Honda's China Auto Plants Will Remain Halted Through June 3, Company Says

Honda Motor Co.’s car production in China will remain halted at least through June 3 as some striking workers at a parts plant in the country rejected a proposed pay increase.

Honda, Japan’s second-largest automaker, is still negotiating with employees and a return to full production will depend on those talks, said Akemi Ando, a spokeswoman for the Tokyo-based company. Honda said the plants would remain closed in a faxed statement today.

The maker of Accord and Civic cars may be losing production of as many as 3,000 vehicles a day since its four auto-assembly factories in the world’s biggest automobile market shut last week, analysts said. The strike is a sign that automakers can expect rising labor costs in China, according to Satoru Takada, an analyst at Toward the Infinite World Inc. in Tokyo.

“Gaining big profits from China is becoming harder,” Takada said. “Other companies besides Honda may have the same problem. If the higher pay rate is reasonable, companies may have to accept it.”

Honda fell 0.2 percent to 2,764 yen in Tokyo trading.

The automaker shut two plants in Guangzhou, Guangdong province, on May 24 and factories in Guangzhou and Wuhan, Hubei province, on May 26 after workers making transmissions and engine parts at Honda Auto Parts Manufacturing Co. in Foshan, Guangdong, walked out on May 17, demanding a pay raise. It is the first time a strike has stopped Honda’s local auto production, the company said.

Photographer: Nelson Ching/Bloomberg

A Guangzhou Honda factory employee works on the assembly line Guangzhou. Close

A Guangzhou Honda factory employee works on the assembly line Guangzhou.

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Photographer: Nelson Ching/Bloomberg

A Guangzhou Honda factory employee works on the assembly line Guangzhou.

Pay Offer

Fewer than 100 of the parts plant’s 1,900 workers rejected the carmaker’s offer of a 24 percent pay increase to 1,910 yuan ($280 dollars) a month, said Takayuki Fujii, a Beijing-based spokesman for Honda. The employees had demanded between 2,000 yuan and 2,500 yuan. The local government and the government- affiliated union are in talks with workers, Fujii said.

Production is underway at the parts plant in Foshan tonight, according to Honda. About 200 workers are at work making crank shafts and connecting rods, Fujii said.

Scuffles broke out between workers and staff from the government-backed trade union at the component factory yesterday, according to the South China Morning Post. Local police were called in to break up the fights and some workers were sent to hospital for treatment, the Chinese-language newspaper Ming Pao Daily News said.

Hon Hai

Hon Hai Group, the assembler of Apple Inc.’s iPhones, said last week it may raise wages in China by 20 percent. Police and customers from Apple to Dell Inc. are probing Hon Hai’s working conditions after the deaths of at least 10 people this year at the company’s manufacturing complex in Shenzhen.

Trade unions and employers appear to be reporting a growing number of work stoppages in China, although there are no official numbers, according to the International Labor Organization in Beijing.

“Demands for workers’ rights, including better pay, and political awareness are rising,” said Kiyoshi Kasahara, a professor at Tokyo’s Rikkyo University who studies industrial relations in China. “I expect to see more labor troubles.”

China remains attractive to manufacturers as wages are still low and employees are hardworking, said Xing Xinmin, a labor-law specialist at the China Center for Labor and Environment in Beijing. While disputes are common, they are usually easily resolved through talks between companies, the government and industry unions, he said.

Chain Reaction?

“Historically, China doesn’t have a culture of using strikes to settle labor disputes,” said Xing, a former director at China’s labor ministry. “There won’t be any chain reaction sparking more strikes.”

Honda produces about 3,000 vehicles a day in China, according to Koji Endo, a Tokyo-based analyst at Advanced Research Japan. The closed factories, joint ventures between Honda and its Chinese partners, make models including the Accord sedan and Civic compact and have combined annual capacity of 650,000 units.

Restarting the assembly plants may take one to two days once full production resumes at the parts factory, Honda’s Fujii said. A line at the parts plant making manual transmissions reopened yesterday, Honda said.

“My guess is that it will take less than a week to get production back at full capacity once the strike is resolved,” said Tianshu Xin, managing director at IHS Global Insight in Shanghai. Honda will likely add shifts to make up the lost production, he said.

Global Sales

China accounted for 17 percent of Honda’s global sales last year, and the brand ranked fifth in China by unit sales in April, according to J.D. Power & Associates. Honda may increase China sales 9 percent to 630,000 vehicles this year, Chief Executive Officer Takanobu Ito said last month.

Honda plans to raise production capacity in China by 28 percent to 830,000 vehicles a year by the second half of 2012 and introduce two new models as car demand grows in the country, Ito said in Guangzhou on May 25.

Auto sales in China may rise 17 percent to 16 million this year and annual demand may climb to more than 30 million, according to an official at the State Information Center.

--Makiko Kitamura, Yuki Hagiwara, Liza Lin, Wing-Gar Cheng, Takako Iwatani. Editors: Terje Langeland, James Gunsalus

To contact Bloomberg News staff for this story: Makiko Kitamura in Tokyo at +81-3-3201-8482 or mkitamura1@bloomberg.net

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