Tata Motors fails to pay vendors, suppliers

5 Feb 2009, 0732 hrs IST, Chanchal Pal Chauhan, ET Bureau

NEW DELHI: India’s largest automobile company Tata Motors, which is grappling with declining sales and the financial burden of acquiring British brands Jaguar and Land Rover, has run into payment problems with vendors and suppliers.

The $8.8-billion company that has operations in the UK, South Korea, Thailand and Spain owes more than Rs 1,200 crore in unpaid dues to its suppliers accumulated over the past few months, though the exact amount could not be ascertained.

“The situation was already tense due to the uncertainty over the Nano small car project. It got worse when the company stopped making payments in the past few months. Now, we are in deeper trouble, as Tata Motors’ orders have dropped drastically in the past three months with vehicle sales nosediving,” said an executive with a Delhi-based supplier that sells electrical components to Tata Motors. “We are yet to receive our dues of over Rs 80 crore,” he said.

A senior official with Delhi-based Automotive Component Manufacturers’ Association (ACMA), the apex body of auto component makers, said the total amount due to its members from Tata Motors is in excess of Rs 450 crore.

A Tata Motors spokesman said the company is trying to cope with this extraordinary situation with some help from its vendors. “Tata Motors is working with vendors in these hard times. We cannot share any details since terms between vendors and Tata Motors are internal, but the company will abide by the partnership approach with vendors and suppliers,” he said.

Vendors said they are negotiating for part payments to tide over working capital needs. A Tata Motors’ vendor from the South said payments in excess of Rs 100 crore are pending and no supplementary bills have been paid in the past two months. “We are facing a cash crunch due to falling demand and are finding it difficult to meet our working capital needs,” he said.

While major vendors can carry on for some months, owners of smaller ancillary units said they are on the verge of defaulting on bank loans, as their bulk payments are pending with Tata Motors.

Jamshedpur-based Adityapur Small Industries Association (ASIA) that supplies components to Tata’s truck and bus plant in the same city claimed that Tata Motors owes over Rs 500 crore to its members.

“It’s a scary situation. We have taken loans from banks to fund our liquidity and working capital needs and the rising interest rate, which needs to be paid every month, has increased our burden. If the company fails to pay us on time, many of the units will not be able to pay their loans and may have to shut down,” said a top ASIA official.

Tata Motors had posted a loss of Rs 263 crore for quarter ended December 2008, its first in seven years. The company is negotiating with its suppliers for more time to make payments.

According to automobile industry insiders, the payment problem was aggravated after Tata Motors shifted its Nano car facility to Sanand in Gujarat from Singur in West Bengal. A large number of its vendors had put up factories at the vendor park that was being developed by Tata Motors at Singur. They are now awaiting reimbursements from Tata Motors, which, too, are yet to be paid.

“We are negotiating for compensation for our Singur facility along with our outstanding payments with Tata Motors. The company has assured us of some measures, but nothing has come out of it yet,” said a vendor.

Meanwhile, Tata Motors is looking at raising money from banks to make part-payments to the suppliers, said a top executive with a large private bank. The company started feeling the pinch about four months ago when demand for vehicles plunged. Its sales for the October-December quarter declined by 32% to 98,760 vehicles from 1,44,608 units in the corresponding quarter last year.

The company operates five large commercial vehicle and passenger car plants in India and has an upcoming plant at Sanand in Gujarat that will produce Nano, the world’s cheapest car.

via:E.T