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Labour unrest may drive Maruti to Gujarat

By Motortrend India Staff   |   18 October,2011

Maruti, which is synonymous with Haryana and Gurgaon, is looking outside the state to set up its operations. The continuing labour unrest at its Manesar and Gurgaon plants appear to have hastened its search, and the company is zeroing in on Gujarat.

Sources say the Japanese automaker, frustrated over the repeated interruptions in production due to labour problems at Manesar, wants to quickly finalize its expansion plans beyond Haryana, something that’s not liked by the state government but is seen as "urgent" by the company’s management.

Already, Maruti car sales have been affected, and more worryingly for the firm, the demand seems to have been hit because of the uncertainty about delivery schedules, making the management of the country’s biggest car-maker rather anxious.

While Suzuki chairman Osamu Suzuki met Gujarat chief minister Narendra Modi on September 8-after the collapse of the first peace agreement and in between the second labour strike-the company’s board looks set to approve the proposal to invest Rs 18,000 crore, including Rs 6,000 crore by auto ancillaries, in Gujarat for a plant spread over 1,000 acres and with a capacity of two million units.

Interestingly, this will be the largest factory site for Suzuki globally, bigger than the combined size of its existing sites at Gurgaon and Manesar. The new facility in Gujarat will mark the beginning of a slow shift out of Haryana-a move that could affect not just the automobile hub in Delhi’s neighbourhood but also impact real estate activity in and around Gurgaon. Already, several automakers, ranging from Tata Motors to Ford and Peugeot-Citreon, have started work on setting up facilities in Gujarat, which is emerging as a major auto hub in the country.

For Haryana, this will be the second blow after Japanese auto major Honda Motorcycles and Scooters India decided to set up plants in Rajasthan and Karnataka following major labour unrest at its Manesar facility. The production loss to Maruti Suzuki due to the three strikes, including the current one which has already lasted 12 days, has been over 60,000 units, resulting in a production loss of a Rs 1,800 crore. In the June quarter, Maruti’s total income was estimated at Rs 8,500 crore, while the profit was Rs 550 crore.

If the Gujarat proposal goes ahead, the production from the site at Becharji in Mehsana is expected to start by 2015. In the first phase, which will be completed by 2020, a capacity for one million units will be build. The next phase of expansion will follow.

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