Hyundai Motor Group Unions Vow to Strike in August Over Wages

Jul 30, 2014 1:34 am ET

July 30 (Bloomberg) -- Labor unions at Hyundai Motor Co. and its 14 affiliates vowed to go on strike next month unless the companies meet their wage demands.

Workers at South Korea’s largest automaker and affiliated companies including Kia Motors Corp. and Hyundai Mobis Co. plan to put down their tools beginning Aug. 18 if management refuse to count bonuses as base wages, Lee Kyung Hoon, union leader at Hyundai Motor, said at a press conference in Ulsan today. Lee was joined at the briefing by 19 other union leaders of the 14 affiliates under the umbrella Hyundai Motor Group.

The inclusion of bonuses has been the main issue at this year’s annual wage negotiations, after the country’s Supreme Court ruled in December that periodic bonuses and other compensation must be included in workers’ base pay. An increase in labor costs would add pressure on Hyundai and Kia, which have struggled to boost earnings as a strengthening won erodes the value of profits from overseas.

“Chairman Chung Mong Koo should immediately acknowledge bonuses as regular wages,” Lee said. “We’ve heard of the difficult economic situation and of the unfavorable foreign exchange rates, which means that if the company and the union don’t get along we could all perish together.”

Hyundai climbed 2.7 percent to 244,000 won as of 1:23 p.m. in Seoul trading, while Kia rose 1.3 percent. That compared with the 1.3 percent gain in the benchmark Kospi index.

Court Ruling

In December, the nation’s Supreme Court sided with car- parts maker KB AutoTech Co.’s employees, who first sued their Asan, South Korea-based employer in July 2010 to have the 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, although it rejected workers’ claims that seasonal allowances and welfare benefits should also be included in base salaries.

A higher base salary magnifies overall wage costs because it’s used to calculate everything from overtime payments to annual raises. The decision will translate into at least 13.8 trillion won ($13 billion) in added annual labor costs for companies, according to estimates by the Korea Employers Federation at the time.

For Hyundai and Kia, increased labor costs at home, where Hyundai produces more than a third and Kia manufactures more than half their vehicles sold worldwide, will add pressure on the two companies already grappling with a stronger won.

Won’s Gains

The won appreciated against every major currency except the British pound in the past 12 months. The South Korean currency gained almost 9 percent versus the dollar, hampering the ability of the country’s exporters to compete in global markets. In contrast, the Japanese yen weakened 4 percent against the dollar in the period.

Last week, Hyundai forecast the won will average 1,020 against the dollar in the second half of the year, while the yen will be at around 100 against the dollar, helping Japanese automakers “aggressively market” their vehicles.

Hyundai reported second-quarter net income declined 6.5 percent from a year earlier to 2.24 trillion won. Kia posted a 13 percent slump in profit to 1.02 trillion won.

Adding to the pressure is the decision made by GM Korea Co. and Ssangyong Motor Co. to agree with their respective unions to include some bonuses in base pay.

Workers at Ssangyong Motor, 73 percent owned by India’s Mahindra & Mahindra Ltd., last week agreed with the company on a deal to include some bonuses into ordinary wages.

GM Korea, General Motors Co.’s Korean unit, and its workers also tentatively agreed to count regular bonuses as part of ordinary wages retroactively from March 1, according to the union’s website. The union members will vote today and tomorrow to approve or reject the deal, according to the union.