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Hyundai Motor's union votes to strike as United States tariffs loom

Hyundai net profit halved to an almost six-year low in January-March, hit by bleak US and China sales.

July 03, 2018 / 11:53 AM IST
Hyundai | Headquarters: Seoul, South Korea (Photo: Reuters)

Hyundai | Headquarters: Seoul, South Korea (Photo: Reuters)

Hyundai Motor's unionised workers in South Korea voted to strike over stalled wage talks, raising the prospect of stoppages in production of in-demand SUVs and adding to the woes of the firm that is facing potential new US tariffs.

The automaker's shares slid to eight-year lows after the union, which has voted to strike every year for the past six years, said on Monday that nearly three-fourths of its 44,782 voters approved the strike action. It added that union negotiators would meet later on Tuesday to decide plans for walkouts.

The union, which started this year's talks on May 3, walked out of the negotiations in late June, after the company proposed wage increases and bonuses which the union said fell short of expectations.

"Business conditions are tough as net profit continues to decrease," Ha Eon-tae, an executive, said during the talks, according to the union's internal note seen by Reuters.

"We have taken into account the U.S.-China trade war and U.S. protectionist tariff policy (when proposing the wages)," he said, according to the note.

Hyundai Motor declined to comment.

Its shares fell as much as 2.8 percent on Tuesday to their lowest level since April 2010.

Its net profit halved to an almost six-year low in January-March, hit by bleak US and China sales. Although China sales modestly recovering the current quarter, its U.S. sales will remain weak, weighing on earnings, analysts said.

"While the strike will help reduce inventory for some low-selling cars, it will disrupt production of higher-demand SUVs," said Cho Soo-hong, an analyst at NH Investment & Securities.

"It is difficult for the company to give generous bonuses when profits are deteriorating. Potential U.S. tariffs may also force Hyundai to boost U.S. production, which will lead to reduced local output," he said.

The United States in May launched an investigation into whether imported vehicles pose a national security threat and President Donald Trump has repeatedly threatened to quickly impose tariffs.

Hyundai Motor said over the weekend that the US tariffs of up to 25 percent "would be devastating to Hyundai Motor", adding to its US production costs by about 10 percent.

Complicating the talks, Hyundai Motor in June submitted a letter of intent to consider investing in a proposed contract car manufacturing plant in the southwestern city of Gwangju, which triggered a backlash from its union worried about job security and lower wages.

This year, the union is demanding a 5.3 percent increase in basic monthly wage and a performance pay totalling 30 percent of the automakers 2017 net profit.

"Hyundai Motor's union will participate in talks when there are requests from the management," the union said in a statement. "We have not been able to narrow differences in key issues, making it difficult to reach a preliminary deal easily."

Hyundai Motor, the worlds fifth-biggest automaker together with affiliate Kia Motors, has been hit by strikes in all but four years since the union was formed in 1987. In most of the years, striking workers and management have struck compromise wage deals to restore normalcy to operations.
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Reuters
first published: Jul 3, 2018 11:50 am