Maruti Suzuki’s Manesar plant in the north of the Indian state of Haryana remains closed this week following last week’s violent events there in which one person was killed, more than 70 others injured and in which the plant suffered widespread fire damage. A lockout has been put in place and the company’s chairman R.C Bhargava is reported to have ruled out any early resumption of production at the plant, which makes the popular Swift model, until an investigation into the trouble is complete and the safety of staff is guaranteed.
 
Questions are now being asked about whether India’s largest carmaker will continue at the plant or potentially transfer more production to a proposed new plant at Bhecharji in the west of Gujurat, as a source in the state’s government and several logistics experts in the country have suggested. Sources also believe that progress and investment at the new plant will be hastened as a result of the current problems in Manesar.
 
According to an official statement from the carmaker, on Wednesday the 18th July, during management negotiations with union members over the reinstatement of a sacked worker, a crowd of workers shut the main gates to the facility and spread out through the factory attacking management staff and supervisors with iron rods and car door beams. The so-called “mob” is then said to have ransacked the facility’s offices and set them on fire.
 
Awanish Kumar Dev, general manager of human resources at the plant, died in the fire.
 
The carmaker stressed that violence was not “[b]y any account... an industrial relations problem in the nature of management-worker differences over issues of wages or working conditions”.
 
However, it is the fourth stoppage at the plant this year and India’s largest carmaker has suffered heavily over the past 12-18 months because of constant labour disputes. In June 2011, a 2,000-strong workers’ strike there stopped production for more than a fortnight and shut down around 250 facilities in the Gurgaon-Manesar industrial belt.
 
The latest shutdown could take the company between 6-12 months to make up the lost output, but given the escalation in trouble Maruti Suzuki is certain to speed up the development of the Bhecharji project according to a Gujarat government source in the state capital Gandhinagar.
 
Deepesh Rathore, director, India, ASEAN and Australia, at analyst IHS Automotive agreed that the company is now likely to show a greater inclination to invest in the Gujarat site, but predicted  that the investment already earmarked for Manesar would continue.
 
Gujarat chief minister, Narendra Modi, is currently on a visit to Japan to attract foreign direct investment in the state and is reported to have stated during the visit that Gujuart offers a far more stable political climate suitable for business expansion to the rest of India.
 
Addressing a gathering of the Japan External Trade Organisation (JETRO) earlier this week, Modi maintained that "human safety and industrial peace are of paramount importance for development".
 
Modi has denied that he is trying to wean away Maruti Suzuki from Haryana to Guajrat. However, a Gujarat government official, speaking on condition of anonymity, told Automotive Logistics News that Gujarat would do everything to pull Maruti into its fold over the next few weeks.
 
Maruti Suzuki did not respond to requests for comment on any future shifts in production, but officials have also denied any such plans in the days following the event. However, in an official statement it did indicate potential repercussions. “Such acts of violence - pre planned, unprovoked and gruesome - have implications beyond one company or region. They are a negative trigger for existing companies and regions across the country, as also for prospective investors and job seekers.”
 
Priyaranjan Joshi, chairman and managing director of Halol-based Taurus Logistics, which provides services for the automotive segment, told Automotive Logistics News that Gujarat is “bound to gain immensely” in the wake of Manesar incident.
 
"Maruti Suzuki cannot afford to lose out on market share as its grip is shrinking because of tough competition from a clutch of players,” he said. “The fact that the shutdown of the Manesar plant is leading to a complete stoppage of Swift production for a long time is unthinkable."
 
The Gujarat location also offers Maruti Suzuki the chance of logistics cost savings considering its good port access to cater to its export demand or potential short sea shipping. Gujarat also has more direct access to the domestic market than Manesar, which is in the north of India. According to IHS Automotive’s Rathore, there are few disadvantages other than the initial start up costs.
 
“All Maruti plants are in North India. Gujarat will provide Maruti with a hub in West India,” noted IHS Automotive’s Rathore. “Also, the Gujarat plant would be very close to a port and would help Maruti export. Being on the Western coast also reduces the distance to African, European, Middle East and Latin American markets by a few thousand miles,” he said.
 
A new automotive El Dorado
Gujarat is fast emerging as the new El Dorado for automotive companies in India. When Tata Motors’ Nano plant in Singur, West Bengal, was shut because of local opposition to land displacement in 2008, Gujarat rolled out the red carpet enabling Tata to shift its plant lock, stock and barrel to Sanand.
 
Today, Tata Motor's Sanand plant is fully operational, helping the Modi government to attract carmakers including Ford, which has announced the setting up of its second plant in Sanand. Last year, Joe Hinrichs, president of Ford’s Asia Pacific Africa region, cited logistical advantages for exports and domestic distribution in choosing the plant’s location.
 
Maruti Suzuki has two plants in Haryana: the Manesar plant and another at Gurgaon, approximately 25km away. Over the past three decades the company has been at the centre of overall economic development of the state from an agrarian economy to an industrial one. The abundance of automotive component manufacturing and the huge transport business opportunity in and around both plants has led to a boom. Any move to trim down production is bound to impact the local economy. It is also one of the factors in Haryana’s favour that the supplier base is so well developed in comparison to Gujarat, which Rathore describes as only “semi-developed”, though he added that with the number of manufacturers now heading there, suppliers won’t hesitate in committing.
 
However, as Maruti has experienced, over the past few years Haryana has had its fair share of labour unrest. A few years ago, Honda, another Japanese giant operating in India, was forced to shutter its plant and suffer a loss of production because of worker action.
 
The Haryana government is trying to salvage the latest situation because should Maruti stop investment and move to Bhacharji the state would suffer and local community leaders have come out in support of Maruti Suzuki’s management for fear of losing out on their long-term livelihood.
 
Hiren Pareek, a senior logistics operator at provider Mercurio Pallia, suggested that Maruti Suzuki's decision to identify Gujarat for its second plant – a decision made ahead of the current Manesar disruption – is a “risk mitigation” strategy.
 
Haryana is heading for a poll at the end of this year. As it is, Gujarat has been touted as the most business-friendly state in India and as Maruti Suzuki may be keen to cut its losses and maintain its status as number one carmaker, there is speculation that the state may not have to try too hard to pull the carmaker in. At the same time this attraction could put pressure on the Haryana government to improve the labour situation in the state to prevent or stall the exit of Maruti Suzuki.
 
 
 

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