Korea’s vulnerable auto industry

A labor strike in a major automotive parts manufacturer is threatening to cripple Korea’s entire auto-making industry. Yoosung Enterprise, which fills 80 percent of the demand for piston rings - a major component of car engines - has stopped production due to a labor protest over wages and a shift system.

A slowdown or a cut in the supply of the parts can disrupt car manufacturing lines. Hyundai Motor and its affiliate Kia Motors are already running out of inventory. They fear that a disruption in the delivery of parts will upset their unprecedented boom. Hyundai, the world’s fifth largest carmaker, recorded its highest market share of 9.4 percent in the United States last month.

No doubt the recent labor disputes underscore the vulnerability of our automobile industry. Hyundai and Kia lost a combined market capitalization of 4.22 trillion won ($3.86 billion) in just one day after their shares took a beating on the news. In the worst scenario where production grinds to a halt, it could amount to a loss of more than 100 billion won a day and nearly 1 trillion won by the end of the month.

As a result of the labor strike at the piston ring supplier, some 300,000 workers at 300 other auto parts suppliers will also have to sit idle until major automakers resume production. In a nutshell, a strike in a parts supplier with a tiny revenue of around 200 billion won could jeopardize our entire auto industry of 81 trillion won.

For now, there is no other way around letting the Yoosung employees on strike return to work. If prolonged, the walkout could make the company go bankrupt. It might face massive lawsuits by local automakers, who would demand compensation worth 1.8 billion won for every hour of loss in manufacturing. To prevent our worst nightmare from becoming reality, the Yoosung labor union should first withdraw its demand on wages and shifts, while the management meets it half way with a compromise deal.

Of course, a strike is legally permitted, considering it is in the Constitution, but a forced seizure and blocking of production lines is not allowed by law. The automakers, too, should learn an important lesson from the latest fiasco. It is common sense that our automakers cannot survive without their parts suppliers - so they should put a stop to the practice of exploiting their counterparts by demanding cuts in prices.

Manufacturers also need to diversify their supply networks at home and abroad.