Maruti faces costly shutdown after factory riot
Carmaker Maruti Suzuki, a manager killed and 90 employees in jail after workers rioted at its second-largest factory, faces a lengthy shutdown that could cost it USD 15 million a day and disrupt supplies of its most popular hatchback, the Swift.
July 20, 2012 / 14:19 IST
Carmaker Maruti Suzuki, a manager killed and 90 employees in jail after workers rioted at its second-largest factory, faces a lengthy shutdown that could cost it USD 15 million a day and disrupt supplies of its most popular hatchback, the Swift.
Police said they want to detain the entire workforce of 3,000 at the Manesar factory in Haryana, where workers rampaged on Wednesday after a disciplinary incident with a single employee. Scores were injured and a portion of the factory's vehicle assembly line was burned out.The violence, just nine months after the end of strikes at the facility that cost more than USD 500 million in lost production, spooked investors worried that Maruti has failed to resolve labour tensions at the 550,000 vehicle per year plant."This definitely mars the overall investment sentiment for the stock," said Navin Matta, auto analyst at Daiwa Capital Markets in Mumbai, adding that the lack of clarity on the length of the slowdown was a cause for concern.More than USD 570 million was wiped off the company's market value on Thursday, while shares of its Japanese parent Suzuki Motor Corp fell 5.7% over the past two sessions to their lowest in three and a half years."After being terrorised, abused and attacked in this manner by the mob, recovery for the injured will not be easy," Maruti said in a statement late on Thursday.A spokesman for the carmaker declined to comment on the possible length of the factory closure, although an official told Reuters the factory would not reopen on Monday."Part of the manufacturing area is burned, the whole building is burned, and the people who are running the factory are injured and admitted in the hospital, so it will take a little time," said the official, who was not permitted to speak to the media and declined to be identified.PROLONGED SHUTDOWNThe government of Haryana, where the plant is located, is considering a prolonged shutdown of the factory, the Economic Times newspaper reported on Friday, citing unnamed government officials.The office of the chief secretary and labour minister declined to comment on the report when contacted by Reuters.Police said on Thursday that they are seeking to detain all of the plant's 3,000 workers for investigation, creating a logistical nightmare for Maruti's managers -- many of whom were injured in the riot -- to get the factory working again."Nobody knows when the plant might restart," said Ashish Nigam, auto analyst at Antique Stockbroking in Mumbai."The only concern (Maruti) have is the people who are in the hospital ... the business has taken a back seat for the time being," Nigam said.Maruti lost around $15 million per day in missed production during the strikes last year, and analysts polled by Reuters said the company stands to lose $12-$16 million per day during the current shutdown.Maruti manufactures its best-selling Swift hatchback -- the leader in its segment -- at the Manesar plant. A spokesman for the company confirmed that it would not build any more Swifts while the factory was closed but declined to give details on inventories or back orders for the vehicle.Workers armed with iron rods and wooden sticks rioted through the plant in Manesar, around 40 km (25 miles) south of New Delhi, attacking managers, smashing equipment and setting fire to parts of the factory, the company said."Most executives sit at the mezzanine floor. They attacked that floor and targeted the most senior officers. They came armed with lathis and iron rods, and also picked up other sharp tools in the factory," said a Maruti official, who had a broken hand and head injuries and spoke on the condition of anonymity.Labour unrest is not uncommon in India, which has a strong tradition of street protests and sit-in demonstrations by workers' unions, political parties and campaign groups, although the level of violence seen at the Maruti plant sparked a chorus of condemnation from politicians, the media and industry groups. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
