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(Yonhap Interview) High wages, low productivity challenging S. Korean carmakers

All News 16:46 April 29, 2019

By Choi Kyong-ae

SEOUL, April 29 (Yonhap) -- High wages and low productivity are posing considerable challenges for South Korean carmakers already struggling with slowing global market sales, the chief of a local auto industry lobby said in a recent interview.

"Korean carmakers have generally provided good quality vehicles at competitive prices compared to rivals such as Toyota and Volkswagen. But they are being pegged into a high-cost and low-efficiency frame where wages do not reflect actual productivity," Jeong Marn-ki, president and CEO of the Korea Automobile Manufacturers Association (KAMA), told Yonhap News Agency on Friday.

In this photo taken on April 26, 2019, KAMA President and CEO Jeong Marn-ki talks about challenges facing South Korean carmakers during an interview with Yonhap News Agency at the automobile industry lobby's office in Seocho, southern Seoul. (Yonhap)

To support his claim, he gave a comparison of the salary levels between Korean carmakers and their Japanese and German counterparts.

The country's five carmakers paid an average of 91 million won (US$78,000) per employee in 2017, higher than 84 million won offered by Toyota Motor Corp. and 83 million won by Volkswagen AG, Jeong said.

He cited KAMA's analysis of the carmakers' annual financial statements.

"The higher pay doesn't make a lot of sense given Korea's per capita gross domestic product of around $30,000 is actually lower than the corresponding $40,000-$50,000 figures for the other two countries."

The five automobile manufacturers -- Hyundai Motor Co., Kia Motors Corp., GM Korea Co., Renault Samsung Motors Corp. and SsangYong Motor Co. -- spent 12 percent of their overall sales to pay salaries in 2017. This is slightly higher than 10 percent at Volkswagen and six percent at Toyota, the analysis showed.

Hyundai and Kia are flagships of Hyundai Motor Group, the world's fifth-largest carmaker in terms of sales, and the country's two leading automakers.

Executives at GM Korea, Renault Samsung and SsangYong Motor, local units of foreign carmaker's General Motors Co., Renault S.A. and Mahindra & Mahindra Ltd., respectively, said their plants are no longer competitive in the face of rising salaries and difficult labor management relations. GM has actually shuttered a car assembly line in the face of a drop in sales.

The KAMA CEO argued that the companies barely kept their production lines open even though subcontractors sold products at competitive prices and provided on-time delivery of parts, making it easier to control costs.

"If the shortened 52-hour workweek and higher minimum wages are applied to subcontractors as well in the coming years, executives at carmakers will be hard pressed to find legitimate reasons to maintain operations in Korea," he said.

The Moon Jae-in government introduced the shortened workweek for companies that hire 300 employees or more in July of last year.

The government, moreover, raised the minimum wage by 16 percent to 7,530 won in January last year, the biggest hike in nearly two decades. This year, the minimum wage has risen 11 percent to 8,350 won per hour.

Jeong, meanwhile, called on the government to not be in a hurry to raise minimum wages going forward. The executive then argued that concerted efforts need to be made to give greater flexibility to the country's labor market.

"Lack of flexibility really matters. For instance, Hyundai and Kia are required to consult with their unions to decide on which plant a new model will be produced in and the allocation of models between assembly lines. Without approval from the union, the production won't take place," Jeong said.

"This kind of arrangement makes it hard for carmakers to respond rapidly to any changes at the right time."

Hyundai and Kia, South Korea's two biggest carmakers, sold a total of 1,670,290 vehicles in the January-March quarter, down 1.5 percent from 1,694,884 units a year earlier.

(Yonhap Interview) High wages, low productivity challenging S. Korean carmakers - 2


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