The ratio of labor costs to revenue at Hyundai Motor Co. exceeded 15 percent for the first time in history. This is because its sales are on the decrease while its labor costs are on the increase by labor strikes every year. The polarization of labor costs between Hyundai Motor and its smaller affiliate Kia Motors Corp. and other companies is also getting worse.
According to market research firm Korea CXO Institute on January 22, reaching an all-time high. The company’s labor cost ratio slightly dropped from 14.6 percent in 2014 to 14.3 percent in 2015 but it rebounded for the first time in a year again. This is largely due to its labor union, which used a strike as a weapon to increase wages regardless of the company’s falling profits.
Hyundai Motor struggled last year especially in the U.S. and Chinese markets but its labor union raised workers' basic monthly wages by 58,000 won (US$54), excluding variable pay. It also went on strike for five days to gain an additional gift certificate of 200,000 won (US$187) per person this year, making a sale loss of 400 billion won (US$374.6 million). Some market watchers say that it is just a matter of time until Hyundai Motor’s labor cost ratio exceeds 16 percent.
The wage polarization in the auto industry has become more serious. According to the data on business performance of 1,081 automakers with sales of more than 50 billion won (US$46.8 million) from the Korea CXO Institute, Hyundai-Kia Motors’ labor costs accounted for 41 percent of the total. The figure was almost equal to the combined ratio of 1,075 small and mid-size companies at 46.7 percent. Oh Il-sun, head at the Korea CXO Institute, said, “The trend of wage costs that is against the trend of sales will lead to a lower competitiveness and can accelerate the introduction of automated systems, resulting in adverse wind in employment.”