Car Sales Fall Short of Expectations

July is a depressing month for the automobile industry.

Its sales record published on July 3 is lower than expected, and the labor world whose power was enhanced by the recent switch of Hyundai, Kia, and GM Daewoo to the industry-wide labor union system will start its “Summer Struggle,” labor collective negotiations for a pay increase.

Sales Fell Short of the Goal–

The automobile industry’s sales in June remained about the same as in May. Hyundai sold 222,926 units in June, 2.5 percent less than in May and 1.6 percent less than in the same month of last year.

GM Daewoo (126,616 units) sold more in June than in the same month of last year but less than in May of this year. Ssangyong (10,324 units) also sold less than in May.

But Kia sold 123,470 units in June, 5.8 percent more than in May, and Renault Samsung’s sales (14,456 cars) increased as its overseas sale of SM3, which started this year, is in good shape.

The automobile industry evaluates its business results in June as less than expected although each company made a good fight despite bad factors such as increased oil prices and a drop in exchange rates (increased won currency value).

Hyundai’s sale of 699,694 finished cars (half-finished cars excluded) in the first half of this year is only 34 percent of its goal (2,059,000 cars for the year) announced this January, and Kia’s sales were 46 percent of its goal for the year.

Concerned about “Summer Struggle” and Lack of Leadership –

The automobile industry is concerned about labor unions’ customary hard line struggle before the vacation season in late July and early August.

Although the switch to industrial unionism is scheduled after October, the main labor unions, empowered by the decision, may become more aggressive in this year’s negotiations for a pay increase. Hyundai’s labor union is now negotiating with management through partial strikes.

In the stock market on July 3, a slack in the stocks of automakers including Hyundai Motors, Hyundai Mobis, and Ssangyong reflected concerns about hard line labor unions.

Ahn Su-ung, analyst in Woori Investment & Securities, said, “The labor-management negotiations will go through confusion for the next two or three years due to this switch to industrial unionism. Bargaining will cost more, and the strike period will get longer.”

The weakened leadership of management is a factor in the crisis. Chung Mong-koo, chairman of Hyundai Motor Group, is under attack by the labor union for a slush fund scandal. The position of the president of GM Daewoo is not taken yet after Nick Reilly moved to GM Asia Pacific headquarters. There is a concern that GM Daewoo’s labor union will regain its hard line image as Reilly, who was pro-labor union, is replaced.

Changes in International Environments Darken Prospects in the Second Half –

Prospects in the second half are not bright. High oil prices will continue, and the prime cost will increase as the price of steel goes up.

In a forum for object economy trends in the second half held on June 30, the Korea Institute for Industrial Economics & Trade (KIET) forecast that the growth rate of domestic demand in the automobile industry will increase only by 4.6 percent. But export is expected to increase by 16.7 percent.

However, the forecast that export will be stabilized cannot be guaranteed with new emerging factors. GM and Renault-Nissan are discussing cooperation. If it is put into action, it will create a mega-business whose market share will be 25 percent with the annual production of 15 million units.

Im Chae-gu, researcher in Kyobo Securities, said, “If GM and Renault-Nissan’s cooperation comes true, Hyundai-Kia will have a new rival besides Toyota in overseas markets. Considering their influence in European and U.S. markets, it will become an obstacle to our enterprises’ localization strategy.”

Sung-Won Joo Hyo-Lim Son swon@donga.com aryssong@donga.com