Fall of an Icon

‘The recent violence at auto major Maruti Suzuki’s plant at Haryana’s Manesar is representative of the social unrest building up in the country and among trade unions’, Wipro Chairman Azim Premji said. Elaborating on the cause for social unrest, the Information Technology (IT) czar said when growth slowed down, even job creation slowed. As a result, unemployed and idle people can generate social unrest.

 

With an indefinite lock out at one of its plants, India’s largest car manufacturer, Maruti Suzuki India Limited, is in trouble. The Japanese car maker’s Indian subsidiary’s second plant, located about 40 km from New Delhi at Manesar in Haryana, was hit by unprecedented violence recently – on 18 July to be precise. As a result, the management was forced to declare an indefinite lock out at the plant that produces some of its best selling cars – the Swift and Swift Dzire among other – at a rate of 1,600 per day.

Maruti Suzuki’s share of the Indian passenger vehicles market was steady at between 45 and 46 per cent between 2007 and 2011. In the financial year 2011-12, the market share of Maurti shrunk to 38 per cent. This was the direct impact of three strikes in June, August and September at the Manesar plant in 2011. At a press conference on 21 July, Maruti Chairman R.C. Bhargava, a former IAS officer who was part of the team that launched Maruti in 1983, said that the plant would remain shut until the investigation by the police is completed. Sources suggest that the plant could remain closed for at least one month. Maruti’s market share will decline further as consumers lose confidence in on-time delivery of their car.

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Manesar was a critical facility that accounted for 40 per cent of the cars sold between April and June this year. After the violence, IHS Automotive India, a consultancy, calculates that about 40 per cent of buyers will walk away to other brands. At maximum, IHS estimates that volume loss may climb to 65,000 units. At an average price of Rs 5.6 lakhs per car, this could lead to Rs 3,640 crores revenue loss. Other analysts estimate losses of about Rs 60 crores a day.
The stock market has already reacted seriously. Maruti’s share price on the Bombay Stock
Exchange and National Stock Exchange has fallen by 10 per cent in the week after the incident. It might have fallen more but for the fact that Maruti remains India’s largest car manufacturer and has recorded steady revenues and profits in the past.
The unfortunate incident at Manesar is a terrible blow to an iconic Indian brand. Until the launch of the Maruti 800 in 1983, the Indian car market was dominated by the Ambassador manufactured by Hindustan Motors and the Fiat manufactured by Premier Automobiles. Both companies were using technology from the 1950s. The entire automobile components industry was also using similarly dated technology. The arrival of Maruti brought the latest technology in automobiles to India and helped a nascent auto components industry take its first steps towards becoming globally competitive.

Noting that recent Maruti Suzuki plant issue was going to be a major focus area of businesses and trade associations, Wipro Chairman Azim Premji said the government should act ruthlessly to prevent a repeat of such incidents. However, many analysts feel that while punishing those guilty of violence was vital, reopening a dialogue with workers still remained the best option.

Maruti was also one of the few Government-run enterprises which achieved remarkable success. Originally founded by Sanjay Gandhi, the company was handed over to the best managers in the public sector by then Prime Minister Indira Gandhi to revive a project that had flopped under her son. Led by V. Krishnamurthy, the team chose Suzuki as its partner for the people’s car project. Suzuki was not the obvious choice given that it was only a small manufacturer in Japan compared to larger rivals like Toyota, Honda and Mitsubishi. However, the team, which was given considerable autonomy by Indira Gandhi chose Suzuki which took 26 per cent equity and provided technology for the cars.

The Government slowly divested its stake in Maruti over the years. It has had no Government equity for over 5 years now and is majority owned by Suzuki. Ironically, its worst troubles came when the Government has ceded control. The Japanese appointed management has not quite lived up to the task of maintaining harmonious labour relations. When the Government still had a stake, the company did a reasonably good job of resolving a major strike at its original Gurgaon plant in 2001. That plant has had no major labour trouble since then. It is the new plant in Manesar set up around 6 years ago that is the breeding ground for serious labour disputes.

 

A major reason for the labour trouble at Manesar is the large number of workers hired on a contract basis compared with fewer on a permanent basis. Around 2,000 workers have temporary jobs which pay less than half the salary that a permanent worker gets for doing similar work. The temporary workers are also not allowed to join the union. They had obvious reasons for disgruntlement with the management. Chairman R.C. Bhargava now says that Maruti will phase out contract hiring by 2013, but a lot of damage may already have been done to the company. The use of temporary contract workers is in contravention to the much lauded Japanese system of industry where employees work in companies for a lifetime. Perhaps a reversion to that system will restore good industrial relations in Maruti.
Noting that the issue was going to be a major focus area of businesses and trade associations, Wipro Chairman Azim Premji said the government should act ruthlessly to prevent a repeat of such incidents. ‘It is important that individuals and associations take up the cause that led to violence in the plant’s office. Otherwise, these examples can repeat,’ Premji observed. However, many analysts feel that while punishing those guilty of violence was vital, reopening a dialogue with workers still remained the best option.
For now, Maruti says it has no plans of moving its factory out of Manesar. Chairman R.C. Bhargava gave a public commitment on that matter. However, its next phase of expansion will happen in Sanand, Gujarat which is also home to the Tata Nano factory and a future facility of the American company Ford. Even as the Government of Haryana was dealing with the crisis, Gujarat Chief Minister Narendra Modi was in Japan meeting Suzuki
Motors Chairman Osamu Suzuki in a bid to hard sell his state as a top investment destination. Maruti’s management must hope that Sanand will bring them better luck. India’s most iconic brand deserves better than what it experienced in Manesar on the morning of 18 July.

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