1. Hindustan Motors’ revival plan hinges on VRS success

Hindustan Motors’ revival plan hinges on VRS success

Bengal government talking to management, workers to hammer out solution

By: and | Updated: December 1, 2014 4:32 AM

At a time when India’s Prime Minister Narendra Modi is urging global investors to come and ‘Make in India’, one of the earliest icons of
Indian manufacturing, Ambassador, has ceased to exist.

On May 24, Hindustan Motors (HM), a part of the $1.6 billion-CK Birla Group and the first car maker in India, announced it would stop making the Ambassador,  seven decades after it was first built, making it of the same vintage as cult brands like the Volkswagen Beetle.

At one point in time, the Amby, as the car is fondly called in India, was the preferred set of wheels for politicians, bureaucrats and industrialists, and was seen as a symbol of power.

Till the beginning of the 1980s, the Ambassador had a virtual monopoly of the Indian car market with a 75% market share. But by 1991, its share in the Indian passenger car market came down to around 20%. The decline in its fortunes was largely driven by the growing popularity of the Maruti 800, a compact car launched by the Indo-Japanese joint venture company Maruti Suzuki in 1984.


Towards the end, HM’s Uttarpara factory was churning out 600-700 units of the Ambassador per month, around a fifth of its installed capacity of 3,500 units a month. To stay afloat, HM also experimented with other products like the Contessa sedan, a RTV van, and the Winner minibus (produced in collaboration with China’s Shifeng Group), but none of these initiatives helped revive the company’s flagging sales.

A senior HM executive, who spoke to FE on condition of anonymity, said Birla would have shut shop long but was persuaded by his late father G Birla and mother to keep going. HM was started by CK Birla’ grandfather BM Birla in 1942.

“He (CK Birla) put R180 crore from his personal wealth into the company hoping to turn it around and find investors, but over time he got tired,” the HM official said. “Every month he gave R8-10 crore to pay salaries and meet other recurring expenses, which led to a perception among workers that it would always continue to be like this.”

HM has since been referred to the Board of Industrial and Financial Reconstruction (BIFR).

However,  the promoters  hope to turn HM into an auto components supplier and and engine assembler for other manufacturers—something it has already done in the past for Ford, General Motors and Tata Motors.  A McKinsey study  in 2006 suggested HM exit manufacturing and focus on components.

Additionally, HM could  monetise a portion of its land bank—750 acres in Uttarpara—though the state government is opposed to this.  In 2006-07, HM had sold around 314 acres of the excess land at Uttarpara to Bengal Shriram Hitech City Pvt Ltd, a real estate developer.

But these plans hinge largely on cooperation from workers at HM’s Uttarpara plant, whose livelihoods are at risk and who are uncertain about what the future holds in store for them.

On November 9, HM announced a voluntary retirement scheme (VRS) for the 2,200 permanent workers at the Uttarpara plant. The VRS announced entitles them to a lumpsum payment of R1 lakh plus other statutory dues like provident fund and gratuity. The last date for the workers to accept the VRS was November 25.

“We hope that if the VRS works, we can find an investor for the plant. We remain hopeful of a revival,” the HM executive quoted earlier said.

“Labour union activism has probably been the biggest reason for HM’s downfall. When we were in dire straits a few years back and needed to
cut down on manpower, we could lay off 243 managers, but not a single worker.”

But this time around, the workers’ union at Uttarpara, affiliated with the ruling Trinamool Congress in West Bengal, appears to be sympathetic with the management and is supporting the VRS. The Indian National Trinamool Trade Union Congress (INTTUC) feels that if the company were to be declared sick and beyond redemption by the BIFR, workers may not get anything besides their statutory dues.

In a statement on November 21, HM had said that 925 workers had collected forms for claiming VRS.

INTTUC leader Uttam Chakraborty, who also works at the Uttarpara plant, says the VRS scheme may be the only way to save the factor since  the main constraint was capital.

Chakraborty says. “If the  workforce is reduced,  HM can team up with another firm and revive the business.”

But rival trade unions like the Centre of Indian Trade Unions (CITU) and the Congress-backed Indian National Trade Union Congress (INTUC) don’t agree.

CITU leader Shantashree Chatterjee says that the unions weren’t consulted before rolling out the VRS and wants the state government to intervene. However, no agitations have been planned.

West Bengal’s labour minister Moloy Ghatak told FE his government would not allow HM to use any of the remaining land at the Uttarpara plant for real estate development. “ I will ask the company officials about the revival plan” Ghatak said.

HM’s workers, lenders and investors will be keen to know as well.

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