Innovation is key

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Innovation is key

The Korean car industry has gone backwards for the first time since it began producing its own automobiles five decades ago. Global sales of flagship companies like Hyundai Motor and Kia Motors have been declining for three consecutive years. Their sales in China were even halved after Beijing took retaliatory steps in protest of Seoul’s decision to deploy the Terminal High Altitude Area Defense missile shield. Despite GM Korea’s repeated denials, rumors persist that it prepares to leave Korea. When Seoul and Washington kick off a renegotiation of their free trade agreement, which took effect in 2012, the situation will get even worse.

What concerns us most is the declining competitiveness of Korean automobiles. Since the 1997-98 foreign exchange crisis, the Korean car industry achieved remarkable growth thanks to its quality- and price-competitive sedans. But the industry failed to churn out diverse models targeting the global stage.

The Korean car industry is also lagging behind its rivals in the competitiveness of future automobiles, including hybrid and electric cars, because the share of research and development in the total revenue of Hyundai and Kia is the lowest among their competitors. We are concerned how they would really cope with their uncertain future even after China looks to end sales of gasoline and diesel cars.

Nevertheless, the two car manufacturers’ hard-line labor unions are sticking to their deep-rooted belligerency to keep their high-cost production structure intact.

For instance, Hyundai Motor’s union staged its annual strike to demand another wage hike, while Kia Motors’ union is engaged in a multi-billion dollar court battle with its employer over the scope of “ordinary wages.”

While Korean carmakers’ productivity is among the lowest in the world, workers’ average wages exceed those of Toyota and Volkswagen. Their excessive demands contributed to the noticeable reduction of car production to 4.23 million last year from 4.65 million in 2011.

If such an imbalance continues, our car industry cannot survive. The labor and management must first find a path toward cohabitation. SsangYong Motor, the Korean unit of Indian auto giant Mahindra & Mahindra, climbed up to the No. 3 spot in our domestic market in September for the first time ever. Unions and employers of their domestic competitors must learn a lesson from it.

JoongAng Ilbo, Oct. 12, Page 30
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