Maruti still feels the labour pain, struggles to push sales

Maruti’s hopes to drive sales in the upcoming festive season seem to have been dented badly. Already reeling under faltering demand from consumers because of high interest rates and high fuel costs, India’s largest car-maker is struggling to resolve an intensifying labour strike that seems all but likely to throw a spanner in its efforts to improve sales.

The widely-reported strike, which has entered its second week, intensified on Monday after the management forced workers to sign a ‘good conduct bond’ before entering the Manesar factory’s premises, following alleged ‘sabotage’ and deliberateattempts to compromise the quality of the cars by employees**.**That had a sharp impact on car production at the plant. After enlisting the help of 40 engineers from its Gurgaon plant, the beleaguered car maker managed to roll out 200 vehicles on 5 September from Manesar.

[caption id=“attachment_77378” align=“alignleft” width=“380” caption=“Maruti Suzuki said it would not resume full-scale production at its Manesar plant until workers signed the good conduct bond. Reuters”]  [/caption]

At the moment, the yet-to-be-formed employees’ union does not seem to be in any mood to back down. “We stand by our demand. The management has to withdraw the bond, take back the suspended workers and recognise our independent union,” said Shiv Kumar, who is part of the proposed Maruti Suzuki Employees Union.

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Maruti too is firm. On Tuesday,Maruti Suzuki said it would not resume full-scale production at its Manesar plant until workers signed the good conduct bond.“We can’t start full production till the workers are ready. They have to sign the bond,” RC Bhargava, MSI Chairman, was quoted as saying by The Business Standard.

Unfortunately, as the stand-off continues, customers will get hurt. The plant at Manesar had been expected to produce the new Swift – its most popular hatchback model – launched by the car maker last month. Reflecting popular demand, bookings for the new Swift had topped 90,000. However, auto dealers have stopped accepting fresh bookings as they reckon the slowdown in production will result in delivery periods stretching up to eight months or more, according to a media report.

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The new facility, which had commenced part production of the new version of the Swift, had started operating almost a month ahead of schedule anticipating high buyer demand. Unfortunately, those carefully laid plans have now been overturned. The new plantcomprises 25 workers hired on a contractual basis, 90 engineers enlisted from the Gurgaon plant and 290 supervisors working at the Manesar plant itself.

On an average, the firm produces some 1,200 units of its Swift, A-Star and SX4 car models every day from the first plant, where the labour troubles are brewing. The production loss suffered by Maruti so far since last Monday is estimated at about 6,625 units, valued at over Rs 330 crore, as of 5 September.

The ongoing strike will have a sharp impact on Maruti’s monthly sales. Already, total vehicles sales in August fell 12.7 percent year-on-year while in July, sales plungedby a whopping 25.3 percent, partly because of another production strike in June and the discontinuation of the older model of Swift. Because of Maruti’s dominant position in the car industry ( see chart above) - it accounts for nearly half of the car market - the Society of Indian Automobile Manufacturers (SIAM) expects the ongoing battle between Maruti Suzuki and workers at the Manesar plant to definitely impact the domestic passenger car segment.

Vishnu Mathur, SIAM director general, had earlier said “the Maruti labour problem will affect the industry if it continues further”.

While most car makers are betting on attractive discounts and special incentives to lure customers to the showrooms during the festive season, PINC research in its latest update said it expected passenger vehicle demand to remain soft during the period, mainly because of a high base effect of last year.

Indeed, investors are also worried about the outlook for the car maker: Maruti’s shares declined by a steep 8.23 percent over the past one month compared with the BSE Auto Index, which climbed by 4.5 percent in the same period. If things continue this way, Maruti - and its workers - are unlikely to feel festive any time soon.