SEOUL, Aug. 22 (Korea Bizwire) — South Korean carmakers on Tuesday cited high costs and low productivity as major sources of concern as they compete in an ever competitive market.
In a seminar held in Seoul to discuss outstanding issues facing local carmakers, executives from Hyundai Motor Co. and Kia Motors Corp. expressed worries about the unfriendly business environments in the automobile markets.
Hyundai and Kia, which together form the world’s fifth-largest automaker by sales, have gradually increased their overseas production volumes in the past decade due to rising labor costs and relatively low productivity at local plants.
In particular, Kia Motors voiced serious reservations about an upcoming court ruling on wages due out late this month or early next month.
The court is expected to rule on whether to count regularly paid bonuses as part of a worker’s salary. The critical lawsuit was filed by Kia workers against the company in late 2011.
“We may have to retroactively make additional payments to union workers as we respect a court’s ruling. But it will deal a heavy blow to the company’s bottom line at a time when it is suffering from declining sales in China and the U.S., and low operating profit margins,” Kia President and CEO Park Han-woo said in the seminar.
A company spokesman echoed such fears, stressing that if the court rules in favor of the union, wages of workers will rise sharply on an annual basis.
Kia added such a development can cost upwards of 3.1 trillion won (US$2.7 billion) in retroactive payments from the period covering August 2008 to the end of 2015. The costs reportedly could rise to over 5 trillion won when 2016 and 2017 are counted, the spokesman explained.
“The real question is the ruling could affect most manufacturers’ unions under the country’s metal workers’ union. If similar court rulings come up, companies will have to bear a significantly higher financial burden,” he said.
Kia’s 28,240-member union could not be reached for comment.
In the seminar, participants also pointed out union-friendly labor laws and frequent strikes as major factors that are hurting competitiveness of the five carmakers operating in South Korea — Hyundai, Kia, GM Korea Co., Renault Samsung Motors Corp. and SsangYong Motor Co.
Hyundai, Kia, GM Korea have staged strikes as they haven’t reached a consensus on this year’s wage negotiations. Renault Samsung is in talks with its union over wages and SsangYong Motor concluded their wage deal in July.
The average wage per worker at the five carmakers reached 92.13 million won in 2016, higher than Toyota Motor Corp.’s 91.04 million won and Volkswagen AG’s 80.40 million won, the Korea Automobile Manufacturers Association (KAMA) said in the seminar.
The ratio of average wages compared to total sales of the five carmakers was 12.2 percent, higher than Volkswagen’s 9.5 percent and Toyota Motor’s 7.8 percent, KAMA said.
Moreover, their plants’ operating ratio averaged at 93.2 percent in the first half of 2017, down from 96.5 percent in 2014. Hyundai and Kia’s R&D investments was 4 trillion won, one-fourth of Volkswagen’s and two-fifths of Toyota’s, it said.