The tyranny of militant unions

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The tyranny of militant unions

Chung Mong-koo, chairman of Hyundai Motor and Kia Motors, recently indicated that the country’s largest auto group could expand manufacturing overseas while scaling back local production. He reportedly ordered the group to cut back local production by 100,000 to 200,000 units this year while increasing production at overseas plants. Chung also recruited former vice chairman Youn Yeo-chul, who resigned last year, to be in charge of labor issues again. Yoon is credited with the automaker’s strike-free business period between 2009 and 2011. The recent steps follow disruptions in weekend overtime at Hyundai production lines in Ulsan, Asan and Jeonju.

Since March, Hyundai replaced night work with overtime during weekends to ensure better health and work conditions for its workers. It invested 300 billion won ($275 million) to keep the status quo on wages and output regardless of reduced work hours. The assembly lines were updated with robotic machinery, but workers nevertheless refused to do weekend overtime without more pay. The first-quarter revenue and operating profit suffered because of the production decline. Several factions of the unions resisted the weekend overtime that has been agreed upon by union leadership.

The union at Kia Motors is worse. The company spent 280 billion won to expand the Gwangju plant to an annual capacity of 620,000 units. When the union refused extra work, the management accepted its demand of giving jobs to siblings. But production lines are not running at full capacity due to a conflict in union leadership. Irregular workers also often join the walkouts. With such demanding unions, local manufactures hardly want to invest anew no matter how strong government pressure might be.

The unions of Hyundai Motor and Kia Motors should face reality. Overseas production has for the first time outperformed the local tally. It is an inevitable by-product of high wages and low profitability on local production lines. Local carmakers are also hard hit by the cheaper yen that sharply raised the price competitiveness of Japanese car brands.

Militant unions have long lost public favor. The government spent 643.5 billion won in 2009 to help drivers trade in old cars for new ones through tax incentives amid the global financial crisis in 2009. Hyundai Motor recorded a record net profit of 3 trillion won and Kia Motors 1.45 trillion won that year thanks to the measure. The companies, however, squandered the profits in rewarding employees with fat bonuses in cash and shares. Unions can decide what to do at their workplaces, but they better not seek help from society the next time they are having trouble.
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