HM's executive vice-president, R Santhanam, said the Uttarpara plant is burdened with huge fixed costs of a surplus workforce, mainly a legacy of the days when the company had to make everything itself.

"We have to bring down fixed costs," Santhanam said. "We plan to achieve this with a bit of both -- VRS and partial layoffs."

At the extraordinary general meeting of its shareholders in September last year, the management had projected a net profit of Rs 34.25 crore for the year to March 31, 1999, despite the recession that had gripped the economy and the automobile sector at that time.

In the event, HM slipped into the red and posted a net provisional loss of Rs 28.17 crore for theyear.

As its flagship product, the Ambassador, continued to lose marketshare, the carmaker had sought the West Bengal government's permission for a three day week at Uttarpara. The state rejected this, and the company went to court.

Then, in late March this year, it cited a surge in demand to ramp up production. However, it is still seeking the flexibility of a reduced work week.

It manufactured a shade over 20,000 cars during 1998-99 against 21,382 cars in 1997-98 and 24,294 cars in 1996-97.

The Uttarpara unit, set up in 1957, has already shed around 4,000 workers through VRS since 1994. Around 1,200 employees opted for the VRS of 1998-99.

Ideally, the management is pushing for a total workforce of around 3,000.

Santhanam said some of the fixed costs were the result of historical factors -- like the billet plant set up in the old days.

He pointed out that key parts that go into an automobile are becoming the specialised business of three or four manufacturers globally. "People tend to onlyfocus on one or two technologies today," Santhanam said.

Santhanam said modern plants with large capacities turn out 50 to 60 cars per employee per year, against Uttarpara's average of 2.5 cars. The company's spanking new Chennai plant, which makes the Mitsubishi Lancer, has an annual average production ratio of 25 cars per employee.

As for employee costs as a percentage of turnover, Santhanam said the industry average is two per cent against HM's 18-20 per cent.

Santhanam ruled out any basic change in the new VRS formula, but said that the management will continue to make the whole process transparent and take into account the workers' views.

As for the staid product range of Uttarpara, Santhanam said HM is working on the third round of improvements for the Ambassador. The modernisation of the plant will be completed by mid-July.

It had embarked on a massive Rs 503 crore modernisation-cum- expansion programme which included Rs 50.76 crore for the automobile division at Uttarpara, Rs 298 crore forthe Chennai Lancer plant, Rs 37.07 crore for rural transport vehicle manufacturing outfit in Madhya Pradesh, Rs 42.70 crore for earthmoving equipment manufacturing division and Rs 18.95 crore for power products division.

In addition to the high manpower cost, the company is saddled with a massive interest and depreciation cost which have increased by 43.14 per cent and 28.41 per cent repectively during 1998-99. Taken together interest and depreciation components increased by 38.72 per cent to Rs 115.53 crore to March 31, 1999, against Rs 83.28 crore recorded in the previous year.