Maruti Suzuki Looks to Correct India Course

Maruti Suzuki India looks to a new production facility to shore up its flagging fortunes.

Higher costs, declining sales and falling production marked the July-September quarter. Concealed behind those figures, however, are increasing competition and erosion of the auto maker’s relationship with workers.

Swift gives lift to embattled Maruti Suzuki.

Maruti Suzuki is negotiating the purchase of up to 1,400 acres (567 ha) for a new manufacturing complex in Gujarat in western India. The auto maker plans to invest Rs180 billion ($3.7 billion) in the facility over three years.

The Gujarat plant’s expected capacity will be 2 million units a year, compared with 1.75 million at its Manesar plant in the state of Haryana.

Because of its proximity to the state-of-the-art port at Mundhra, Maruti Suzuki Chairman R C Bhargava says, “The logistics of moving cars from north India to the western ports will improve with our plant in Gujarat.”

The auto maker also cites lower labor costs and expectations of higher productivity and a better work ethic in Gujarat. But it isn’t saying whether recent losses, coupled with labor and political problems at the Manesar plant, are behind its decision to expand outside Haryana.

Second-quarter results show Maruti Suzuki sales dropped 19.6% to 252,307; revenues fell 15.7% to Rs75.4 billion ($1.5 billion), and net profit plunged 59.8% to Rs2.4 billion ($48.5 million).

The company’s planned investment in Gujarat comes as a big blow to the state of Haryana, but the auto maker is not alone in moving. Honda Motorcycle and Scooter India, which like Maruti Suzuki has faced labor unrest at Manesar, already has opened new factories in the states of Rajasthan and Karnataka.

Haryana still will be home to about half of Maruti Suzuki’s facilities after production begins at Gujarat.

But after dealing with intermittent strikes and protests over the past four months, the auto maker must consider whether the labor unrest is the result of driving its workforce too hard and too fast in face of fierce competition, or merely the work of a few agitators.

Workers complain that the Japanese culture of discipline has been forced on them, that work standards are impossible to reach and that supervisors and management are insensitive toward their concerns.

Maruti Suzuki increased production from about 700,000 units to 1 million vehicles in 2009-2010 compared with prior-year. But production fell 33% in September from like-2010 amid the ongoing labor strife.

Gujarat, meanwhile, is emerging as a new automotive hub in India, joining the states of Haryana, Pune, Bangalore and Chaennai.

Tata, Ford India and PSA Peugeot Citroen are planning factories with combined annual capacity of more than 1.5 million units in Gujarat.

The continuing strength of the Japanese yen is raising royalty and raw-materials costs for Maruti Suzuki.

But the auto maker also must address its labor problems if it doesn’t want them to follow it to the Gujarat plant.