Manesar lockdown cost: Rs 2,600 cr/mth

Violence at Maruti plant in Haryana leading to its shutdown will hit the company hard.

Written by Anandita Singh Mankotia | New Delhi | Published:July 21, 2012 9:47 am

The violence at Maruti Suzuki’s Manesar plant in Haryana leading to its shutdown will hit the company hard with a monthly loss of around Rs 2,600 crore. This reality hit the company on Friday when it discussed the option of moving production of two of its best-selling models — the Swift and Swift Dzire — from Manesar to Gurgaon in the interim. The rationale behind this strategy was because not only are these two cars selling more than the company’s entry-levels models like the Alto,Wagon R and Zen Estilo,these also come in diesel variants for which demand is higher than for petrol models.

However,production department officials said that while the paint shop and assembly line at Gurgaon can handle these cars,they could not be welded there. In short,the strategy to shift production from Manesar to Gurgaon cannot work. Currently,around 41% of the company’s total monthly sales come from the Swift and Dzire. Of the company’s average monthly sales of around 80,000 units,these two models contribute around 33,000. Around 1,900 cars are manufactured per day at the Manesar plant,which also includes the hatchback A-Star and sedan SX4. If one takes an average price of around R5.6 lakh,then the loss due to the shutdown would be around R2,600 crore every month.

Meanwhile,even as the the plant remained shut on Friday,the company began despatching vehicles that had already been assembled with heavy police protection.

Maruti currently operates two production lines at the Manesar plant with an annual capacity to produce up to 550,000 units. The company had announced a capacity expansion by adding its third assembly line (Manesar C plant) with an annual capacity of 250,000 and was expected to go on stream by mid 2013-14.

During the January-March period Maruti’s net profit at R640 crore was down 3% compared with the same period in the previous year. Net sales were up 17% at R11,486 crore.

The officials said it will take at least a month for work at the plant to be started again because even if it tries to shift workers from the Gurgaon plant to Manesar,it would be resisted due to safety issues. However,an official said that the company would slowly try to assess whether only the welding line at Manesar can be made functional so that the production of the Swift and Dzire does not suffer for long. However,even in the best-case scenario it would take a minimum of 15-20 days to make this work too.

“We have sent a report to the Suzuki headquarters in Japan and a team of officials from there are expected to come to Manesar to assess the state of the plant,” an official said.

Maruti officials said that the crisis at Manesar has come at a really bad time because the company is gearing up to launch a refurbished model of the Alto that is slated to be launched around Diwali,the festive season around which car sales peak in the country. This is an added reason why the company is not keen to risk any major change in production patterns at Gurgaon.

Though Alto sales of late have been flagging,it is mostly because it has been several years since the company refurbished it. The view now is that a newly launched variant would lead to increased sales because it can effectively compete with a range of smaller cars like the Eon from Hyundai and Brio from Honda that have hit the market in the interim.

The timing of the current trouble at Manesar is also bad because the plant witnessed a 33-day labour strike last year that affected production of the Swift and Dzire,leading to a waiting period of around four to five months,which is now expected to touch around six months.

The Maruti share ended Friday up 2.43% on the BSE at Rs 1,144.50 on a day the benchmark Sensex was down 0.7%.

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