Ashok Leyland floats allowance cuts on Optional Working Days as sales slow

The country's second largest commercial vehicle maker Ashok Leyland has proposed to declare allowance cuts to a section of the workforce not required to work on “Optional Working Days,” in accordance with a decade-old wage agreement.
The move was necessitated by slowing automotive sales and mounting inventory.

For those not required to work on certain days in the month, which varies across Ashok Leyland factories, allowances—referred to as Sixth Day Allowances—will be cut by half, the company has told employees.

It was not immediately clear if the allowance cut was across factories or for select units. Ashok Leyland runs factories in Ennore, Sriperumbudur and Hosur in Tamil Nadu, and units in Maharashtra, Rajasthan and Uttarakhand.

Ashok Leyland also informed employees that the company is evaluating options to deplete its stocks, a move to adjust to a market struggling to absorb factory rollouts in the face of weakening sales.

In a letter addressed to union leaders at its factories in Tamil Nadu, Ashok Leyland has said its unsold stock was piling. "As you are aware there has been a dip in the automotive markets over the last two months and commercial vehicle industry specifically has been affected in this downturn. We would also like to highlight that the company is having unsold vehicle stock of approximately 22,000 numbers. While the management is working on various strategy to deplete our stock and improve the situation, there is a need to reduce our operating expenses on all fronts," Ashok Leyland said in the letter dated June 6—accessed by ET—to the union leader of one of its factories in Tamil Nadu.

A mail sent to Ashok Leyland on the allowance reductions and remains unanswered.

Automotive analysts ET spoke to said cost rationalisations such as those contemplated by Ashok Leyland are quite predictable steps by automakers to align factory parameters with the demands of the market. One of the top rung in the Ashok Leyland's Ennore plant Union said that a similar cut was administered in 2016 and that the measure was "nothing out of the ordinary."

According to data from the Society of Indian Automobile Manufacturers, overall commercial vehicle sales declines 8.05% in the April-May 2019 against the comparable period last year. The drop was particularly sharp in the Medium and Heavy Vehicle segment at 16.72%. Nevertheless, Ashok Leyland's sales numbers have fared better than the industry-wide tally: its domestic MHCV segment slid 4% in May 2019 but its 34% increase in the LCV segment enabled it to post a 6% increase in domestic sales in May 2019 as compared to May 2018.