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Maruti faces costly shutdown after deadly factory riot

by fwire  Jul 20, 2012 23:00 IST

#Business   #India   #markets  

MUMBAI (Reuters) - With a manager dead, 90 employees in jail and an entire factory's workforce under investigation for murder, Maruti Suzuki (MRTI.NS) faces a shutdown at a major auto plant that could last several weeks or more and cost it $15 million a day.

Police said they want to detain all 3,000 workers at the Manesar factory in Haryana, where a riot erupted on Wednesday after a disciplinary incident with a single employee. Scores were injured and a portion of the factory's vehicle assembly line was damaged.

The violence, just nine months after the end of strikes at the facility that cost more than $500 million in lost production, spooked investors and raised the prospects of supply disruptions for Maruti's most popular hatchback, which is assembled at the 550,000 vehicle-per-year plant.

"Whenever production resumes, the morale of the executives deployed at the plant would be one of apprehension, fear," added ICICI Securities, a brokerage, in a report on Friday.

Nine analysts who track the company polled by Reuters said they expected production at the plant to be stopped for at least two weeks, citing the severity of the damage and the bad blood between workers and management. Three said they expected the shutdown to last at least a month.

The company gave no timeframe for a reopening, although its Japanese parent Suzuki Motor Corp (7269.T) said the plant would remain closed on Saturday. A Maruti official who declined to be identified told Reuters it 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 authorised to speak to the media.

More than $570 million was wiped off the market value of India's biggest carmaker on Thursday, when its shares fell 8.9 percent for their biggest one-day drop in two years. They recouped some ground on Friday, rising 2.7 percent.

Shares of Maruti parent Suzuki Motor fell 5.7 percent in the two sessions since the incident to their lowest in three and a half years.

PROLONGED SHUTDOWN

Maruti makes 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.

With the workforce sought by police and dozens of managers injured, getting the plant back up to production won't be easy.

"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 in lost output during the current shutdown.

A newspaper reported on Friday that the state government of Haryana, where the plant is located, was considering a prolonged shutdown of the factory, but a state official later said it was up to the company to decide when to resume work.

"It is difficult to assess at this point of time as to when the plant would start functioning normally," Y.S. Mallik, principal secretary for industries in the Haryana state government, told Reuters.

Workers armed with iron rods and stout wooden "lathi" sticks, typically used by police for crowd control, 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," 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 violence at the Maruti plant sparked a chorus of condemnation from politicians, the media and industry groups.

"Such acts of violence sully the image of India as a manufacturing base, as an investment destination," the Society of Indian Automobile Manufacturers, a lobby group, said in a statement.

(Additional reporting by Anurag Kotoky in NEW DELHI and Vikas Vasudeva in CHANDIGARH; Editing by Edmund Klamann and Mark Potter)

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