August 21, 2012 / 6:27 AM / 5 years ago

Maruti restarts Manesar factory under heavy guard

A worker checks the door of a parked Alto car at a Maruti Suzuki stockyard on the outskirts of Ahmedabad July 28, 2012.Amit Dave/Files

MANESAR, India (Reuters) - Maruti Suzuki, India's largest carmaker, reopened its Manesar factory on Tuesday under a heavy police presence after a deadly riot shut the plant more than a month ago and cost the company more than $250 million in lost output.

With scores of police officers guarding the factory's main gate and more than 1,200 deployed elsewhere around the site, a skeleton staff began limited production at the plant where months of labour unrest erupted in mob violence on July 18.

Maruti will start producing 150 cars a day, less than 10 percent of its average daily output before the July 18 riot that killed a manager and injured more than 100 people, Chairman R.C. Bhargava said last week.

The restart at the 550,000 vehicles-a-year plant, which builds its best-selling Swift hatchback, comes just in time for India's festival season, when people typically make expensive purchases.

Shares in Maruti, a unit of Japan's Suzuki Motor Corp, rose as much as 1.7 percent in Mumbai on Tuesday. The stock has fallen almost 4 percent since the plant was closed.

"If there is no more (disruption), then probably the stock will move higher from here onwards...They have bounced back well from this in the past," said Rikesh Parikh, vice president, equities, at Motilal Oswal Securities in Mumbai.

"If everything goes smoothly, then it looks very good. They have been able to start the plant quite well on time," he added.

The violence came after months of negotiations between workers' unions and management over increased pay and Maruti's widespread use of contract workers.

Manesar's best-paid manufacturing workers earn 25,000 rupees a month, and 1,500 of them, on temporary contracts, earned less than half that. Maruti's employee expenses as a share of net sales are the lowest of the five biggest domestic auto makers in India, at 2.4 percent in the last fiscal year.

The carmaker has sacked 500 workers and said it will cease hiring contract workers after the riot, which has shone a spotlight on India's decades-old labour laws that some industry groups say tie their hands.

A policeman walks inside the premises of Maruti Suzuki's plant in Manesar, located in Haryana, July 19, 2012.Ahmad Masood/Files

POLICE LOCKDOWN

Around 75 workers reported for duty at the factory on Tuesday out of the 300-strong workforce planned by Maruti, Samundhar Singh, head of the local village council in Manesar, said after meeting with company management at the plant.

"I hope more workers will come once they get to know it was peaceful today. They were worried," Singh told reporters.

More than 1,200 police officers were at the plant on Tuesday, Yogender Nehra, commander of the battalion guarding the factory said, in addition to Maruti's private security guards.

"We have not got any information of any untoward incident or insecurity inside the plant," said Nehra. "Forces will be here until industrial peace is established in the region."

The company lost $500 million in production last year because of labour unrest, damaging its dominant position in India's car market and leading to an 11 percent slide in annual sales for the year ended in March.

Maruti will start hiring additional employees from September 2, Bhargava said, without providing details on when the plant will return to full production.

The decision to scale back its contract workforce will not have a significant impact on production costs, Bhargava told ET NOW television channel, as the wages paid to contractors are similar to the starting salaries of new permanent workers.

Suzuki's chairman, Osamu Suzuki, is set to visit India at the end of August, company spokesman Ei Mochizuki said in Tokyo, without providing details of the visit, including whether he will visit the Manesar plant.

Shares in Maruti pared some early gains and were trading up 0.7 percent at 0820 GMT, outpacing a Mumbai market up 0.6 percent.

Additional reporting by Yoko Kubota in TOKYO; Writing by Henry Foy; Editing by Ryan Woo

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