Hyundai Motors Should Learn from Toyota

Hyundai Motor Company, Korea’s leading automaker, is suffering from strikes.

The vicious cycle of the labor union not conceding in wage and collective bargaining negotiations and the management aggravating the situation by sitting at the table without principles has continued for more than 10 years. The labor-management dispute is considered as the biggest dilemma of the company.

Then what should be done to get out of this vicious cycle?

Experts argue that the group should learn from the experience of Toyota, which is striving to be the number one automaker in the world based upon solid cooperation between labor and the management, and that of General Motors (GM), which fell to a “junk bond company” from the status of “the unparalleled top automaker in the world.”

Learning Cooperation from Confrontation: Toyota and BMW-

The labor and the management of Toyota agreed upon a wage freeze for four years from 2002 to 2005. What is extraordinary is that the freeze was demanded by labor.

The union leadership persuaded the workers, saying, “Competition in the auto industry is expected to intensify. Therefore, in order for the company to invest for the future, labor should lessen the company’s burden of labor costs.”

In return, management promised employment security and was able to invest 600 billion Yen (about six trillion won) in developing future car models. In other words, the labor union members secured their employment by helping the company reduce labor costs when the company was in good health.

Such cooperative relations between labor and management started from “self-reflection” on the long-time strike in 1950. At that time, labor went on a 50-day strike in response to the pressure of restructuring from management. The outcome was the resignation of 1,500 or 25 percent of the workers and management as a whole. After experiencing this, Toyota has not gone through a single strike for the last 55 years.

BMW, a German automaker, also overcame difficulties by wise cooperation between labor and management. BMW was the only company that did not lay off workers in 1993 when most companies went through restructuring due to a downturn in the German auto industry. Instead, BMW introduced “elastic working hours.”

It is a system under which workers are paid extra money when they work more than the legally permitted working hours and can take a rest for as many hours as they overworked when there is not much work. The system allowed more free time for workers and a cost reduction for the company.

The Vicious Circle of Labor-Management Confrontation: GM and Hyundai Motors-

GM’s experience is a prime example of a labor-management dispute leading to a crisis. Labor’s excessive demands and “misjudgment” of management are pointed out as the cause of the crisis.

According to the labor-management agreement of GM, the operation rate of plants should be 80 percent or above, regardless of the financial situation of the company.

Even when a worker is laid off or suspended because of a closure of plants, he or she is paid 75 percent of his or her wage, and retirees are paid healthcare benefits and pensions.

Though there are only 190,000 GM workers, a whopping 1.1 million people are receiving benefits. Partially as a result of this, GM bonds became “junk bonds” in May this year, and the company’s management has tried to fix it by having labor share a larger part of its healthcare costs. However, the company is still in difficulty.

Hyundai Motor Company is facing a similar situation in that its labor union is strong. However, some people point out that the management’s negotiation skill is not good enough.

Lee Hang-Ku, an auto industry expert of the Korea Institute for Industrial Economics and Trade, said, “Now, Hyundai Motor Company needs investment more than profit sharing. Management should guarantee that it will distribute profits a few years later, and labor needs to have long term insight instead of pursuing short term gains.”

Sung-Won Joo swon@donga.com