Strike-free Summer Lifts Small & Mid-size Suppliers

Small and mid-size suppliers appear to have benefited from carmakers going strike-free over the summer for the first time in 24 years.

Smaller companies saved hundreds of thousands of dollars in fixed costs this summer thanks to continued factory operations stemming from the lack of strikes at contractors. They also benefited from less stress and a rise in worker morale.

The Dong-A Ilbo interviewed the CEOs of smaller suppliers Wednesday. One said, “If unions at carmakers go on strike, we have to suspend factory operations but still shoulder fixed costs.”

“Every year in July and August, losses from fixed costs reach 200 million (168,839 U.S. dollars) to 300 million won (253,259 dollars) due to strikes. But business is quite favorable this year as we didn’t have to shoulder these costs.”

Dong-A’s analysis of the Bank of Korea’s corporate earnings reports shows that small and mid-size subcontractors for carmakers had to shoulder 1.1 trillion won (979.6 million dollars) in fixed costs for a month last year when business operations were suspended. Fixed costs include write-offs, insurance premiums, interest and half of labor expenses.

A one-month strike at a finished car manufacturer means smaller suppliers have to suffer fixed cost losses.

The suspension of factory operations itself stresses subcontractors. Shin Jeong-ki, CEO of SKC, a secondary company supplying gold plates to Hyundai Motor and GM Daewoo, said, “When a strike lingers on, management goes ahead with wage cuts and warns workers not to waste resources. This sends worker morale to a new low. It`s better for carmakers to prevent strikes rather than for us to raise the prices of our products.”

nuk@donga.com tesomiom@donga.com