September 7, 2017 10:00 am JST

Hyundai suffers labor problems at home and political fallout in China

Automaker, trade union can't cut a deal while Beijing turns up the heat over THAAD

KIM JAEWON and SHUNSUKE TABETA, Nikkei staff writers

Hyundai cars leave a Hyundai Motor plant in Beijing on Aug. 30. © Reuters

SEOUL/CHONGQING Hyundai Motor cannot seem to catch a break these days. Talks between the automaker and its trade union at home recently collapsed while the company continued to face nagging problems with its operations in China.

The trade union of South Korea's largest automaker said on Aug. 30 it failed to reach an agreement with management over this year's wage hikes and would suspend talks until October, when new leadership takes over. The union wants a basic monthly wage hike of 154,883 won ($137) and demands that the company use 30% of its net profit to pay employee bonuses.

"We could not accept management's suggestion to raise the basic monthly wage by 57,000 won and cut bonuses by 20% from the previous year," said Park Yu-ki, the union's leader.

The announcement adds further pressure on Hyundai, which was forced to shut down production lines in China on Aug. 28-29 because of a boycott by a fuel tank supplier over unpaid bills. Work resumed on Aug. 30, but Beijing Hyundai Motor still owed the supplier money due to disagreements with its Chinese joint-venture partner BAIC Motor.

A similar problem surfaced on Sept. 5 when Hyundai's Changzhou plant in eastern China suspended operations after a German supplier declined to supply air intake systems, again due to outstanding bills. Hyundai said that it will negotiate with the supplier, but it is unclear when work will resume.

The company did not reveal how much it owed the suppliers. "It is a joint venture, so we need to resolve these problems by discussing them with our partner," said Son Yong, a Hyundai spokesperson. "The company is suffering from falling sales, but it is not a matter of cash flow."

PETULANT PARTNER Beijing Hyundai reported that sales plunged 40.8% to 351,000 units in the January-July period from a year ago, largely due to anti-South Korean sentiment after Seoul deployed the U.S. Terminal High Altitude Area Defense, or THAAD, anti-missile system earlier this year.

Sources say BAIC is not cooperating with Hyundai as part of concerted Chinese retaliation against THAAD. In the previous decade, Hyundai had gained a significant foothold in China after securing vehicle orders from Beijing taxi companies via a partnership with BAIC, one of China's biggest state-owned automakers.

Its influential local partner, however, has not been able to shield the joint venture from political tensions. Many attribute the recent shutdowns at four Hyundai plants as evidence of Beijing's increased pressure on Seoul.

"It's an attempt by the Communist Party to rattle South Korea," an executive at a major Chinese state-owned automaker said. Angry over the decision to deploy THAAD, China has hit at Hyundai and is gauging the South Korean response, the theory goes.

State-owned BAIC falls under the administration of the city of Beijing, whose powerful Communist Party secretary, Cai Qi, is believed to wield major influence over the automaker. Cai is one of President Xi Jinping's closest allies, going back to when Xi was a top official in Zhejiang Province. More than a few observers reckon that Cai or those around him were behind the Hyundai plant stoppages.

But the animosity toward South Korea over the missile system does not match the ire shown Japan in 2012. At that time, Japanese vehicle dealerships were the targets of arson owing to the Sino-Japanese dispute over the Senkaku Islands. On the contrary, Chen Min'er, Chongqing's Communist Party secretary and the municipal boss, used Xi's own words to welcome the city's new Hyundai assembly plant when he met with Hyundai Vice Chairman Chung Eui-sun on July 19.

Some observers suspect Xi may be using Cai and Chen to send South Korea mixed messages in hopes of extracting concessions.

Beijing Hyundai's sales recovered somewhat in July, topping 50,000 vehicles for the first time in four months. The comments by Chen, another ally of Xi's from his Zhejiang days, may have helped. An executive at a Beijing Hyundai dealership expects that the company will still need to "keep an eye on the political environment" going forward.

Asia300

Hyundai Motor Co., Ltd.

South Korea

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