The profit slide of Hyundai Motor Co. is threatened to be worsened further as the company’s plants in South Korea were crippled by the first complete strike by unionized workers in more than a decade on Monday.
Production of thousands of vehicles at the largest auto maker in South Korea were absolutely crippled as the assembly lines at all of the company’s three domestic plants came to a grinding halt early in the day on Monday. A union spokesman said that the production will remain suspended until after midnight.
He further added that the workers also plan partial strikes for six-hours from Tuesday.
Nearly 40% of the global output of the company last year was accounted for by the local factories which comprise Hyundai’s largest manufacturing base globally.
“While we are obviously disappointed with any temporary stoppage in production, we still continue to work with our labor union to resolve this issue as quickly as possible,” the company said.
And since 2004, this action is the first occasion that Hyundai’s unionized workers, who currently total nearly 50,000, have embarked on a full fledged work stoppage.
A tentative wage deal agreed between their leaders and management was rejected by union members who account for more than 70% of Hyundai’s 67,000-strong domestic labor force. The offer by the company in the proposed agreement included smaller increases in basic pay, bonuses and incentives than in the previous year’s package, citing worsening business conditions which led to the failure of the agreement. The general strike comes after union members’ rejection of the proposed agreement.
Additionally, partial strikes for three days this week to demand higher wages have also been announced by workers at Kia Motors Corp., a Hyundai affiliate.
Hyundai has suffered loss in production in all but four years of the company’s union’s nearly three-decade history as the world’s fifth-largest auto maker by output when combined with Kia Motors, has been hit by strikes during those years. And since Hyundai is already grappling with flagging sales in its major markets, any significant work stoppage this year could prove more damaging for the company.
Hyundai warned of a tough second half, dimming the outlook for achieving its full-year sales target after the company posted its 10th consecutive decline in quarterly profit in the second quarter. The earnings are expected to continue to slide by analysts.
“This year’s strikes at Hyundai plants are longer than expected. Its third-quarter earnings should disappoint,” said NH Investment & Securities analyst Cho Soo-hong.
Mr. Cho expects that the target of auto sales set by Hyundai and Kia od 8.13 million vehicles would not be matched this year as he anticipates that the combined auto sales of the two companies to decline 0.6% to about 7.96 million vehicles.
According to the company, there has been lost production of more than 100,000 cars valued at two trillion won ($1.8 billion) this summer due to a series of partial strikes at Hyundai since July.
But once the strike ends, much of lost production is usually recovered through extra work.
(Adapted from The Wall Street Journal)