Maruti Suzuki to Reopen Factory After Monthlong Lockout

Maruti Suzuki India Ltd. (MSIL), the country’s biggest carmaker by volume, will reopen a factory more than a month after a deadly riot forced the company to halt production of its two best-selling models.

The carmaker, majority owned by Japan’s Suzuki Motor Corp. (7269), will restart output on Aug. 21 “step-by-step,” Chairman R.C. Bhargava told reporters in New Delhi yesterday. Maruti will stop relying on contract workers on its assembly line and deploy armed guards in and around its factory, he said.

The resumption of the Manesar plant, which makes the Swift hatchback and the DZire sedan, is Maruti’s first step toward its recovery from the carmaker’s most violent labor clash ever. The company, which lost 680 million rupees ($12.2 million) a day during the closure, faces the challenge of restoring normalcy at a factory where managers have fresh memories of being beaten by workers and where salaries may rise to avoid labor discontent.

“The policy of not using contract workers is a welcome change and that should go a long way in reducing worker anger,” said Mahantesh Sabarad, an analyst at Fortune Equity Brokers India Ltd. in Mumbai. “All this involves a cost and that means there will be a marginal drop in profitability.”

Widespread wage disparity across India’s automotive industry is a major source of discontent among laborers as contract workers tend to earn a fraction of permanent employees, according to Ammar Master, an analyst at LMC Automotive.

Shares Rise

Maruti rose as much as 1.9 percent and traded at 1,180.25 rupees, up 0.7 percent, as of 9:47 a.m. in Mumbai. Since the July 18 riot the stock has declined 3.8 percent, while the benchmark Sensitive Index has gained 3.5 percent. In Tokyo, Suzuki shares climbed 1.4 percent.

Maruti will turn 1,800 contract workers into permanent employees after they clear tests that will be conducted from Sept. 2, Bhargava said.

The Haryana state will deploy 500 armed policemen in and around the factory, and the company will set up a private security force with about 100 people for the plant, he said.

“This kind of security cannot be long-term, but there’s no option now,” said Bhargava. “As we go along, we will keep assessing the situation.”

Terminating Workers

A general manager was killed and dozens of executives injured when the riot erupted last month at Manesar, located about 50 kilometers (31 miles) southwest of New Delhi. Three days later, Bhargava announced a lockout at the factory, one of Maruti’s two plants, pending a police probe.

The automaker has terminated services of 500 regular workers at the Manesar plant, where a total of 3,300 workers were employed, Bhargava said yesterday. The police have arrested about 154 workers, including 12 executive members of the union, for being involved in the riot, he said.

The arrest of the union leaders has helped boost the automaker’s confidence in ensuring adequate security to reopen the factory, said Bhargava.

Maruti’s management and the workers’ union have blamed each other for the Manesar incident, while authorities said they would pursue the arrest of union workers who may have instigated the violence.

According to Maruti, the dispute began after a worker beat up a supervisor on the shop floor. The union then prevented the 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.

‘Cannot Understand’

The labor union has said it was keen to have discussions to resolve the issue and workers were attacked by bouncers working for Maruti while discussions were on with guild leaders.

“We believe our human resource policies are excellent, but we cannot understand how people, who we were in dialogue with, did what they did,” said Bhargava.

Following the violence, Maruti will reduce the number of contract workers -- estimated to account for about half of the company’s workforce before the riot -- to less than 20 percent, S.Y. Siddiqui, the head of human resources, said at the press conference. These workers won’t be engaged in direct production activities, he said.

The automaker aims to build 150 cars a day when it reopens the factory next week, Bhargava said. Initially it will start operations with 300 workers, he said. The plant has a capacity to assemble 1,700 vehicles daily.

The disruption came amid a slowdown in car sales in India as high gasoline prices and interest rates deterred buyers. The Society of Indian Automobile Manufacturers on July 10 revised its annual forecast, predicting industry sales to expand 9 percent to 11 percent in the year ending March 2013, 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.

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

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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