Hyundai Braces for a Third Straight Year of Strikes in Korea

Hyundai Motor Co. (005380) workers endorsed a possible strike over wage demands for a third straight year, threatening output at South Korea’s largest automaker.

Almost 70 percent of Hyundai’s 47,000 labor-guild members voted in favor of authorizing union leader Lee Kyung Hoon to call for a walkout, Hwang Ki Tae, a union spokesman, said in a text message. The strike may begin as soon as Aug. 18, Lee said at a press conference on July 30.

While Hyundai is used to stoppages -- workers struck in 22 of the last 26 years -- the next walkout looms as the stronger won erodes the value of Korean exporters’ profits from overseas. It will also represent a changed tactic by union boss Lee, whose previous term from 2009 to 2011 was also the company’s longest stretch of uninterrupted production.

“This will be a blow to Hyundai, which has already been hit hard by the unfavorable exchange rate,” Lee Sang Hyun, an analyst at NH Investment & Securities Co., said by phone before the vote results. If the union does strike, “it’s likely that the company’s third-quarter profits will hit a low point.”

Hyundai fell 1.5 percent to close at 230,000 won in Seoul trading yesterday. Affiliate Kia Motors Corp. (000270) fell 1.6 percent. The benchmark Kospi index was little changed at 2,063.22.

Photographer: SeongJoon Cho/Bloomberg

Hyundai Motor Co. labor union members participate in a strike at the company's plant in Ulsan, South Korea, on July 13, 2012. Close

Hyundai Motor Co. labor union members participate in a strike at the company's plant in... Read More

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Photographer: SeongJoon Cho/Bloomberg

Hyundai Motor Co. labor union members participate in a strike at the company's plant in Ulsan, South Korea, on July 13, 2012.

Seoul-based Hyundai has lost production of more than 1.3 million vehicles valued at 16 trillion won ($16 billion) due to strikes since the union’s formation in 1987, according to company estimates. Past worker protests led to clashes between police and unionists armed with steel pipes and Molotov cocktails.

Bonus Issue

Workers at South Korea’s largest automaker and affiliated companies, including Kia and Hyundai Mobis Co. (012330), said on July 30 that they will put down their tools beginning Aug. 18 if management refuse to count bonuses as base wages.

The inclusion of bonuses has been the main issue at this year’s annual wage talks with manufacturers, after the country’s Supreme Court in December sided with autoparts maker KB AutoTech Co.’s employees, who sued their Asan, South Korea-based employer in July 2010 to bonuses they receive every other month included as part of their wages.

The court left it up to companies and their unions to carry out specifics of the ruling. The court rejected workers’ claims that seasonal allowances and welfare benefits should also be included in base salaries.

An increase in labor costs would add pressure on Hyundai and Kia because a higher base salary magnifies total wage costs as it’s used to calculate pay items including overtime payments and annual raises. The court decision will translate into at least 13.8 trillion won in added annual labor costs for companies, according to estimates by the Korea Employers Federation at the time.

Won Appreciation

The won has appreciated against most major currencies in the past 12 months. The South Korean currency has gained 10.6 percent versus the dollar, hampering the ability of the country’s exporters to compete in global markets. The yen weakened 4.6 percent against the dollar in the period.

Hyundai forecast in July that the won will average 1,020 against the dollar in the second half of the year, as the yen will be at about 100 against the dollar, helping Japanese automakers “aggressively market” their vehicles.

The company’s outlook for the rest of the year doesn’t look so positive, Chief Financial Officer Lee Won Hee said July 24. The won’s broad strengthening makes obsolete traditional methods of hedging currency risks, such as diversifying settlement currencies, he said at the time.

To contact the reporter on this story: Rose Kim in Seoul at rkim76@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net Suresh Seshadri, Joshua Fellman

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