Hyundai Mulls Shift from India on Labor Woes

May 8, 2009
The company's Sriperumbudur site endured an 18-day strike over demands for union recognition and pay hikes.

Hyundai said on May 8 it may shift production of its premium i20 hatchback to Europe from India due to labor trouble, hindering an Indian plan to become a global auto-export hub.

It would mark the first time a foreign company has taken such a step because of labor problems since India started opening up to overseas investors nearly two decades ago.

The production move from Hyundai's manufacturing complex in the southern Tamil Nadu town of Sriperumbudur to facilities in Europe would also cast a shadow over India's ambitions of becoming a major auto exporting center.

"This (shift) is an option we're considering," Hyundai Motor India corporate communications head Rajiv Mitra said. He said there was still a "cost advantage" to making the i20 in India "but that is going away with the labor situation not being very friendly."

His comments came as employees resumed work Friday at Hyundai's Sriperumbudur site following an 18-day strike over workers' demands for union recognition and pay hikes.The strike was the latest in a series of recurring labor problems at Hyundai's complex near Chennai, which employs around 10,000 workers.

"We've a lead time of two months (for exports) so if they get delayed it's a problem and 90% of the i20 exports are to Europe so there's a lot of sense to do it (manufacture) there," Mitra said, adding that a final decision should come in this financial quarter.

A shift would involve moving production of 70,000 to 80,000 units of the i20, said Mitra. The company hopes this year to roll out 120,000 of the five-door car, which was launched late last year and is only made in India.

However, shifting i20 production would not affect output of the Santro, Accent, Getz and other models Hyundai makes at the plant, which has total annual production capacity of 600,000 units, he said.

The communications head said infrastructure problems -- India is known for its dilapidated ports and roads -- and currency fluctuations were also "eating into margins." "It's not a very bad option to manufacture in Europe," he added.

Global carmakers have been setting up in India, seeking to exploit its low wages and tax changes aimed at spurring foreign car sales. Auto heavyweights such as Hyundai, Ford and General Motors and Volkswagen also have been looking towards the domestic markets of India and other emerging nations to offset sluggish Western sales.

India has been seeking to draw foreign investment but labor disputes and deadly clashes over plans for Special Economic Zones and other projects have put question marks over its industrialisation push.

Plans by South Korea's Posco to build a $12 billion plant in the poverty-stricken eastern coastal state of Orissa have met huge opposition from farmers objecting to loss of their land. And last October, India's top vehicle maker Tata Motors scrapped plans to build the Nano, the world's cheapest car, in West Bengal state after violent protests by farmers who alleged their land was forcibly seized for the plant.

Copyright Agence France-Presse, 2009

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