Another Year of Labor Unrest Threatens Maruti

MUMBAI – Both unions representing Maruti Suzuki workers are making fresh demands for wage hikes.

The 30-year-old Maruti Udyog Kamgar Union in 2009 won a 6% raise for its 3,000 members employed at the auto maker’s Gurgaon plant. It now seeks a double-digit pay increase, with negotiations to begin this month.

The 30-day-old labor organization tentatively called the Maruti Suzuki Workers’ Union has made a separate demand for higher wages for 1,200 employees at the Manesar factory. But after changing a crucial rule prohibiting outsiders from becoming members, the labor group seeks to re-register with the government as the Maruti Suzuki Employees Union.

Bargaining will not begin until the government issues clearance for the name.

There has been a change in mood since last year, when four strikes between June and October at the Manesar plant cut car output by 83,000 units, costing Maruti Suzuki Rs25.4 billion ($510 million) in sales income. The auto maker now can negotiate from a position of strength as it develops a large assembly plant in Gujarat in Western India.

Maruti cites lower labor costs and expectations of higher productivity and a better work ethic in Gujarat, located 460 miles (740 km) southwest of Manesar. The auto maker isn’t saying whether the labor and political problems at the Manesar plant are factors in its decision, but the unions already contend management is taking away jobs.

The basis of mutual trust that lasted for a generation has disappeared.

The unions will take three major issues into the negotiations: that they are being deprived of employment and promotion opportunities; that the cost of living has risen rapidly; and that increasing automation has taken away senior positions.

Maruti Suzuki remains by far India’s largest auto maker, but management nevertheless is adamant about staying competitive and reversing falling market share.

CEO and Managing Director Shinzo Nakanishiis encouraged byMaruti Suzuki’s growthand evolution. The auto maker has been able to meet shiftingcustomer demandsand reach new markets because of its flexibility to create an ever-changing model mix; Maruti Suzuki offers a choice of 11models with five fuel optionswithin Indianmarkets.

Export diversification has enabled the auto maker to reduce risk and respond effectively to the economic slowdown in Europe. Non-European markets accounted for 65% of Maruti’s exports in 2011, up from 25%in 2009.

Mayank Pareek, managing executive officer,says MarutiSuzukiis developing in other alternative markets such as Sri Lanka, Indonesia, Peru, Algeria and Chile. Exports to those countries include the Maruti 800, Alto, Zen Estillo, Ritz, A-Star and Swift, as well as the Swift DZirediesel.

The auto maker is trying to rise again on the strength of diesel cars.With diesel fuel costing 42% less than gasoline at Rs75 per liter($5.67per gallon) in India, deliveries of oil-burners are rising fast in spite of the overall slowdown in car sales.

Maruti Suzuki has a deal with Fiat India to purchase 300,000 diesel mills until 2014, by which date it hopes to establish its own diesel-engine facility. Suzuki Powertrain India, a joint venture between Maruit Suzuki and Japanese parent Suzuki, already is providing 100,000 diesels annually in Gurgaon.

But all that is far away, as Maruti Suzuki is in the midst of a financial squeeze. Sales in fourth-quarter 2011 slipped 17.4% compared with prior-year to $1.54 billion, while earnings plunged 63.6% to $41 million. Parent Suzuki’s revenues and profits have declined accordingly.

Nakanishi does not want labor troubleto sidetrack Maruti Suzuki’s road to recovery. But that may be inevitable unless the auto maker finds a way to raise salaries on the scale demanded by the unions.