Hindustan Motors' Struggle for Survival

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The Turnaround Efforts - Phase I Contd...

Analysts opined that HM's dismal condition was a result of its lax management policies and shortsightedness. Before MUL entered the market, HM was the market leader. It was able to sell whatever it produced and therefore it did not care to upgrade the technology or production facilities. However, pressure from competition was just one aspect of HM's problems. The company had a host of internal problems - particularly human resource troubles at the Uttarpara plant.

The Uttarpara plant had workforce of 14,000 employees and the wage bill alone constituted 22% of plant's expenditure. Against the standard output of 8-10 cars per employee per annum, the plant's output was as low as 3 cars. Analysts claimed that with the 1999 production level of 2500 cars, the plant should have been staffed with no more than 3,000 personnel. Annual production at the plant declined from 30,822 cars in 1995-96 to 26,684 cars in 1996-97. In November 1997, 2835 Ambassadors and 146 Contessas were produced. The numbers came down to 1385 and 33 respectively by October 1998. In its bid to turn around the plant, HM invested around Rs 750 million to modernize the assembly line, build new body and paint shops and purchase new equipment. The company also embarked on a cost-cutting exercise and announced a Voluntary Retirement Scheme (VRS) for workers in April 1998 and again in November 1998, offering a Rs. 0.1 million package. However, the VRS was not received well by the strong Center of Indian Trade Union (CITU) and the Indian National Trade Union Congress (INTUC)6 led employee unions.

Commenting on a similar VRS offered by the Fiat management at its Kurla, (Maharashtra) plant, employees said "Workers at the Fiat factory at Mumbai have got an average of Rs.0.35 million per worker while we are fobbed off with such measly sums." The strong political patronage to the employee unions made it tough for the management to convince workers about the VRS.

Both the CITU and INTUC union leaders refused to accept the VRS offered by the company. The unions were confident that the West Bengal State Government would back them on the issue. As employee protests intensified, HM approached the state government with a proposal to run the plant for only three days in a week, in an attempt to save Rs. 0.32 million every week.

The company also promised that it would continue to pay the workforce full wages for an entire week. However, the government rejected HM's proposal, following which the company decided to seek legal recourse. In January 1999, HM filed a writ petition in the Calcutta High Court, claiming that its decision was not prompted by industrial relations, but by the company's poor financial position.

It also stated that the layoff in the Uttarpara plant was temporary in nature and the company would resume normal production as soon as demand picked up. The High Court then ordered the state government to reconsider the issue. In May 1999, instead of reconsidering the issue, the state government filed an appeal before the division bench of the Calcutta High Court, claiming that HM had suppressed facts and figures during its meeting with them to settle the issue.

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6] Two of the biggest trade unions in the country, the CITU was affiliated to the CPI-M party, while the INTUC was an affiliate of the Congress party.