Maruti stock sinks after riot shuts India factory

[July 24, 2012]  MUMBAI, India (AP) -- Shares of Maruti Suzuki, India's top car maker, plunged Monday after the company said it would impose an indefinite lockout at a factory in India that was wracked by a deadly labor dispute last week.

The violence threatens to further damage India's waning investor appeal and slow the expansion of Indian manufacturing, a crucial source of jobs for tens of millions of young people gearing up to enter the workforce.

Investors are bracing for a weeks long shut down at Maruti Suzuki's plant in Manesar, outside the Indian capital New Delhi, which analysts say could cost the company one billion rupees ($18 million) a day and erode its market share. The automaker's shares fell 5.6 percent in Mumbai.

Maruti Suzuki's chairman R.C. Bhargava, in a sober press conference Saturday, told reporters he and his colleagues were completely taken by surprise by the mob of workers that rampaged through the plant Wednesday. One senior executive was badly beaten and burned to death in a fire set by the mob, which attacked scores more with iron rods and the door beams of cars. Nearly 100 managers and supervisors, including two Japanese nationals, were hospitalized, the company said. Parts of the plant have been burnt beyond repair.

"We cannot produce because of the danger to life and safety," Bhargava said.

It will not be possible to import cars to meet domestic demand and Maruti's second factory in India is already operating at capacity, he said.

Bhargava said he didn't know when the Manesar factory would reopen and rebuffed queries about the financial impact of the shutdown.

"Please have some consideration for human lives and human value. Don't bring everything down to money," he said.

In addition to giving terrorized employees time to recover physically and psychologically, Maruti Suzuki, which is a subsidiary of Japan's Suzuki Motor Corp, will have to replace 97 workers who have been arrested and scores more who fled.

"It will take some time for officers to return to work. A lot of them are injured and a lot of contract workers ran away," said Deepesh Rathore, chief India auto analyst at IHS Global Insight. "Maruti will have to do fresh recruitment."

Rathore predicted that the plant would remain shut for three to five weeks, followed by three weeks of production at 50 percent levels. That translates into a production loss of 45,000 to 65,000 vehicles at a time when Maruti Suzuki's most popular models -- diesel versions of the Swift and DZire -- are already backlogged.

Rathore said some loyal customers would endure longer waiting lists, but predicted that rivals like Hyundai, Volkswagen, Chevrolet and Nissan would pick up around 40 percent of Maruti's shortfall.

Angel Broking analyst Yaresh Kothari put the estimated daily loss at 1 billion rupees ($18 million). Kothari said repeated strikes at Maruti last year dragged on the industry's overall growth. Production disruptions from a strike last October pulled Maruti's share of the domestic car market down to 26 percent from 40 percent, he said.

The violence comes amid slowing car sales in India and could further damage the country's appeal to investors, who are already put off by slowing growth, corruption scandals and regulatory uncertainty. The automobile sector has been a bright spot on India's troubled path to industrialization, with many global carmakers setting up shop here to serve the fast-growing domestic market and establish a low-cost export base.

The Confederation of Indian Industry, a business lobby, warned Monday that the violence could "dent the country's image."

New Delhi has been trying to boost Indian manufacturing, which policymakers hope will provide jobs as India struggles to transform itself from an agricultural economy.

But India's labor laws have compelled many companies -- including Maruti Suzuki -- to rely heavily on contract laborers, who are easy to fire and get far less in salary and benefits than permanent workers.

"Rigid labor laws create a two-tier system, with a privileged labour aristocracy on the one hand and a vast mass of unorganized workers with few rights on the other. This feeds into inequality and industrial warfare," the Times of India wrote in an editorial Monday.

Bhargava said that as part of last year's negotiations with the union, Maruti Suzuki had already agreed to cut back "drastically" the number of contract workers it hires and give them priority for permanent jobs. The company did not say how many contract workers it employs. The Economic Times reported Monday that half the workers at Manesar are on contract and earn 6,000 rupees ($107) a month -- one third of what permanent employees take home.

Others say the unrest could deepen internal divisions within India, with jobs moving to states like Gujarat, which are seen as business friendly, as factories flee difficult states like West Bengal, and perhaps Haryana, where Maruti's Manesar plant is located.

Maruti Suzuki executives said they had no plans to leave Manesar.

[Associated Press; ERIKA KINETZ]

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