Hyundai Dealing with High Wages, Low Productivity in South Korea

At first glance, it seemed like Hyundai/Kia had almost everything going for it: Attractive, affordable new models packed with features, rapid expansion in developing markets, and a still-generous warranty. Despite these public successes, the company still has some significant labor cost and productivity issues its dealing with at home, according to Reuters.

Labor costs at Hyundai’s South Korean factories are 16 percent higher than its U.S. facilities, and triple that of its plants in China. In addition, it takes Korean workers nearly twice as long to build a car than in its U.S. factories.

The buildup to the present situation sounds eerily familiar to those that have followed Detroit over the past several decades. The company convinced workers to work longer shifts by offering high levels of compensation, higher even than Toyota and Korean electronics maker Samsung. Hyundai wages and benefits have nearly doubled over the past decade to $88,600. Despite the lavish compensation for its blue-collar workers, the company failed to negotiate with the trade union for worker flexibility and productivity increases.

The incoming president of Hyundai’s trade union, Lee Kyung-hoon, presided over the organization from 2009-2011, when the company did not have any strikes. Lee has a reputation of being more moderate, compared to past leaders which fomented strikes among the workers. Hyundai management is expected to work with Lee to continue to increase worker productivity and flexibility, as well as cutting work hours. However, fewer hours will also mean less pay, which could make for tense negotiations for workers that have become accustomed to generous salaries and compensation.

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