Maruti Lock-out Highlights India's Labor Unease

Sept. 19, 2011
'India's low-cost manufacturing growth story is built upon labor stability,' says analyst.

India's top automaker Maruti Suzuki, already grappling with sliding sales, is in a test of nerves with its factory workers after production was hit by a dispute over alleged sabotage. Output at the Japanese-controlled firm's Manesar plant in northern India has been thrown out of gear for three weeks after Maruti accused disaffected workers of deliberately damaging cars on the assembly line.

The subsequent lock-out has rapidly come to be viewed as a test case for India's car industry and wider foreign investment in the country's fast-growing economy as Maruti bosses say they are determined to face down the workers.

"Global investors are watching this very closely," said Jagannadham Thunuguntla, head of research at Delhi-based share traders SMC Global Securities."India's low-cost manufacturing growth story is built upon labor stability."

After the sabotage claim, Maruti fired 21 people and locked out the rest of the workforce. It insisted all employees sign a "good conduct bond" -- a pledge not to sabotage output -- before returning to work, but the demand has been heeded by only about 100 of its 950 permanent workers.

India, Asia's third-largest car market, is critical to Suzuki Motor's fortunes as it is the Japanese firm's biggest foreign market. And Maruti, 54% owned by Suzuki, is standing firm, saying it is willing to incur any output losses rather than cave in.

"Undisciplined workers inside the plant can cause an even greater loss. They must sign the (good conduct) pledge," Maruti chairman R.C. Bhargava said.

The dispute comes as Maruti battles to protect its domestic market share, which has shrunk to 45% from 55% in four years as global auto giants seek to penetrate India's fast-expanding vehicle market. Tensions have been high for months at the Manesar plant in Haryana state, with Maruti refusing to recognize a union formed by workers in place of an in-house association.

The employees say the in-house union is under the management's thumb and complain they must work with few breaks and lose pay if they arrive a minute late, while there is also increasing use of cheaper contract workers.

A Maruti spokesman, who declined to be named in line with company policy, responded by saying working conditions at Manesar were excellent. He added the firm wanted to keep the in-house workers' body because, he said, outside unions were often influenced by political parties which "try to interfere in what goes on at the plant."

At the center of the dispute is the right of Indian firms to decide with whom to negotiate -- and the Maruti dispute is not unique within the car industry. In southern Tamil Nadu state, another automaking hub, workers at South Korea's Hyundai, India's second-largest carmaker, have also staged strikes in an attempt to win recognition of an employees' union.

In recent weeks, new contract workers and Maruti supervisory staff have been used to assemble top-selling Swifts, A-Stars and SX4 sedans at Manesur, but the plant has produced less than half its normal daily output of 1,200 cars. This comes on top of a nearly $93 million loss in June, when 11 days' worth of production was lost after workers downed tools demanding recognition of the new union.

The alleged sabotage problems were discovered last month during quality-control checks and included doors falling off and dents in car bodies, according to the Maruti spokesman. Arvind Kumar, a leader of the unrecognized union camped outside the plant, dismissed the company's claims as "completely baseless."

Maruti, credited with revolutionizing transport in India by making affordable cars for a burgeoning middle class, in July reported an 18% jump in quarterly net profit from a year earlier to $124 million.

But the labor row and falling car sales -- down by 23% in July and 13% in August year-on-year -- have pushed Maruti's shares to near 12-month lows. The company has blamed the sales figures on the labor dispute and India's domestic economy, which is slowing under the impact of a dozen interest rate hikes aimed at combating near double-digit inflation.

With fresh talks failing over the weekend, the stakes have again risen in a battle that highlights how unhappy worker relations present a major obstacle to India's continuing economic expansion. Maruti, which has several other assembly lines, has declared it will not "enter into any dialogue" with the Manesar workers and will instead "focus on scaling-up production levels by recruiting fresh manpower." Emphasising its hardline stance, Suzuki's global chairman Osamu Suzuki declared last week the company would not back down on demands that the workers sign the good conduct pledge.

"Indiscipline is not tolerated... not in Japan, not in India," he said.

Copyright Agence France-Presse, 2011

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