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Korea’s Auto Industry Gets Stuck Due to High Wages
Auto Problems
Korea’s Auto Industry Gets Stuck Due to High Wages
  • By Jung Min-hee
  • August 31, 2015, 02:30
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When Labor Minister Lee Ki-kwon recently met reporters, the high wages of Hyundai-Kia Motors came up in the conversation.

In regard to the government’s labor market reform, he said, “The automobile industry is the most important sector. The average annual salary of Hyundai-Kia Motors is between 94 million won [US$79,864] and 97 million won [US$82,413]. Compared to the gross national income per capita, the figure of Hyundai-Kia Motors is 3.3 times higher, while the figure of Toyota is 1.7 times higher.”

According to data from the Korea Automobile Manufacturers Association (KAMA) on Aug. 30, the average annual salary for five domestic automakers – Hyundai Motor, Kia Motors, GM Korea, Renault Samsung Motors, and Ssangyong Motor – reached 92.34 million won (US$78,454) as of last year.

The figure is slightly higher than the figure of Volkswagen in Germany at 64,783 euros (US$73,192 or 90.62 million won), said the association. Also, it is even higher than the figure of Toyota, which is estimated based on its business reports, at 8.38 million yen (US$69,400 or 83.51 million won). Considering the fact that Toyota doesn’t include incentives in its business reports unlike domestic car producers, however, the average yearly wage at Toyota will be higher, said industry officials.

Sales per worker at five domestic automakers stand at 747.06 million won (US$634,715), which is lower than the figure of Toyota with 160 million yen (US$1.33 million or 1.59 billion won), and the figure of Volkswagen with 612,700 euros (US$692,226 or 857.12 million won).

The average ratio of wages to sales at Korea’s five automakers is 12.4 percent as of last year, which is also higher than the figure of Volkswagen with 10.6 percent and the figure of Toyota with 7.8 percent as of 2012.

It means that the domestic car producers pay similar or even higher wages to employees, though they produce lower-value-added products than foreign automakers.

Labor costs of the domestic firms, including wages and other employee benefits, have gone up at an average annual growth rate of 6.6 percent from 2007 to 2014. In contrast, the figure of automakers in Germany, Japan, and France have gone down by 0.4 percent, 6.6 percent, and 4.1 percent, respectively, while the figure in the U.S. slightly grew by 0.1 percent.

The domestic auto industry shows high payroll costs but low productivity, according to the data. Taking a look at the hours per vehicle factor (HPV), a key indicator for personnel productivity analysis of a production plant, the figure of domestic firms is 26.4 hours as of last year, while the figures of Toyota and GM are 24.1 hours and 23.4 hours, respectively.

HPV refers to hours taken to produce a vehicle, and it is an indicator to evaluate the manufacturing competitiveness of a car producer, such as production facilities, management efficiency, and labor productivity. The lower the figure is, the higher the manufacturing competitiveness.

For Hyundai Motor, the HPV factor at its domestic plants as of the end of June last year, including the one in Ulsan, was 26.8 hours, which is higher than its overseas plants in the U.S. with 14.7 hours, China with 17.7 hours, the Czech Republic with 15.3 hours, India with 20.7 hours, and Turkey with 25 hours.

Regarding this, labor industry sources claim that it is hard to compare productivity by making a simple comparison since every plant has different rate of automation and car models to produce. For instance, the HPV factor of Hyundai Motor’s old plant in Ulsan is almost two times higher than that of its relatively new plant in Asan.

Nevertheless, industry experts say that it shows how low the productivity at Korea’s auto industry is. Kim Kyung-yoo, a researcher of the Korea Institute for Industrial Economics and Trade (KIET), said, “It is true that Hyundai Motor’s overseas plants have higher productivity since they were built after 2000, while its Ulsan plant was established in the 1970s. Considering the fact, however, the productivity of its domestic plants is low, as there is a big difference in the HPV factor between its domestic and overseas plants.”

Also, there is a general consensus in the industry that domestic plants have low flexibility in production. It says that it is hard for one production line to manufacture various models, struggling to produce flexibly.

An official from Hyundai-Kia Motors said, “It is not easy to deal with domestic plants, since we have to hold talks for a long time, unlike overseas plants.” However, he said that the productivity is improving after the executives of the union have recently changed, adding, “There is still bad practice from the past but there is a changing trend as well.”