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(News Focus) China, wage talks pose serious challenges for Hyundai Motor

2017/08/30 18:27

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By Choi Kyong-ae

SEOUL, Aug. 30 (Yonhap) -- Declining sales in China and ever-rising labor costs are adding to the woes of Hyundai Motor Co., South Korea's biggest carmaker by sales, with some industry watchers expressing concerns about its ability to overcome the latest challenges.

Hyundai Motor has performed poorly this year in the world's biggest automobile market as local consumers opted to buy fewer South Korean products amid diplomatic rows over the deployment of the Terminal High Altitude Area Defense (THAAD) system in South Korea.

A temporary suspension of production at its four plants in China clearly shows the problems confronting the carmaker, analysts said. Hyundai's assembly lines in the world's second-largest economy were halted for about a week through Tuesday, after a local supplier refused to deliver fuel tank components due to delayed payment.

The plants resumed operations Wednesday but Hyundai has yet to make the payment to the Chinese company.

In this photo taken on Aug. 30, 2017, traffic lights turn red near the headquarters buildings of Hyundai Motor Co. and Kia Motors Corp. in southern Seoul. (Yonhap) In this photo taken on Aug. 30, 2017, traffic lights turn red near the headquarters buildings of Hyundai Motor Co. and Kia Motors Corp. in southern Seoul. (Yonhap)

"The THAAD issue is unlikely to be resolved soon due to China's strong stance against it. If Hyundai continues to report weak sales in China for the rest of the year, it will deal a heavy blow to its annual earnings," Suh Sung-moon, an auto analyst at the Korea Investment and Securities, said by phone.

In the January-July period, Hyundai's sales in China plunged 41 percent to 351,292 vehicles from 592,785 units a year earlier. It is widely expected to miss this year's sales target of 1.25 million units for the market.

He also pointed out the carmaker's lack of competitive SUV models it can field is hurting it in the critical U.S. market.

"Hyundai Motor and even its sister company Kia Motors Corp. badly needs to promote their new recreational vehicles like the Kona and the Stonic subcompact SUV, respectively, to bolster sales going forward," he said.

Besides the SUV models, analysts advised Hyundai put a bigger focus on strengthening its independent Genesis brand -- currently composed of two luxury sedans, the G90 and G80 sedan -- to compete with its bigger rivals such as BMW and Mercedes-Benz. Hyundai plans to add the G70 to the sub-brand, with the new car set to be sold domestically next month.

Another cause for worry centers around the inability of Hyundai's management and union workers to reach an understanding on wage talks. Union workers have organized walkouts that hurt production. The suspension of work has resulted in 620 billion won (US$550 million) in output losses.

"Any further strikes at domestic plants could hamper the production of the G70 sedan. If the union uses the G70 as a bargaining chip in wage talks, it will further drive up production losses and lead to reduced sales," Suh said.

The wage talks have been suspended as the union has to pick new leaders in September and organize the leadership group in October. So the negotiations are expected to resume in November, the company and the union said.

Meanwhile, Kia Motors is awaiting a court ruling on a case involving wages. All eyes are on the decision as it could have a far-reaching impact, not only for Kia and Hyundai, but the country as a whole.

The Seoul Central District Court will decide Thursday whether to count "regular" bonuses at Kia as part of basic wages. If regular bonuses are included in wages, workers will receive higher wages and more retirement benefits when they leave the company.

Kia's union brought the case to court in late 2011 and the company has balked at the lawsuit, calling their demands "excessive" given declining sales in its major markets such as China.

In the first seven months, Kia sold a total of 149,672 autos in China, down 54 percent from 326,595 units a year ago. The company looks set to miss its sales target of 690,000 units in China this year.

If the court upholds the union's demands, the company said it will have to put aside more than 3 trillion won to retroactively pay higher wages to its workers, although some analysts are claiming the carmaker only needs to set aside 1.5 trillion won extra.

Citing the ratio of labor costs at their domestic plants reaching an average of 12 percent of their combined sales, the country's five carmakers -- including GM Korea Co., Renault Samsung Motors Corp. and SsangYong Motor Co. -- recently warned they may relocate their production lines overseas in the worst-case scenario.

"We may have to consider moving our production facilities out of the country if things take a turn for the worse," they said in a joint statement recently released through the Korea Automobile Manufacturers Association.