Bloomberg News

Maruti Suzuki Imposes Lockout at India Plant After Riot

July 22, 2012

Maruti Locks Out Workers at  Manesar Plant After Rioting

Security staff survey damage to a factory building caused by rioting workers at Maruti Suzuki India Ltd's Manesar plant, near New Delhi. Photographer: Sanjit Das/Bloomberg

Maruti Suzuki India Ltd. (MSIL), the country’s largest automaker, locked out workers at a factory near New Delhi and ruled out restarting production until a probe is completed into rioting that led to the death of a manager.

The carmaker, majority owned by Suzuki Motor Corp. (7269), won’t import cars to make up for the loss of production at its Manesar factory, which accounts for about 40 percent of its total capacity, Chairman R.C. Bhargava told reporters in New Delhi yesterday. He didn’t say how long the investigation would take or when workers would be allowed to return to the plant. The latest production stoppage is the fourth in the past year at Manesar factory.

All 3,000 union workers at the plant will be charged with murder and attempted murder for the mob attack that caused the death of Awanish Kumar Dev, a human resources general manager, and at least 70 injuries, Indian police said July 19. The Federation of Indian Chambers of Commerce and Industry, one of the nation’s two largest business lobbies, said yesterday that the violence threatens India’s investment reputation.

“It’s a matter of deep concern for a country that seeks to project itself as offering an environment that is business- friendly,” R.V. Kanoria, president of the lobby, said in an e- mailed statement, calling for authorities to deal “firmly” with the situation.

‘Trust Deficit’

Maruti has no plans to relocate the plant out of Manesar in northern Haryana state, Bhargava said. A factory at Gurgaon, about 12 miles northeast of Manesar, is operating at full capacity, he said. Suzuki has said production facilities weren’t damaged by the unrest.

“This is bad news for Maruti as it may take as little as five days or as long as 50 days to identify the rogue elements in the workers who did this,” said Mahantesh Sabarad, an analyst at Fortune Equity Brokers India Ltd. in Mumbai. “It also shows the trust deficit between the management and the workers. This lockout comes at a very efficient factory that produces some of Maruti’s most popular models.”

The lockout comes amid a slowdown in car sales in India as high gasoline prices and interest rates deter buyers. The Society of Indian Automobile Manufacturers on July 10 cut its forecast for growth to a range of 9 percent to 11 percent for the year ending March 31, 2013, from an estimate of 10 percent to 12 percent given in April.

Policy Paralysis

India’s economic growth slowed to the weakest in almost a decade in the quarter ended March and the rupee slumped to a record low amid a paralysis in policy making that has hurt efforts to spur investment as a global recovery falters. The government’s recent setbacks include the December suspension of plans to let foreign companies such as Wal-Mart Stores Inc. open supermarkets, and abandoning of plans to allow investment in the pension and insurance industries.

The rioting at Maruti “may definitely impact the investment in India in the short run,” Malvinder Singh, chairman of the Confederation of Indian Industry’s northern region, said on July 20.

Narendra Modi, chief minister of India’s Gujarat state, who’s on a visit to Japan from today, may meet Suzuki officials at Hamamatsu, the Press Trust of India reported July 20, citing officials it didn’t identify. Modi’s visit has fueled speculation that he would convince Maruti Suzuki to consider a bigger plant than the 250,000-unit it has announced in the state, the news agency said.

Gujarat Investment

Maruti’s board in October approved buying as much as 1,400 acres (567 hectares) of land for future expansion in Gujarat, where General Motors Co. (GM:US), Tata Motors Ltd. (TTMT) and Ford Motor Co. either have plants or are building factories.

Gujarat’s Minster of State for Industries Saurabh Patel said media reports that Maruti may shift parts of its Manesar plant to the state was “far from truth and a figment of imagination.” Maruti’s decision to invest in Gujarat was made long ago, he said in a statement on government’s website.

Maruti and the workers’ union have blamed each other for the Manesar incident.

According to Maruti, the dispute began July 18 after a worker beat up a supervisor on the shop floor. The union then prevented management from taking disciplinary action, blocking managers from leaving the factory after work, Maruti Suzuki said. Workers attacked managers after talks to resolve the dispute failed, with employees setting property on fire and ransacking offices, according to the company.

Violence, Arson

The workers’ union has said it was keen to have a dialogue with the company to resolve the matter and that workers were attacked by bouncers working for Maruti while discussions were ongoing with guild leaders.

“Following the incidents of violence and arson at the Manesar facility, the management believes that if employees are asked to report for work at the facility, their lives will be endangered,” Maruti said in an e-mailed statement yesterday.

Ram Meher Singh, president of the Maruti Suzuki Workers Union, and Sarabjeet Singh, the general secretary, could not be reached for comments as their mobile phones were switched off.

Maruti shares had their biggest drop in almost two years on July 19, falling 8.9 percent following the violence. On July 20, the stock closed up 2.7 percent at 1,147.50 rupees in Mumbai.

To contact the reporters on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net; Siddharth Philip in Mumbai at sphilip3@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net


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