The company, India’s third-largest passenger vehicles maker, will be transferring the car business — including employees and manufacturing facilities — to the new subsidiary on a “slump sale” basis. Slump sale means transfer of a division of a company for a lump sum without assigning any values to individual assets and liabilities of the entity. However, certain shared services and central functions, said Tata Motors, will remain with the company to “deliver cost efficiencies” to the entire automotive business.
Passenger vehicle sales in India declined for the last 16 months till February. Now, with the country under a 21-day lockdown due to the coronavirus outbreak, sales have come to a halt. “The recent outbreak of the Covid-19 virus increases the challenges faced by the business,” said Tata Motors, which has scaled down production at its various facilities after the government directed closure of non-essential businesses.
The transfer, added Tata Motors, will help in providing “differentiated” focus to the two businesses — commercial vehicles and passenger vehicles — and will help “each of them realise their potential”. Tata Motors is the largest player in commercial vehicles in India, a business it launched in 1954 in financial and technical collaboration with Daimler of Germany.
On the other hand, the company has been struggling in passenger vehicles, which clocked just 5% market share in February. In the past, Tata Motors shareholders had expressed their disappointment over the poor performance of the passenger vehicle business to the company’s board at several annual general meetings, with some calling for drastic measures. A couple of years ago, Tata Motors and Volkswagen explored an alliance to develop an economy car. But the alliance didn’t materialise.
The move towards “subsidiarisation” of the passenger vehicle business, said Tata Motors, was “the first step” in securing strategic alliances, which will provide the company access to “new products, architectures, power trains, technologies and capital”.
The transfer proposal will be tabled before the Tata Motors’ board in the coming weeks and its implementation will be subject to approval from regulators, shareholders and creditors. The entire process, said Tata Motors, will be completed in fiscal 2021. The new subsidiary will be headed by Tata Group veteran Shailesh Chandra from April 1. Currently, the passenger vehicle division is steered by former Maruti Suzuki marketing chief Mayank Pareek, who will superannuate from Tata Motors next February.
The two, said Tata Motors, will work on the transition over the next few weeks, which will also give Chandra, who previously worked closely with former Tata Group chairman Ratan Tata’s office, “the opportunity to shape the organisation” once all approvals are in place.