Maruti loses millions on continued strike, fears of spillover mount

MUMBAI, June 13 (Reuters) – India’s largest carmaker Maruti Suzuki , already slammed by sluggish sales, is expected to take another hit as a plant strike enters its second week, leading to millions of dollars in losses and a possible spillover to other factories.

The company, which accounts for half the cars sold in Asia’s third largest economy, has faced a production loss of 8,400 units so far at its Manesar plant in northern India. That means an estimated loss of 2.8 billion rupees ($62.6 million).

The company, 54.2 percent-owned by Japan’s Suzuki Motor Corp , posted its slowest pace of growth in more than two years last month. It posted a 1.9 percent rise in May sales this year, compared with a 28-percent rise a year earlier.

“The sector is already in bad shape because of continued rise in input costs and rising inflation. If the strike gets prolonged, it will have a major dent in Maruti’s profitability,” Kishor Ostwal, chairman of brokerage CNI Research, said.

Auto sales in India, which grew at a breakneck pace of 30 percent in 2010, are driven by a burgeoning aspirational middle class that relies mainly on bank loans for its purchases. But consistently rising interest rates have forced consumers to tighten their purse strings.

Auto sales rose 7 percent in May, their slowest pace of growth in two years, and analysts expect a further decline as higher fuel prices, interest rates and vehicle costs crimp demand in the world’s second-fastest growing vehicle market.

A prolonged strike would also hurt component suppliers.

“Our dependence on Maruti is about 10 to 12 percent, of which around 4 percent is on Manesar,” said Arvind Kapur, Managing Director at auto supplier Rico Auto Industries Ltd .

“But it’s not the question of business from one plant. It’s the question of the whole area getting affected. That should not happen,” Kapur said.

Workers in the Manesar region, the greater metropolitan area of the nation’s capital New Delhi, will hold a two-hour sympathy strike on Tuesday, several newspapers reported on Monday.

The employees are striking to have a new union recognized by management. Maruti Suzuki management is in talks with the workers and is considering acknowledging th new employees’ union, a company spokesman said.

LABOUR WOES

India’s auto sector has seen spurts of industrial unrest over the past two years.

In 2009, workers at a plant of Honda Motorcycle & Scooters India, a unit of Japan’s Honda Motor Corp , engaged in a “go-slow” to protest wages and other issues. A “go-slow” involves employees working with reduced efficiency, typically used as a prelude or an alternative to a strike.

Last year, workers at Hyundai Motor’s India plant went on a three-day strike. Almost half the workers at the Indian unit of Sweden’s Volvo Bus Corp (VOLVb.ST) struck in 2010, protesting wages.

These strikes have raised questions over how India will preserve its status as a low-cost manufacturing base while avoiding growing discontent among employees.

India’s labour laws are rated by the World Bank as among the most rigid and some analysts say they hurt corporate competitiveness in Asia’s third-largest economy.

“To the extent they have lost production, we have also lost production, but it is not a huge quantity, and the impact is limited,” said Paban K Kataky, a director at Exide Industries , India’s top automotive battery maker. “The worry is that it should not spill over to other factories.”

About 800 workers have been on strike since June 4 at the Manesar plant, demanding recognition of the new union. Maruti has one workers’ union recognized by the management. It was unclear why the employees wanted another union recognized.

Maruti, which operates two manufacturing facilities in India, has fired 11 workers at the Manesar plant since the strike began, citing indiscipline. Media reports said employees are also demanding the 11 workers be reinstated.

The plant produces about 1,200 vehicles a day, including the popular Swift and A-Star hatchbacks and the DZiRE and SX4 sedans.

The company had earlier said it planned to invest $1.3 billion over the next three years on manufacturing plants to boost capacity.
http://www.reuters.com/article/2011/06/13/marutisuzuki-idUSL3E7HD0FA20110613

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