India’s largest automaker Tata Motors Limited (TML) has announced that there will be no annual increment for the ongoing financial year (FY21) and it will also deduct variable pay performance-linked incentive by 25%.
However, the company stated that there will be no reduction in the fixed pay of the employees. The move is part of a cost improvement program to reduce cost and CAPEX spends, as per an ETAuto report.
In an email to ETAuto, the company stated, “Headwinds facing the automotive sector since FY20 have become severe with COVID-19. The resulting demand and supply shocks have necessitated optimizing our expenses and CAPEX spends. Tata Motors had called out a cash improvement program of INR6,000 Cr during FY21 including a cost improvement program of INR 1,500 crore. One of the areas of cost optimization is people's costs.”
The announcement comes at a time when the company is saddled with net automotive debt of INR48,000 Cr and plans to bring down the debt in the next three years. As a part of the cost improvement program, the automaker has also resorted to shelving contractual projects which were earlier devised to increase sales and service at the dealerships level.
The cost-saving activities come in order to turn cash positive by the end of the second quarter of FY21 and generate free cash flows from FY22 onwards. In the annual general meeting, N Chandershkan, Chairman, Tata Motors, had emphasized on reducing the cost to turn cash positive in the next three years. He revealed that the company is also looking at unlocking its investments in non-core areas. With the auto sector also under pressure on account of COVID-19 and flagging sales, these measures are also, unfortunately, impacting employees’ compensation as well.