In fact, with an annual salary of $60,000, Hyundai employees are among the highest-paid blue-collar workers in Korea, and make just a bit less than the average salary of their compatriots in Detroit. Hyundai, the world’s sixth-largest automaker, is also plagued with many of the same problems that have driven American auto giants like GM and Ford to the brink of solvency in recent years. Hyundai’s profits declined 35 percent last year, the first time since 2000. Some of the dip was company- or country-specific, including a surging Korean won (which made Hyundai products more expensive overseas), sagging domestic demand and a corruption scandal involving the chairman. But a large chunk of the trouble stems from a Detroit-style mix of high costs, low productivity and frequent labor strife. While Hyundai set out more than a decade ago to emulate Japanese industry leaders like Toyota, it has lagged far behind not only them, but also a number of U.S. companies, on key cost and labor metrics. Given the company’s huge role in the Korean economy–about 5 percent of national exports and employment–Hyundai’s problems cast dark clouds over the entire nation. “Unless Hyundai’s union and management change themselves in earnest, the company’s future is not guaranteed,” says Yoon Chang Hyun, a business-management professor at the University of Seoul. “It looks too much like the declining Big Three in Detroit.”
Hyundai’s fall was unexpected. After a brief setback during the 1997-98 Asian crisis, Hyundai increased market share worldwide with aggressive overseas expansion and impressive quality control. Since the early part of this decade, the company has earned more than $1 billion in yearly profits. But rather than pouring that windfall back into new production-line technology and better engineering, the company gave disproportionate raises to workers. The end result was a huge productivity gap, not only with Japanese competitors, but also with the Americans. It takes 30 man-hours to make a car at Hyundai, compared with about 22 hours at Toyota and 26 hours at Ford. “Hyundai’s labor costs are too high compared to its productivity,” says Kim Hak Joo, an auto analyst with Samsung Securities. “Its gap with Toyota is ever increasing.” Meanwhile, things are improving at Ford and GM after massive layoffs and other cost-cutting.
Those companies are turning the corner in large part because workers confronted with the reality of pay cuts or no jobs at all have made major concessions on wages, health care and pensions. Meanwhile, Hyundai’s all-powerful “aristocratic union” has gone on strike every year except one since it was established in 1987. Management needs its consent for everything from new shifts to work-force rotation. Last month, angered by the union’s excessive demands and corruption-scandal-plagued management, domestic consumers waged a campaign to boycott Hyundai cars. It was an unprecedented step in a nation where personal devotion to national economic goals still counts. Labor says it has done all it can do–wages as a part of revenues dropped from 17 to 9 percent since the late ’90s. But the fall was due in part to company growth; percentages are lower for many foreign competitors. It’s no surprise, then, that Hyundai is now producing more than 1 million cars a year outside Korea, and plans to raise that number to 3.14 million by 2010.
That fact–and the painful lessons from Detroit, where 75,000 workers lost their jobs last year–should give Hyundai’s union pause. Last week, DaimlerChrysler announced plans to drop as many as 13,000 American jobs, as management considers a sale of the entire U.S. division. As Hyundai grapples with its own labor troubles, pink slips may soon arrive in Cheonju as well.
