new Delhi August 16, 2012, 19:02 IST
new Delhi 08 16, 2012, 19:10 IST
Maruti Suzuki
The 550,000 vehicles-a-year factory in Manesar in Haryana, where the unit of Japan's Suzuki Motor Corp <7269.T> makes its best-selling Swift hatchback, has been idle since the July 18 clash between workers and management.
The company will start producing 150 cars a day from Tuesday, less than 10 percent of its average daily production before the violence in which a manager was killed and more than 100 people injured.
The resumption of production comes just in time for India's festival season, when people tend to make big-ticket purchases.
Deepak Jain, an auto analyst with the brokerage Sharekhan, estimated the company would be able to produce 300 cars daily in two weeks and about 500 in a month.
"Maruti has always managed to surprise the market with the way it has managed to bounce back from several strikes and ramp up production," he said.
The company has seen a revenue loss of about $256 million because of the shutdown, according to Reuters calculations, while analysts estimate it has been losing about $15 million a day.
A one-month shutdown would cut parent Suzuki's operating profit by about 6 billion yen, equal to 5 percent of the Japanese car maker's forecast for the year, according to analysts.
Production will start initially with 300 workers and the company will increase output gradually, the chairman of the company, R.C. Bhargava, told a news conference, adding that he could not say when the factory would be back to full capacity.
Labour troubles at Maruti have put the spotlight on the country's decades-old labour laws.
Other foreign car makers, such as Hyundai <005380.KS> and Honda <7267.T>, have seen labour unrest at their Indian plants in recent years, and industry groups have renewed calls for the government to overhaul laws they say tie their hands.
"NORMALCY RESTORED"
India's labour laws make it difficult for big companies to fire permanent workers so instead, companies hire contractors, to the anger of the unions. Contractors at the Manesar factory said they were paid much less than permanent workers for doing the same skilled work.
The company will not employ contract workers in its production line anymore, Bhargava said, a move that could pressure margins due to higher staff costs but is seen as ensuring stability.
While the sacking of the 500 workers is likely to raise anger, the decision not to employ contract workers will be seen as a concession to the unions.
The company will start hiring additional employees from September 2.
"The decision to not let contract workers work in the production line is well thought of and although this will push production back, it will make sure normalcy is restored when the plant reopens," said Gajendra Nagpal, chief executive at brokerage Unicon Financial Intermediaries.
After last month's violence, police initially sought to detain all 2,500 workers who may have been present at the time. Most of those workers fled.
Police now say only a few hundred workers may have been involved in the riot which broke out after one employee faced disciplinary action. Company officials say workers attacked senior management during discussions, while the union said its representatives were attacked first.
The Haryana state government will deploy 500 armed police in the area to ensure safety, Bhargava said, adding that the company had set up its own force of 100 guards in addition to existing security.
"It would have been foolhardy of the company to start production without adequate security. This kind of security cannot be long term, but there's no option now. As we go along, we'll keep assessing the situation," he said.
Maruti lost $500 million in production last year because of labour unrest.
Maruti shares, valued at $6.2 billion, ended down about 1 percent on Thursday, underperforming a flat market. The stock has lost 4.4 percent since the riot.
