Hyundai Motor President Yoon Gap-han reportedly said during a recent collective bargaining with its labor union, “the days of the union demanding high wages like they did when Hyundai Motor grew rapidly are past.”
Hyundai Motor’s labor cost has not only far exceeded the industry average but has already reached its limits, he said.
“Sales have plunged in the US and China this year and orders for production have declined sharply,” Yoon said. “The time when overtime is not needed may come sooner than expected.”
It is exceptional for the Hyundai Motor president to speak to the union this bluntly about difficulties facing the company.
However, considering the crisis Hyundai Motor faces, his warning does not seem to be an exaggeration.
Its operating and net profits for the first half of this year shrank 16.4 percent and 34.3 percent, respectively, from a year earlier. Its second-quarter 2017 earnings dropped 48.2 percent year-on-year.
The management and union have negotiated 24 times, but failed to reach an agreement. The union went on partial strike on Aug. 10.
The union has gone on strike for the sixth consecutive year.
Company officials estimates the strikes will cause 500 billion won in lost production.
According to the management a pay raise is impossible unless seniority-based pay is excluded from the increase. It proposed a smaller-than-usual bonus.
The union demands increased wages, in addition to annual raises, and that 30 percent of the company’s net profit be distributed in bonuses.
The union also demands an agreement to guarantee the employment of its members even if the “fourth industrial revolution” arrives. On the other hand, the company has taken a position that it is difficult to preserve jobs within the current cost structure when the fourth industrial revolution begins in earnest.
The differences between the two sides look too wide to narrow.
Hyundai Motor’s wage and welfare are said to be among the highest in the nation. The annual average salary per employee reached 94 million won ($82,640) last year, also among the highest in the world.
According to a recent report by Korea Institute for Industrial Economics & Trade, the global market share of Korean cars is expected to decrease from 5.2 percent in 2015 to 3.8 percent in 2025 due to high labor costs and low competitiveness.
According to the Korea Automobile Manufacturing Association, the wage-to-sales ratio of Korean carmakers is 12.2 percent, higher than 7.8 percent for Toyota in Japan and 9.5 percent for Volkswagen in Germany.
The Korean car manufacturers took 26.8 hours to produce a car, compared with 24.1 hours for Toyota and 23.4 hours for GM in the US.
The automobile industry is at a turning point characterized by electric vehicles.
Global competitors are pouring their fortunes into eco-friendly and self-driving cars.
Hyundai Motor and its sister corporation, Kia Motors, spent a combined 4 trillion won on research and development last year, while Toyota put in 1.037 trillion yen (11 trillion won).
It is doubtful if the Hyundai Motor union is aware of the falling competitiveness of the company.
Turning away from the president’s appeals, making excessive demands and pressing the management with strikes will hardly arouse sympathy from the public.
Moreover, if Hyundai Motor falls into troubled waters, it is not only its management and labor that will suffer. The survival of countless suppliers and their employees will also be threatened.
In 2015, the automobile industry accounted for 12 percent (about 190 trillion won) of domestic manufacturing output and employed more than 350,000 people, including those involved in manufacturing, shipping and sales.
If the company falls behind the global competition, the national economy will face a dismal future.
Yoon called for both management and labor to return to basics for survival, which are productivity and quality.
The union should not listen carelessly to his plea that now is time to need a new mind of trying to “save even a sheet of paper and a drop of water.”