Bloomberg News

Maruti Suzuki Imposes Lockout at India Plant After Riot

July 23, 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 carmaker, fell in Mumbai trading after the company said it’s halting a factory near New Delhi pending the conclusion of a probe into a deadly riot last week.

Maruti dropped 5.9 percent to close at 1,079.95 rupees, the lowest since June 20. The stock was the worst performer on India’s Sensitive Index (SENSEX), which lost 1.6 percent. Suzuki Motor Corp. (7269), which owns a majority stake in the automaker, declined 3.9 percent to 1,366 yen in Tokyo, the lowest close since February 2009.

Chairman R.C. Bhargava on July 21 announced the lockout and ruled out an early resumption of the factory, which accounts for about 40 percent of the company’s manufacturing capacity. The stoppage, the fourth at the plant in a year, means Maruti may fail to meet growing demand for diesel cars and risk alienating customers.

“There’s big demand for diesel vehicles and most of Maruti’s diesel models are made here,” said Umesh Karne, an analyst at BRICS Securities Ltd. in Mumbai. “This may also change customer perception as this is happening regularly and customers may avoid booking and waiting for Maruti cars.”

At the Manesar factory, where Maruti assembles its top- selling Swift and Dzire models, policemen extended their cordon of the site as they investigate the violence. The charred security booth at the entrance gate was covered in tarpaulin material, with entry limited to police, guards and firemen. No signs of cleanup operations were visible as of 12:45 p.m.

The factory produces about 1,600 vehicles worth 700 million rupees ($12.5 million) a day, according to Ashvin Shetty, an analyst at Ambit Capital Pvt. in Mumbai.

Deadly Violence

Bhargava didn’t give an estimate as to how long the stoppage will last.

“We cannot risk any further damage,” Bhargava said. “That’s the reason why it’s necessary for us to do a complete investigation into the events that happened and identify the factors that caused the events to happen, what were the causes, what was behind all this, why did it happen?”

Last week’s violence -- which resulted in the death of Awanish Kumar Dev, a human resources general manager, and at least 70 injuries -- has led one of the nation’s biggest business lobbies to say the incident has undermined India’s reputation as an investment destination.

“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 Federation of Indian Chambers of Commerce and Industry, said in an e-mailed statement July 21, calling for authorities to deal “firmly” with the situation.

No Relocation

The automaker won’t import cars to make up for the loss of production at its Manesar factory, Bhargava said.

Indian authorities said July 19 that all 3,000 union workers at the Manesar plant would be charged with murder and attempted murder.

K.K. Sindhu, police commissioner of Gurgaon district, said in an interview today police may not charge all the workers with murder and were only detaining them to obtain information about the incident.

Maruti has no plans to relocate the plant out of Manesar in northern Haryana state, Bhargava said. A factory at Gurgaon, about 19 kilometers (12 miles) northeast of Manesar, is operating at full capacity, he said. Suzuki is sending about 10 Japan-based employees to support recovery work, Tokyo-based spokesman Ei Mochizuki said today.

“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.”

Bad Timing

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 from an estimate of 10 percent to 12 percent given in April.

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 a move to let foreign companies such as Wal-Mart Stores Inc. (WMT:US) 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.

Minister Visit

Narendra Modi, chief minister of India’s Gujarat state, who’s on a visit to Japan, will meet Suzuki officials at Hamamatsu on July 25, according to an e-mailed statement. Modi’s visit has fueled speculation that he would convince Maruti to consider a bigger plant than the 250,000-unit facility it has announced in the state, the Press Trust of India reported July 20.

Shinzo Nakanishi, managing director of Maruti, said July 21 Suzuki is expanding in Gujarat, not shifting production there.

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. (F:US) either have plants or are building factories.

Gujarat’s Minister 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 the government’s website.

Blame Game

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 said. Workers attacked managers after talks to resolve the dispute failed, with employees setting property on fire and ransacking offices, according to the company.

The 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 on 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 on July 21.

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

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: Young-Sam Cho at ycho2@bloomberg.net


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