth and falling sales. These employee cost cutting plans are chiefly to be seen from employees in engineering operations.
This VRS scheme comes from Tata Motors while earlier other automobile giants such as Hero MotoCorp, Ashok Leyland and Toyota Motors had also introduced similar schemes this fiscal.
The industry at large and the company in particular, has been facing a prolonged period of slowdown in domestic markets and this year the employee cost cutting initiative is set to be more aggressive as compared to that seen in earlier times.
Tata Motors’ employee cost as percentage of net sales in the September quarter increased to 10.7 percent as against 5.9 percent seen in the same period of the previous year. The company’s stand alone net sales dipped 44 percent while net losses escalated to Rs.1,281.97 crores as compared to profits of Rs.109.14 crores gained in the same period of the previous year.
The magnitude of these net sales can be understood when put into perspective with Maruti Suzuki net sales which stood at 4.9 percent as compared to 3.5 percent in the same period of the previous year.
The new emission norms coming into effect from 1st April 2020 are also set to add to company woes as the updating to BS6 standards will bring with it higher prices. In the case of heavy and commercial vehicles, sales in the September quarter dipped 59 percent while overall sales dipped 41.2 percent and with the coming of BS6 norms, demand in this segment is expected to dip even further in the coming months.
Besides the BS6 norm, there will be other new regulations coming into effect right upto 2023 which will see prices of all vehicles in all categories get more expensive which could definitely have an adverse effect on total sales. It was in October 2019 that new safety standards were made mandatory. The new emission norms come into effect from 1st April 2020 while from 2022, a more stringent phase of corporate average fuel efficiency norms are set to come into force which will be followed in 2023 by real time driving emission tests.
This is not the first time that Tata Motors has been trying to bring down employee costs. In 2017 a similar VRS scheme was introduced though most permanent employees shied away from this severance package.